The Playbook / Clause 18
Radius Restriction
Radius Clause; Non-Compete; Restricted Business;
A Radius Restriction (also called a "radius clause" or "non-compete") restricts the Tenant from operating a competing business within a defined geographic radius of the leased Premises. Common in retail and shopping-center leases, particularly for anchor or destination tenants whose business model depends on driving traffic to the Project. The clause protects Landlord’s investment in the Project’s tenant mix by preventing Tenant from cannibalizing its own sales at the leased location. The clause has three pressure points: geographic radius, scope of restricted business, and exceptions for existing or future locations.
What the landlord’s form is doing
Landlord wants:
- Broad geographic radius (one (1) to five (5) miles, depending on submarket density)
- Broad business scope (any "competitive" business, including ancillary product lines)
- Long duration (Lease Term plus one (1) to three (3) years post-Lease)
- No exceptions for existing locations, future acquisitions, online sales, or affiliated entities
- Liquidated damages or material default trigger
- Personal application to Tenant and its affiliates, officers, and equity holders
What tenants should watch for
Scope: geography, business, and duration
Geographic radius: narrow. Negotiate a narrow radius keyed to the actual catchment area. For dense urban projects: half-mile (0.5 mi) to one (1) mile. For suburban shopping centers: one (1) to two (2) miles. For destination or anchor tenants: up to three (3) miles. Resist five (5) mile or larger radii without specific market justification.
Measurement point of the radius. Landlord model clauses measure the radius from the perimeter of the Shopping Center, not from the Premises, which materially enlarges the restricted zone. Negotiate measurement from the Premises, and where street geography makes a circular radius over-inclusive, require the restricted area to be depicted on a lease exhibit by specific streets or neighborhoods. Landlord counsel also concede that radius restrictions serve no purpose in pure office leases; argue for deletion outside the retail context.
Restricted business: narrow definition. Define restricted business by reference to Tenant’s primary business as described in the Permitted Use clause, with specific product or service categories. Resist broad "competitive business" or "any business of the same type or nature" language. Use a sales-threshold test: a tenant is "competitive" only if more than [25%] of its gross sales at the new location are derived from the restricted product/service categories.
Duration: Term only, not post-Term. Restriction should expire on Lease expiration or earlier termination. Post-Term restrictions are unenforceable in many jurisdictions as overbroad restraints of trade. If Landlord insists, limit to twelve (12) months post-Term.
Who is bound and what is carved out
Existing locations: grandfather. Carve out all existing Tenant locations within the radius on the Lease Commencement Date. These shall not constitute a breach and shall not require divestiture.
Future locations: acquisitions. Carve out: (i) acquisitions of operating businesses that include locations within the radius; (ii) acquisitions of competitive businesses that operate at multiple locations, with relocation right of one or more locations outside the radius within an agreed period (e.g., twenty-four (24) months); (iii) acquisitions of operating businesses where the acquired locations represent less than [25%] of Tenant’s combined business.
Online sales: carve out. Online sales, e-commerce, and direct-to-consumer sales should be expressly carved out. Tenant should not be restricted from selling online to customers within the radius, even if those sales would otherwise constitute a "competitive business."
Affiliates and franchisees: scope. Limit application to Tenant and Tenant’s wholly owned affiliates. Carve out franchisees (over whom Tenant has limited control), joint ventures, and licensed brand uses. Tenant officers, employees, and equity holders should not be personally bound.
Scope: resist franchisor-level and personal application. Landlord forms extend the restriction beyond Tenant to every parent, subsidiary, affiliate, officer, director, shareholder, member, manager, partner, or joint venturer of Tenant, and, in franchise deals, to Tenant’s franchisor, the franchisor’s parents, subsidiaries, and affiliates, and their franchisees and licensees system-wide. Tenant cannot control its franchisor or fellow franchisees; strike franchisor-level application and any personal application to individuals.
Remedies and percentage rent
Remedies: limit to injunctive relief. Resist liquidated damages for breach. Remedy should be limited to injunctive relief; no damages, no default trigger, no termination right. Liquidated damages provisions are subject to penalty doctrine scrutiny and increase Tenant’s litigation exposure.
Percentage rent: the radius rationale. Radius clauses are principally an anti-cannibalization protection for Landlord’s percentage-rent stream; where the lease contains no percentage rent, the justification for a radius restriction is materially weaker; argue for deletion.
Remedies: anticipate percentage-rent inclusion and deemed-sales penalties. The characteristic landlord remedy is to include the gross sales of the offending location in Gross Sales under the Lease for percentage-rent purposes, with audit rights over the other store’s books and a deemed-sales provision treating the other location’s sales as one hundred fifty percent (150%) of the Premises’ sales if reports are not furnished. Landlord remedy menus also include termination, an increase in minimum rent, cancellation of Tenant’s special privileges (options, exclusives), and shortened cure periods. Resist deemed-sales multipliers and any remedy beyond injunctive relief; if percentage-rent inclusion is unavoidable, require actual, verified sales figures and confine audit rights.
Remedies: attack rent-escalation “damages” provisions as penalties. Where Landlord ties a radius breach to predetermined rent escalations (e.g., 110 percent of base rent and 125–175 percent percentage rent) framed as an estimate of Landlord’s damages, courts have refused enforcement when the figure operates as an unproven damages estimate rather than a true rent adjustment or a valid liquidated damages provision supported by a reasonable pre-breach estimate of actual loss. Landlord drafting guides themselves caution against “shotgun” clauses applying one figure to breaches of differing severity and against actual-damages-multiplier formulas, which some states hold unenforceable as a matter of law, each a ground of attack for Tenant.
