Evening star., 1936-12-26
PERCENTAGE BASIS
FORLEASES URGED
Value Proved by Experience
of Depression Years,
Survey Asserts.


tail business activity already strongly
affecting the demand for the best
business locations, what are the ad-
vantages or the disadvantages Of the
percentage lease?
Frank S. Slosson OF Chicago, in q
detailed analysis prepared for the
brokers' division Of the National Asso-
ciation of Real Estate Boards, holds
that experience Of the depression years
has proved the value Of the percentage
lease more clearly than ever before.
He says that with the lowest point in
volume merchandising reached prob
ably in 1882, and hence with rentals
due on percentage leases reaching
their low, ut was discovered that, at
mo economic hardship to the tenant,
the landlord had in the percentage
type of leasing contract the only hedge
against imitation and the only hedge
against improved merchandising con-
ditions."
With approximately 80 per cent Of
the cities of the country showing CEN
tral business property rents as higher
than last year. according to pre-
liminary tabulation Of reports coming
to the National Association of Real
Estate Boards In its semi-annual sur
very OF the real estate market, the
question of lease types for long-term
commitments becomes Of very active
interest to all business. Slosson, for
two years chairman of the property
management division of the National
Association of Real Estate Boards and
past president of the National Asso-
citation Of Building Owners and Man
ayers, puts the problem this way:
ION q straight lease the owner OF
commercial property hesitates in
granting too long a term because
changed conditions may easily change
. long-term lease from an asset to
liability.
Short Lease Unsatisfactory.
The tenant, on the other hand,
cannot afford too short q lease period.
The first year, and sometimes the first
two or three years, while his business
is in the process Of being built, are
operated at q net loss to the mer-
chandiser. In addition, advertising
costs, moving costs, cost of new fix
ture, must be recognized and amor
tized, to the extent that in ordinary
merchandising lines five years is prob
ably the shortest justified lease which
q merchant can afford to make. The
obvious answer to both landlord and
tenant, because of their risk stand
points and requirements, is the per-
centage lease at thoroughly justified
annual minimum guarantee and a
thoroughly scientifically applied per-
centage on annual sales.
1T is the writer's opinion that the
only justified short-term lease Is a
so-called stop-loSs lease on the part
Of the owner to type of merchan-
diser specializing in short-period op-
erations with price appeal volume
sales. In this type Of lease the owner
should give considerable thought to
his necessity for q recapture or can
collation. cause so that he may be free
to negotiate a permanent lease with
satisfactory permanent merchan-
diser. It Is my impression that in no
minimum guarantee leases or short
period stop-loss leases a recapture
clause Is imperative in every lease.
Acceleration Clause Urged.
Among other lessons renting
brokers have learned during the de-
preston in connection with the value
Of the percentage lease Is the fact
that many, If not the greater propor-
ton, of such leases should have an
acceleration Of the minimum guaran-
tee or an acceleration of the percen-
tage to take care especially Of i'm
proved volume because Of improved
conditions or in connection with
highly successful developed. business.
"If, because Of demoralized rental
values, Q low minimum guarantee Is
finally agreed upon by the landlord
and tenant, there should obviously be
an acceleration either OF the minimum
guarantee or Of the interest rate. It
has been my experience, however. that
. proper minimum guarantee reflect
ing full present-day values at the time
Of the contamination Of the lease may
3ustifiably remain stationary with an
acoeleration Of the percentage rate"