📖 Commercial lease glossary
Radius Restriction (Radius Clause)
A radius restriction — also called a radius clause — is a tenant covenant not to own, operate, or have a financial interest in a competing business within a stated geographic distance of the leased premises (or of the shopping center) during the lease term. Landlords use it to stop a tenant from cannibalizing sales at the leased location, which is why the clause almost always travels with percentage rent. It runs in the opposite direction from an exclusive-use grant: exclusivity binds the landlord against leasing to a competitor; a radius restriction binds the tenant against competing with itself nearby.
How a radius restriction works
The clause is an anti-cannibalization device, not a general non-compete. When rent includes a percentage of the tenant’s gross sales at the premises, a second store a mile away can pull those sales — and the landlord’s overage — out of the center without the tenant ever missing a minimum-rent payment. The radius clause tries to keep that second store outside the catchment. Practical Law and retail-leasing practice treat the provision as typical in shopping-center and restaurant leases that carry percentage rent; without a percentage-rent stream, the landlord’s justification is thinner and tenants often argue for deletion.
Four drafting choices decide the real circle. First, the measurement point: landlord forms measure from the outer boundary of the shopping center, which adds the whole site to the radius and can swallow an extra half-mile of street frontage; tenant forms measure from the outer walls of the premises, or replace the circle with a street-and-neighborhood exhibit so a river, highway, or one-way grid does not over-include. Second, the distance: dense urban projects commonly land at a half-mile to one mile, suburban centers at one to two miles, destination or anchor tenants up to about three. Distances of five miles and beyond need a market story; a public New York Attorney General review of outlet-center leases found a sixty-mile radius around Woodbury Common covering more than eleven thousand square miles and concluded it was likely broader than any legitimate catchment, which is the outer bound of what “reasonable” looks like in practice.
Third, who is bound. A clause that names only the tenant entity is easy to walk around: the parent forms a new SPE and opens under a sister banner. Landlord drafts therefore reach affiliates, parents, subsidiaries, and sometimes officers and equity holders. Tenants push the other way — wholly owned affiliates that operate the same concept, not franchisees the tenant does not control, not licensed brand uses, and never personal covenants on individuals. Fourth, what counts as competing: “any similar business” is litigation; a sales-mix test (more than a stated share of the new location’s gross sales in the restricted product categories, keyed to the permitted-use clause) is the version that can actually be applied at opening.
Duration should match the term. Post-term tail restrictions of one to three years show up on landlord forms and are the first item tenants strike, because an overbroad restraint of trade is the enforceability risk. Existing stores inside the circle on the commencement date should be grandfathered so a renewal of an already-open location is not a breach. Acquisitions of operating businesses that happen to include a location inside the radius, online and direct-to-consumer sales into the trade area, and a new concept that does not cannibalize the premises’ sales mix are the other standard carve-outs. A well-drafted tenant form also lets the restriction shrink or die if a named anchor goes dark or center occupancy falls below a co-tenancy threshold — there is no percentage-rent stream left to protect if the project has stopped drawing the traffic the radius was meant to capture.
Worked example: a 1.5-mile restaurant radius and the sales-inclusion remedy
A 3,200 SF casual restaurant in a suburban power center pays $48 per rentable square foot — $153,600 a year in minimum rent — plus six percent of gross sales above a natural breakpoint of $2,560,000. The lease bars the tenant and any affiliate from operating a “competing restaurant” within 1.5 miles of the shopping-center boundary for the full ten-year term. In year four the premises is doing $3.4 million in sales, so percentage rent is about $50,400. The tenant’s parent opens a second location 1.2 miles away, measured from the premises wall but 0.9 miles from the center’s outer lot line — inside the circle either way.
If the new store pulls $800,000 of annual sales that would otherwise have rung at the premises, percentage rent at the leased location falls by $48,000. The characteristic landlord remedy does not require proving that diversion. It includes the competing location’s gross sales in the premises’ Gross Sales for percentage-rent purposes, with audit rights over the other store’s books. On $3.4 million remaining at the premises plus $2.1 million at the new store, percentage rent jumps to about $176,400 — a $126,000 swing versus the diverted-sales world, and a $126,000 annual cost of opening inside the radius. A deemed-sales variant that treats unreported competing-store sales as 150 percent of premises sales is harsher still, which is why tenants fight for actual verified figures or, better, injunctive relief only.