Enforceability and strategy
Antitrust considerations. Radius restrictions are subject to the rule of reason under federal and state antitrust law. Overly broad scope, duration, or market application may render the restriction unenforceable. Tenant counsel should structure the restriction to fit comfortably within the rule-of-reason framework.
Reasonableness in litigation: discipline the scope. Courts enforcing radius clauses emphasize modest duration (coextensive with the Term) and narrow construction of the restricted business (e.g., “another store” read as another store under the same trade name, not any store). Restrictions defined by specific counties, without carve-outs, and running for five years have nonetheless been upheld as reasonable restraints where limited in time and place; resist “evolved from” business-plan formulations that sweep Tenant’s future formats and concepts into the restriction.
Adjustment: anchor tenant closure. Reserve right to terminate the Radius Restriction (or have it reduced) if any named anchor tenant or other significant project tenant closes, the Project occupancy drops below a defined threshold, or the Project ceases operating as a shopping center. Tie the adjustment to the Co-Tenancy clause.
Reverse radius: consider Tenant’s own protection. Tenant may seek its own radius protection precluding Landlord and Landlord’s affiliates from selling or leasing property within a stated radius of (or adjoining) the Premises for a competing use, set forth in a recorded memorandum of lease as a covenant running with the land. Expect Landlord carve-outs for tenants existing within the radius when the restriction is granted and for mortgagees and their successors, and conditions that Tenant remain open and operating and not in uncured material default.
How this typically gets negotiated
Radius clauses are negotiated on scope: the geographic radius, how a competing business is defined (a sales-percentage test versus any similar use), whether existing locations and affiliates are carved out, how long the restriction lasts, and the remedy, with landlords often seeking percentage-rent inclusion of the competing store's sales and tenants resisting anything beyond injunctive relief.
The specific language that resolves each of these points depends on the deal. Talk to Paul about your lease →
How the states treat it
Sherman Act § 1: vertical restraints
Radius restrictions in commercial leases are typically vertical restraints (between landlord and tenant) and are evaluated under the rule of reason. Most commercial radius restrictions survive challenge because they are ancillary to the underlying lease (a legitimate commercial transaction) and reasonable in scope. Anchor tenants with significant market power face greater scrutiny.
Antitrust attention to retail radius clauses
Federal and state antitrust enforcement has periodically focused on retail radius clauses, particularly in grocery, drug-store, and big-box contexts. Tenant counsel should track FTC and state attorney general enforcement priorities.
Post-Term restrictions
Post-Term restrictions face heightened scrutiny because Tenant no longer benefits from the underlying transaction. Most jurisdictions limit post-Term restrictions to short durations (12 months) and narrow scopes. Some jurisdictions invalidate post-Term restrictions entirely.
Majority rule
Commercial radius restrictions are enforced under the rule of reason if reasonable in scope, duration, and market application. Overbroad restrictions are unenforceable or reformed to a reasonable scope. Liquidated damages are scrutinized under the penalty doctrine; courts often reduce or void disproportionate liquidated damages.
Notable cases
Cabela's Retail, Inc. v. Hawks Prairie Inv., LLC, No. 11-CV-5973-RBL, 2013 WL 12423872, at *1 (W.D. Wash. July 30, 2013). A five-year, county-defined radius restriction was upheld as a reasonable restraint on trade; “evolved” business-plan language prevented the tenant from recharacterizing its new store as a different concept.
Fab'rik Boutique, Inc. v. Shops Around Lenox, Inc., 329 Ga. App. 21, 21, 763 S.E.2d 492, 493, 2014 WL 4400772 (2014). A five-mile radius clause coextensive with a three-year term was enforceable as reasonable; the violation justified the landlord’s refusal to renew.
Game film: real clauses from real leases
Excerpts from commercial leases filed as exhibits with the Securities and Exchange Commission, trimmed for length. Follow the citation for the full document on EDGAR.
“In consideration of the fact that Owner has agreed to accept a percentage of Tenant's Gross Sales as a portion of the rent during the term of the Lease, neither Tenant nor any of Tenant's affiliates, subsidiaries or parent corporations (collectively "Tenant's Affiliates") shall directly or indirectly engage in any similar or competing business within a radius or [sic] five (5) miles from the outside boundary of the Shopping Center … if said improper competition occurs within the first five (5) years of the term of this Lease, then for the remainder of the term, the annual Minimum Rent (for the unexpired term) shall be the greater sum of the following; (i) the highest annual Minimum Rent and Percentage Rent paid by Tenant during any Lease Year that Tenant has been a tenant in the Leased Premises, or (ii) the sum of one hundred fifty percent (150%) of the then applicable annual Minimum Rent”
Why it matters. This percentage rent covenant reaches every affiliate, subsidiary, and parent of the tenant and converts a violation into an automatic Minimum Rent increase of up to 150 percent for the remaining term, so tenants should narrow the affiliate coverage, the definition of a competing business, and the remedy before signing.
“Competition/Radius Restriction. The radius restriction in Section 10.03 of the Original Lease shall not apply to any motion picture theatre complex which is developed, open and operating for business prior to Tenant or any affiliate of Tenant acquiring (or agreeing to acquire) any interest therein (as owner, lessee, operator, manager or otherwise).”
Why it matters. This negotiated carve-out prevents a radius restriction from blocking mergers and acquisitions, because a location that was already open before the tenant or its affiliate acquired an interest in it cannot put the tenant in breach, a protection every multi-unit operator should request.