To help survive the pandemic, retail landlords and tenants went back to the basics when it came to leases. They resurrected an old practice of basing their rent on a percentage of gross sales, a method that had lost favor in the past two decades. Now that rent structure may have more permanence.

The International Council of Shopping Centers trade group is nearing completion on a major revision of the organization’s model lease that serves as a guide for the retail real estate industry. A task force of 24 industry professionals scoured the guide that hasn’t been changed in at least a dozen years, said Ken Lamy, principal of consulting firm The Lamy Group and a panelist discussing changes this week at ICSC’s RECon Digital virtual meeting.

The pandemic wreaked havoc on some store operators as shoppers stayed home and in-store revenue plummeted a year ago. Changes in online shopping over the past decade weren't reflected well in the model lease, something that became a problem when government restrictions closed stores and limited the number of customers so retailers struggled to make payments.

Nancy Davids, another task force member and director at Boston law firm Goulston & Storrs, noted during the session that the task force was a balanced committee that included perspectives from both landlords and tenants. Publication of ICSC's new lease model is expected in about two months.

The pandemic inspired changes in the new model lease to help landlords and tenants establish a path forward if another pandemic arises that prompts businesses to close again.

The rental section was one of the top focal points for the task force. The lease already had language regarding percentage of sales but now has been “refreshed to reflect today and the 21st century,” Lamy said after the session. Such a rent structure has been around since the 1920s as a hedge against inflation, he added.

In these traditional leases, the tenant typically pays a base rent and the percentage kicks in when a gross sales threshold, or breakpoint, is met.

The breakpoint could be a number that the landlord and tenant agree to set or the breakpoint for gross sales is the total base rent divided by an agreed-upon percentage. The tenant begins paying the percentage of sales above the number that covers the minimum annual rent. Under this structure, tenants have to report their sales to their landlords, who also could audit a tenant’s financial reports under the lease terms.

But the structure started to slip away once it became more challenging to define what could be considered in gross sales — internet sales, for example. Landlords sought to simplify the lease structure with a fixed rent, which eliminated the ability to see how a tenant was doing with sales.

That changed with the pandemic when tenants sought rent relief and other ways to survive while landlords tried to stay afloat themselves. That resulted in a shift to rent becoming a percentage of sales.

“I’ve had to dig up some of that old language,” Oscar Rivera, chairman of the real estate property practice group of Coral Gables, Florida, law firm Siegfried Rivera, said during the ICSC sessions.

The structure gave tenants flexibility as sales improved once the economy improved. For landlords, it ensured they had a better view into the tenant’s financial health.

Lamy said it strengthens the partnership between the landlord and tenant by sharing the risk.

With the economic recovery, the rent structure also allows the landlord to share in the gains. That’s the bet shopping mall owner Simon Property made last year with some tenant lease renewals. In its earnings call on May 10, David Simon, the company’s chairman and CEO, said base rents were lowered in exchange for lower breakpoints, which allows Simon Property to take part of improved sales as the economy recovers.

“We think that will end up being a very smart move on our behalf,” Simon said.

Another big factor that cropped up during the pandemic is that lenders now want more transparency on tenant performance, according to the panel. Otherwise, they won’t fund deals.

Not all tenants, however, are keen on the idea of renewing the percentage of sales rent.

Maria Toliopoules, vice president of retail strategy for cosmetic retailer Ulta Beauty, said during an ICSC session that trying to switch to a percentage of sales is “just antiquated” and isn’t as useful as it was 10 to 15 years ago.

Zach Minteer, vice president of real estate for discount retailer Five Below who was on the same panel with Toliopoules, chose not to comment.

Another panelist, Laurie Mahowald, Target’s vice president for real estate, said a lease should be less about rent and more about operations to ensure a better partnership between the tenant and landlord.