For which type of properties are percentage leases commonly used?

Percentage leases are particularly prevalent in retail properties such as shopping centers and malls because these arrangements align the interests of the landlord and the tenant effectively. In a percentage lease, the tenant pays a base rent plus a percentage of their sales revenue, which incentivizes the landlord to support the tenant's business success. This is especially beneficial in retail environments where sales can fluctuate significantly based on seasonal trends, foot traffic, and economic conditions.

Landlords in shopping centers and malls are also motivated to maintain a diverse mix of tenants, as the overall success of one tenant can enhance the performance of others in the vicinity. Additionally, percentage leases help landlords share in the success of a tenant's business, thus creating a partnership-like dynamic. This structure can drive more substantial income for the landlord if the tenant thrives, making it a suitable leasing strategy in the retail sector.