Natural Breakpoint: Example

The natural breakpoint method of calculating a charge to a tenant that is based on a base minimum rent and a negotiated natural breakpoint percentage of the tenant's reported sales. The base minimum rent is a monetary amount that is negotiated as a part of the lease with the invoice created typically on a monthly basis.

Breakpoint calculations (or billings) are always performed after the base minimum rent billing at a specified breakpoint billing frequency. The frequency value is stored at the lease unit charge level. The valid breakpoint billing frequency values for natural breakpoints are monthly, quarterly, semi annually, and annually.

The sales based rent amount owed is calculated based on the selected frequency and the sales amount reported for the period. The formula used is as follows: 

• Recoverable amount = (Sales Reported * Natural breakpoint %) - Total base rent

If the recoverable amount is positive, the billing information with the calculated amount is created using the charge from the Billing Lines page.

Year-End Breakpoint Reconciliation

At the end of the year and as part of audit, an annual total sales amount might be reported. This amount acts as a a true up to the individual sales amounts reported during the year.Year-end breakpoint reconciliation is performed at the end of the calendar or fiscal year, the lease year, or the tenant fiscal year. During the annual breakpoint reconciliation, the total annual sales reported are multiplied by the natural breakpoint percentage and the percentage rent billed during this year is subtracted to determine whether money is owed.

Base Calculations

The following calculations used in the natural breakpoint method: 

Example

A restaurant is charged the 5% sales based rent on a quarterly basis. Base rent is 10,000.00 every month.

The table shows the charges that are paid by the restaurant in a year: 

Breakpoint Charges Table

Period	Reported Sales Amount per Period	Base Rent Amount per Period	Reconciled Amount	Comment
Q1	610,000.00	30,000.00	500.00	610,000 x 5% - 30,000.00 = 30,500
Q2	570,000.00	30,000.00	0.00	570,000 x 5% - 30,000 = -1,500 (does not exceed 30,000.00)
Q3	670,000.00	30,000.00	3,500.00	670,000 x 5% - 30,000.00 = 33,500
Q4	580,000.00	30,000.00	0.00	580,000 x 5% - 30,000 = -1,000 (does not exceed 30,000.00)

At the end of the fourth period (Q4), the following amounts are calculated during the year-end reconciliation process: 

• Recoverable amount = 610,000 + 570,000 + 670,000 + 580,000) x 5% - 120,000 = 1,500.00
• Sum total of reconciled amounts in the periods = 500 + 3,500 = 4,000.00
• Year-end reconciliation = 4,000 - 1,500 = 2,500.00