A radius restriction is a lease clause that prohibits a retail tenant from opening or operating a competing store within a specified distance of its leased location, typically measured in miles from the property. Landlords include radius restrictions to protect the sales volume and percentage rent income generated by a given store, since a tenant opening a nearby competing location could cannibalize the very sales the landlord is counting on. These clauses are especially common in leases that include percentage rent, since a tenant has less incentive to protect a landlord's percentage rent income than its own bottom line. Radius restrictions can apply to company-owned stores as well as franchised or licensed locations operating under the same brand, and violations can trigger penalties such as recalculating percentage rent as if the restriction had not been breached. For multi-location retailers, negotiating the scope and duration of radius restrictions is an important part of lease negotiation, particularly in markets where the retailer expects future expansion.
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