A radius restriction is a retail lease provision that bars a tenant from operating a competing store within a defined distance of the leased premises. It protects the landlord's percentage rent by preventing the tenant from opening a nearby location that would cannibalize sales at the leased store. Distances commonly run 1 to 10 miles depending on the trade area.
How Does a Radius Restriction Work?
A radius restriction works by drawing a circle around the leased premises and prohibiting the tenant from opening a similar business inside it for the lease term. Per the American Bar Association and Hollander PLLC, the clause protects percentage rent: a second store nearby would divert sales that otherwise count toward the landlord's rent share. The remedy for a breach is usually a sales attribution.
The distance is negotiated by trade area. Per Should I Sign This Lease and multiple practitioner guides, radius restrictions typically run 1 to 5 miles for neighborhood retail, 3 to 10 miles for destination retail, and can reach 10 to 25 miles for anchor tenants or high-end and outlet centers with large draws. The measurement point, whether the store's front door or the center's boundary, is itself negotiated.
Element | Typical drafting |
Restricted radius | 1 to 5 miles neighborhood, 3 to 10 miles destination, up to 25 miles for anchors |
Covered use | A store of the same brand, banner, or business type as the leased premises |
Remedy for breach | Landlord attributes the competing store's sales to the leased premises for percentage rent |
Term | Runs for the lease term, sometimes with a tail after expiration |
The most common remedy is not eviction but a sales attribution. Per The Legal Guide, if the tenant violates the radius, the landlord can add the competing store's revenue to the leased store's sales base when calculating percentage rent, so the tenant pays rent as if the diverted sales never left.
Why a Radius Restriction Matters
A radius restriction matters because it is a restraint of trade that courts will strike down if it is drawn too broadly. Per the American Bar Association and Siegfried Rivera, the clause is enforceable only when reasonable in geography, scope, and duration. A landlord who over-reaches on distance risks an unenforceable clause and no protection at all.
The clause changes underwriting for both parties. A landlord relying on percentage rent from a growing brand needs the radius to hold, because that brand's next store is the most likely threat to the sales it just underwrote. A tenant planning regional expansion must confirm the radius does not fence off its own growth map before signing.
The quotable point for an operator: a radius restriction is only as strong as its reasonableness, so a clause that reaches too far protects nothing.
Example
A specialty apparel tenant signs a lease at $50,000 base rent plus 6% of gross sales above a $1,000,000 natural breakpoint. The lease includes a 5-mile radius restriction. The tenant later opens a second store 2 miles away that pulls $400,000 in annual sales that would have occurred at the leased premises.
Step | Detail | Result |
Leased store sales | Reported | $1,300,000 |
Percentage rent as reported | 6% of ($1,300,000 minus $1,000,000) | $18,000 |
Diverted sales from new store | Within the 5-mile radius | $400,000 |
Attributed sales base | $1,300,000 plus $400,000 | $1,700,000 |
Percentage rent with attribution | 6% of ($1,700,000 minus $1,000,000) | $42,000 |
Additional rent owed | $42,000 minus $18,000 | $24,000 |
The attribution adds $400,000 to the sales base, lifting percentage rent from $18,000 to $42,000, a $24,000 increase for the year. The tenant pays as if the diverted sales stayed at the leased store, which is exactly the loss the radius restriction was written to prevent.
Variations and Edge Cases
A radius restriction is not a single template: its enforceability turns on how narrowly it is drawn and how the covered use is defined. A clause that survives in one state may fail in another, and a vague use definition can let a tenant open a differently branded store just outside the intended reach. The table below covers variants to confirm in diligence.
Variant | Treatment |
Sales attribution remedy | Competing store's revenue added to the leased store's percentage rent base |
Default and termination remedy | Breach treated as a lease default, allowing the landlord to terminate |
Carve-out for existing stores | Locations the tenant already operated at signing are exempted |
Different-banner carve-out | Restriction limited to the same brand, letting the tenant open a sister concept nearby |
Post-term tail | Restriction survives lease expiration for a stated period |
The common mistake is measuring the radius too generously. A distance that ignores the actual trade area, or a use definition broad enough to bar unrelated concepts, invites a court to void the clause as an unreasonable restraint of trade.
Radius Restriction vs Exclusive Use Clause
A radius restriction is often confused with an exclusive use clause, and both limit competition, but they point in opposite directions. A radius restriction stops the tenant from competing with itself by opening a nearby location that diverts its own sales. An exclusive use clause stops the landlord from leasing space in the same center to a competitor of the tenant.
The two protect different parties. A radius restriction protects the landlord's percentage rent from the tenant's own expansion. An exclusive use clause protects the tenant from rivals the landlord might bring in. A percentage rent lease with a strong brand often carries both: one to keep the tenant from splitting its sales, one to keep competitors out of the center.
Frequently Asked Questions
What is a typical radius restriction distance?A typical radius restriction runs 1 to 5 miles for neighborhood retail and 3 to 10 miles for destination retail, and can reach 10 to 25 miles for anchor tenants or high-end and outlet centers with large trade areas. The distance is negotiated to match the leased store's actual draw.
Are radius restrictions enforceable?Radius restrictions are a restraint of trade and are enforceable only when reasonable in geography, scope, and duration. Per the American Bar Association, a clause drawn too broadly may be struck down by a court, leaving the landlord with no protection, so the distance and covered use must be narrowly tailored.
Why do landlords want a radius restriction?Landlords want a radius restriction to protect percentage rent. A nearby second store operated by the same tenant would divert sales that count toward the landlord's rent share, so the clause bars competing locations and often lets the landlord attribute a violating store's sales back to the leased premises.
Related Terms
Percentage Rent
Exclusive Use Clause
Anchor Tenant
Neighborhood Shopping Center
Co-Tenancy Clause