The listing says the shop earns ₹3 lakh a month. The lease says the tenant must pay ₹2.5 lakh.
The gap is not a typo. It is a revenue-share lease. And it changes what you should pay for the property.
The short answer
In a revenue-share lease, the tenant pays a share of its sales instead of, or on top of, a fixed rent. The common Indian retail form is a minimum guarantee (MG): the tenant pays the higher of a fixed monthly amount or an agreed percentage of its sales. Only the MG is contracted. The rest depends on how well the store trades. So when you value a pre-leased property on a revenue-share lease, price it on the MG first. Treat anything above the MG as a bonus, not as rent.
Why it matters to your money
A fixed-rent lease tells you what you will receive. A revenue-share lease only tells you the floor.
- Fact: This structure is used by large retail brands in India. One widely reported Mumbai mall lease was described as 9.5% of sales or a fixed minimum rent per sq ft on carpet area, whichever is higher (Retail4Growth, based on unnamed sources).
- Fact: A JLL view reported by IIFL says minimum guarantees are usually above the revenue share in the first couple of years, and the revenue share tends to become a factor only after anything from 3 months to 3 years of trading.
Put simply: in a weak year, you get the MG. In a strong year, you may get more. But the seller will usually quote you the strong year.
Three things that get sold as "rent"
1. MG plus revenue share
The tenant pays the higher of the two. The MG is your contracted income. This is the most workable form for an investor, as long as you price it on the MG.
2. Pure revenue share, no MG
The tenant pays only a percentage of sales. There is no floor. If sales fall, your income falls. If the store shuts, your income stops. This is closer to being a partner in the business than a landlord.
3. Business revenue quoted as income
Sometimes a hotel, banquet or school is offered with its turnover in the headline. That is the business's revenue, not rent paid to an owner. It is not a pre-leased property at all until someone signs a lease to pay rent.
VRX observation: When VRX Capital built its investor inventory list, we kept out listings where a revenue share was being shown as fixed rent. We compute every yield from price and contracted rent ourselves, rather than repeating a quoted percentage.
Looking at a property where the rent depends on the tenant's sales? Talk to VRX Capital before you agree a price. Call / WhatsApp: +91 9315368515
How VRX looks at it
Yield is not the investment thesis. We look at tenant, lease, cash flow, asset, location, price and exit together. A revenue-share lease mainly changes the cash-flow and price parts:
- Cash flow: Count only the MG as certain. Look at the revenue-share history separately, and ask how many months the tenant actually paid above the MG.
- Price: Work out the yield on the MG alone. If the price only makes sense on last year's best total, you are paying today for sales that may not repeat.
- Tenant: With a revenue share, the store's performance is your performance. A strong brand in a weak location can still pay only the MG for years.
- Exit: The next buyer will ask the same questions. Many buyers value only what is guaranteed.
Illustrative example
Illustrative example. Not a real property or tenant.
A retail unit is offered at ₹6.40 crore. The lease says the tenant pays the higher of ₹2,50,000 a month or 8% of that month's sales.
| Item | Amount |
|---|---|
| Month with sales of ₹40 lakh | 8% = ₹3,20,000, above the MG, so the tenant pays ₹3,20,000 |
| Month with sales of ₹25 lakh | 8% = ₹2,00,000, below the MG, so the tenant pays ₹2,50,000 |
| Total received last year (as quoted by the seller) | ₹36,00,000, which is 5.63% on ₹6.40 crore |
| Guaranteed income (MG × 12) | ₹30,00,000, which is 4.69% on ₹6.40 crore |
| Price that gives 5.63% on the MG alone | About ₹5.33 crore |
The difference is about ₹1.07 crore. That is how much of the asking price rests on sales the lease does not promise.
Common mistakes we see
- Taking the best year's total as "rent".
- Not asking what counts as "sales". Is GST excluded? Discounts? Returns? Online orders?
- Assuming the MG escalates. Check the lease. Sometimes only the percentage is fixed.
- Missing a clause that lowers or removes the MG after a few years.
- No right to see the tenant's sales statements, so you cannot check what you are paid.
- Assuming a lender will value the revenue share. Ask your lender which part of the income it will count.
Revenue-share lease checklist
- Is there an MG? What is the exact monthly amount?
- Does the MG escalate, and when?
- What percentage of sales applies, and how is "sales" defined?
- Is the true-up monthly, quarterly or yearly?
- Does the landlord get sales statements, and a right to audit them?
- Does the MG reduce or fall away at any point?
- What is the lock-in, and does it cover the MG?
- Last 12 to 24 months: MG paid vs revenue share paid, month by month, backed by bank credits.
Two related reads: why an assured return is not rent, and why a round-number yield should make you ask for the rent first. Also check who actually signed the lease.
FAQ
What is a revenue-share lease?
A lease where the tenant pays rent linked to its sales. Usually it is the higher of a fixed minimum guarantee or a set percentage of sales.
What is a minimum guarantee in a commercial lease?
It is the fixed amount the tenant must pay each month, whatever its sales. For an investor, it is the part of the income the lease actually promises.
Is a revenue-share property a pre-leased property?
It is tenanted, but only the MG behaves like fixed rent. With no MG, the income depends fully on the tenant's business.
How should I calculate yield on a revenue-share lease?
Calculate it on the MG first: MG × 12 ÷ price. Then look at the revenue-share history separately as possible upside.
Can the minimum guarantee change?
Only as the lease allows. Some leases escalate it. Some reduce or remove it after a set period. Read the clause, not the summary.
This is general information, not legal or financial advice. Please have the lease reviewed by a qualified professional before you buy.
Talk to VRX Capital
If you have a property where the rent depends on the tenant's sales, we can help you work out what is contracted and what is not. See For Investors or contact us.
Call / WhatsApp: +91 9315368515
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