The goal of this calculation is to come out of this step with is a single numeric value that represents the total overage for the current RP calculation period.
To explain how we apply a breakpoint table during the RP process, let us first remind ourselves what we have so far.
At this point of the calculation process (step 5), we count with a list of sales entries that were filtered in step 3, and which represents the sales entries for the calculation period of the RP, given the dates established in that same step.
For this example, we will assume that our calculation period is July and August, and that we have consolidated the sales entries of each month into a single amount per month (given that there might be more than one sales entry for a given month), giving us the following table:
|
Month |
Sales Volume |
|---|---|
|
July |
10,000 |
|
August |
7,000 |
This tells us that the tenant has had sales for $10,000 in July and $7,000 in August.
Next, we will assume that the breakpoint table configured at the lease level and valid for this period (given its effective date), is as follows:
|
Breakpoint Amount |
Overage Percentage |
|---|---|
|
2,000 |
10% |
|
4,000 |
8% |
|
4,000 |
6% |
|
8,000 |
4% |
With these two tables at hand, we can calculate the overage. We do this iteratively, starting by the first month of the calculation period, in our case July.
Given that this breakpoint method is non-cumulative, we calculate each month independently and add up each month’s overage at the end, to come up with the final overage amount.
Calculating July’s Overage
We saw July has a 10,000 sales volume, so when we apply our breakpoint table to this amount, it looks like this:
|
Breakpoint Amount (what is the breakpoint amount that was exceeded?) |
Excess (by how much was this breakpoint amount exceeded?) |
Percentage (what percentage of this excess am I charging?) |
Overage (result of excess column % percentage column) |
|
|---|---|---|---|---|
|
1 |
8,000 |
2000 |
4% |
80 |
|
2 |
6,000 |
2000 |
6% |
120 |
|
3 |
4,000 |
2000 |
8% |
160 |
|
4 |
2,000 |
2000 |
10% |
200 |
|
5 |
|
|
Total |
560 |
The breakpoint amounts are displayed in descending order because it’s easier to visualize the calculation.
The explanation of the table above is as follows: first, we saw that the sales volume amount for this month is 10,000. When we look at the breakpoint table, we see that the highest breakpoint amount that was exceeded is 8,000, by 2,000 (10,000 - 8,000).
We are told by the breakpoint table we have to charge 4% of this excess, so we do just that in row 1.
Then, the next breakpoint that was exceeded is 6,000, by exactly 4,000 (10,000 - 6,000). However, we do not apply the percentage over the 4,000, because if we did, we would be charging the 2,000 above the 8,000 twice.
So in reality, the excess of each breakpoint row is whatever is above the breakpoint amount of the current row, and below the breakpoint amount of the previous row (given how we have ordered our breakpoint amounts, in this case in descending order).
Therefore, in row 2, we only consider our excess to be 2,000.
After doing this subsequently for the following rows, and given that this is a non-cumulative calculation, we simply add up the overage column of each row and come up with a total for July, giving us 560.
Calculating August’s Overage
We saw August has an $7,000 sales volume, so when we apply our breakpoint table to this amount, it looks like this:
|
Breakpoint Amount (what is the breakpoint amount that was exceeded?) |
Excess (by how much was this breakpoint amount exceeded?) |
Percentage (what percentage of this excess am I charging?) |
Overage (result of excess column % percentage column) |
|
|---|---|---|---|---|
|
1 |
8,000 |
0 |
4% |
0 |
|
2 |
6,000 |
1000 |
6% |
60 |
|
3 |
4,000 |
2000 |
8% |
160 |
|
4 |
2,000 |
2000 |
10% |
200 |
|
5 |
|
|
Total |
420 |
The explanation here is exactly as above, with the difference that we have not exceeded the 8,000 breakpoint, and therefore do not charge anything according to that row of the breakpoint table.
Every other row has been exceeded, and therefore we apply the percentage given over the excess amount, and again add up each overage to come up with a total for this month, in this case 420.
Final Overage Amount
Because this is a non-cumulative calculation, to come up with the final overage amount, all we do is sum up the total row of each of the tables. In this case 420 + 560, giving us a total overage of 980.
Each month’s value was calculated independently of every other month in the calculation, because of the breakpoint method, and therefore all we have to do to exit this step is add up each month.