Question

You are considering leasing one of two store sites of equal size. The first site features a percentage lease of 4% of sales per month. The second site features a triple net lease with these monthly terms: rent is 3% of sales, insurance is $175, maintenance is $50, utilities total $345, and property tax is $165. Your business plan estimates your monthly sales to average $85,000. Which lease is better for you financially?

Answer 1

The amount due for the first term of payment is the product of the total sales and the percentage.

(1)      Amount due = ($85,000)(0.04) = $3,400

The total amount due for the second term of payment is the product of the total sales and the percentages together with all the fees specified in the item (insurance, maintenance, and utilities).

(2)      Amount due = ($85,000)(0.03) + $175 + $50 + $345 = $3,120

If we are to compare the two amounts, using the second term of payment, lesser amount will be paid. Thus, the answer to this item is the second choice.