Radius Restrictions in Leases Must Be Carefully Drafted

Radius restrictions in retail leases are fairly typical for deals in which a tenant has agreed to pay percentage rent to the landlord. These clauses prohibit tenants from operating competing stores within an agreed upon radius of the shopping center (usually 3 to10 miles, although outlet centers and very high-end centers can command a much larger area).

As attorneys for commercial real estate landlords and tenants, we work with our clients to help them to use, enforce and comply with these lease provisions, which are typically used by the landlords to protect against tenants opening a competing store nearby and diluting sales from the store and the center, as this would reduce their percentage-based rent. Retailers will generally agree to radius restriction clauses in these leases, but they also often seek a number of carve outs to provide them with the flexibility to open non-competing stores or sell their existing location.

To effectively impose and enforce these restrictions, landlords must understand that tenants which operate more than a single concept, or under different trade names and/or offering different merchandise in their other concepts, will typically insist that their other stores are excluded from the radius restriction. As a matter of law, radius restriction clauses are a restraint of trade, and unless they are properly drafted, they may be held invalid by the courts. The language must be carefully drafted so as to also properly address use clause issues, trade name issues, percentage rent issues, a sale of the store or the chain to a competitor, and continuous operation clause issues.

The South Florida real estate lawyers at our firm have more than thirty years of experience in structuring lease transactions, and we focus on drafting the appropriate lease language to comply with these and other obligations. We will continue to write about important issues for the Florida real estate industry in this blog, and we encourage industry members to enter their e-mail address in the box on the right in order to automatically receive all of our future posts.