How is contingent rent structured in a lease?

Contingent rent is designed to provide flexibility in the rental payments based on specific conditions related to the performance or usage of the leased asset. This means that the amount paid as rent can change depending on factors such as sales or revenue generated from the asset, or the total usage of the asset itself. This structure allows the lessor to share in the economic success that the lessee may achieve through the use of the leased asset, making it particularly advantageous in situations where income can significantly fluctuate.

In contrast, the other options describe more fixed or predetermined arrangements. A fixed percentage of the leased asset's value would not take into account usage or performance. A predetermined amount set at the lease initiation lacks flexibility and would not respond to changing economic conditions or success levels associated with the leased asset. Adjusting rents annually regardless of performance also does not align with the fundamental characteristic of contingent rent, which is closely tied to actual usage or performance metrics. Therefore, contingent rent's defining feature is its dependence on the conditions and success tied to the leased asset, which makes the chosen answer the most accurate.