Final answer:
The break-even point for a percentage lease is calculated by dividing the annual base rent by the percentage rate established in the lease agreement, which represents the level of sales where additional rent based on the percentage starts to be paid.
Step-by-step explanation:
The calculation of the break-even point for a percentage lease involves understanding the fixed rent or base rent, plus the percentage of sales that tenants pay to the landlord. The break-even point is reached when the total revenue equals the total costs, including both fixed and variable costs.
In the context of a percentage lease, tenants pay a base rent, plus a percentage of their gross sales over a certain amount. To calculate the break-even point in sales under a percentage lease, you would divide the annual base rent by the percentage rate established in the lease agreement. Once the business's gross sales exceed this break-even point, the tenant begin paying additional rent based on the percentage stated in the lease applied to the sales above the break-even level.