Glossary

Sales Audit Right

Also known as: Percentage rent audit right, Books and records audit clause

A lease provision entitling the landlord to inspect and verify a retail tenant's books, records, and point-of-sale data to confirm the accuracy of reported gross sales underlying percentage rent calculations.

Sales audit rights typically specify the records the tenant must retain (often for a minimum of two to three years), the notice period and frequency limitations on landlord-initiated audits, and whether the audit may be performed by landlord's own staff or must use an independent accounting firm, sometimes on a contingency-fee basis tied to any underpayment discovered. The commercial teeth of the provision lie in the cost-allocation mechanic paired with it: if an audit reveals an understatement exceeding an agreed threshold (commonly 2% to 5% of reported sales), the tenant typically bears the full cost of the audit in addition to the shortfall and accrued interest, whereas a smaller or no discrepancy leaves audit costs with the landlord, which is the primary deterrent against both careless and deliberate underreporting.