Now bend the drafting. Measure from the premises instead of the center boundary and the new store at 1.2 miles may sit outside a 1.0-mile urban-style circle. Carve out “any restaurant concept deriving less than 25 percent of sales from the same menu categories as the premises” and a breakfast-and-bakery sister brand may not be competing at all. Limit the bound parties to the tenant SPE and the restriction does not touch the parent’s new store. The checkbox fact “radius restriction: 1.5 miles” hides all three outcomes, which is why the abstract has to carry measurement point, competing-business test, affiliate coverage, and the remedy — not just the mileage.
Negotiating asks and abstraction traps
Asks that move money, in rough order: measurement from the premises (or a street exhibit) rather than the center perimeter; a distance keyed to the actual trade area, not a five-mile default; a sales-mix definition of competing business tied to the permitted-use clause; grandfathering of existing locations and a relocation window for acquired stores; an express online-sales carve-out; affiliate coverage limited to wholly owned operators of the same concept, with franchisees and individuals out; duration coextensive with the term, no tail; and a remedy limited to injunctive relief or, if percentage-rent inclusion is unavoidable, actual verified sales with no deemed-sales multiplier and no automatic minimum-rent bump. On the tenant’s own side of the ledger, a reverse radius — recorded as a covenant running with the land — can bar the landlord and its affiliates from leasing nearby property for a competing use, which is a different instrument from the exclusive-use grant inside the center.
For the abstract, the field set is: existence; mileage or described area; measurement point (premises wall, center boundary, or exhibit); competing-business definition and any sales-mix threshold; parties bound (tenant, affiliates, parents, franchisees, individuals); duration and any post-term tail; carve-outs (existing stores, acquisitions, online, new concepts, occupancy/anchor drop); the remedy menu (sales inclusion, deemed-sales multiplier, liquidated damages, injunction, default/termination, cancellation of exclusives or options); audit rights over the other location; and whether a reverse radius or exclusive-use grant sits in the same article. The traps that follow from missing those fields are predictable: treating exclusivity and the radius as one clause; recording “1.5 miles” without the center-versus-premises origin, so a site-selection decision is made against the wrong circle; assuming an SPE-only tenant is bound when the parent is not; and booking a kick-out or co-tenancy sales test against premises sales that a radius breach has already diverted, so the tenant looks like it failed a threshold the landlord’s own remedy inflated or deflated.
Frequently asked questions
Is a radius restriction the same as an exclusive use clause?
No — they run in opposite directions. An exclusive use clause restricts the landlord from leasing other space (usually inside the center, sometimes a defined area around it) to a competitor of the tenant. A radius restriction restricts the tenant from opening its own competing location within a stated distance of the premises. One binds the landlord’s future leasing; the other binds the tenant’s expansion. They often sit in the same use article and have to be abstracted as separate fields.
Why do landlords want a radius restriction if the tenant is already paying minimum rent?
Because the upside the landlord underwrote is percentage rent, and a nearby sister store can pull sales — and that overage — out of the center without the tenant ever missing a minimum-rent payment. The clause also protects center traffic that other tenants’ co-tenancy rights may depend on. Where the lease has no percentage rent, the anti-cannibalization story is weaker and tenants commonly argue the restriction should come out.
What happens if a tenant opens a store inside the restricted radius?
Whatever the remedy section says. The characteristic landlord remedy includes the competing location’s gross sales in the premises’ Gross Sales for percentage-rent purposes, sometimes with a deemed-sales multiplier if reports are not furnished, plus audit rights over the other store. Other menus add liquidated damages, an automatic minimum-rent increase, cancellation of exclusives or options, or a default that can terminate the lease. Injunctive relief to close or relocate the offending store is the version tenants prefer, because a cure that requires shutting a newly opened location is expensive either way.
Are very large radius restrictions enforceable?
They have to be reasonable in geography, duration, and the definition of competing business, or they risk being treated as an overbroad restraint of trade. Modest, term-limited radii keyed to a real catchment are routinely upheld; a public New York review of a sixty-mile outlet-center restriction found it likely broader than any legitimate business justification. The abstract should carry the actual mileage and measurement point so counsel can judge reasonableness — the page is not a substitute for that judgment.
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