Don't Miss Opportunity to Collect on Slotting Fees

Many people don’t know that retailers—namely drug stores, grocery stores, discount department stores, home improvement stores, music stores, and book stores—have special deals with manufacturers, vendors, or suppliers to promote certain products. And that might not mean much to you as a shopping center or mall owner—but it should, since it’s a missed opportunity to collect percentage rent on those fees. If you’ve overlooked this portion of a tenant’s income, don’t miss out when it comes time to renegotiate your lease, and make sure that you plug this loophole in leases with new tenants. Here’s what you need to know to get the most out of slotting and placement fees.

Understand Nature of Deal

Slotting or placement fees are fees paid by manufacturers, vendors, or suppliers to a tenant to have their products slotted or placed in prominent locations in the tenant’s store—for example on eye-level shelves, the end caps of aisles, or near cash registers. If you don’t know about these deals, you might think that’s just a choice that the tenant makes about how to display merchandise. But if any of your retail tenants are collecting “slotting” or “placement” fees from any manufacturers, vendors, or suppliers, chances are they’re not paying you percentage rent on those revenues, because your lease doesn’t explicitly require them to.

The fees typically take the form of a direct cash payment to the tenant or its corporate office or as a rebate or reduction on the price the tenant pays the manufacturer, vendor, or supplier of the products.

Loophole to Plug

You may not be getting percentage rent on those fees because the “gross sales” definition in many leases says that only sales generated in, at, on, or from the space are to be included in the tenant’s gross sales. This kind of language may allow a tenant to exclude slotting or placement fees from the revenue on which it calculates its percentage rent because slotting or placement fees aren’t merchandise sales.

Even if the lease has broader language saying that any revenue generated in, at, on, or from the space must be included in the tenant’s gross sales, a tenant might still try to exclude slotting or placement fees because the fees aren’t specifically listed in the gross sales definition. In that case, you could challenge the tenant for excluding those fees—and probably win if the dispute wound up in court. But that could involve a big investment of time and money on your part.

How to Cover Fees in Clause

You can easily avoid disputes with a tenant over whether slotting or placement fees are included in gross sales, while getting all of the percentage rent from slotting or placement fees that you’re entitled to. Add language to your lease that says that any slotting or placement fees or similar revenue and rebates or reductions the tenant gets for products displayed or sold in its space must be included in the tenant’s gross sales. Ask your attorney about adding the following language to your lease’s gross sales definition:

            Model Lease Language

(x) All slotting or placement fees, revenues, and rebates or expense reductions realized by Tenant with respect to any products displayed or sold within the Premises.