📍 Non-Compete Provisions

Commercial Lease Radius Restriction Clause: Non-Compete Geography, Online Sales & Negotiation Strategies (2026)

Q: What is a radius restriction clause in a commercial lease?

A radius restriction clause (also called a radius clause, radius covenant, or non-compete radius provision) prohibits a retail tenant from opening, operating, or owning an interest in a competing location within a defined geographic radius of the leased premises. The restriction is designed to protect the landlord's property from competition by the same tenant, which could divert customers and reduce the percentage rent the landlord receives. Radius restrictions are most common in percentage rent leases where the landlord has a financial stake in the tenant's sales volume at the specific location.

Q: How large is the typical radius restriction in a retail lease?

Radius restriction distances vary significantly by tenant type, market density, and negotiating leverage. Regional mall anchors may face restrictions of 2–5 miles. Inline mall tenants typically face 5–10 miles. Lifestyle center tenants and street retail tenants may face 3–7 miles. In dense urban markets, landlords sometimes specify restrictions by neighborhood or zip code rather than mileage. The restriction should be proportionate to the tenant's actual trade area — an unreasonably large radius that restricts competitive operations far beyond the store's actual draw area may be unenforceable as an unreasonable restraint of trade.

Q: What are the consequences of violating a radius restriction clause?

Consequences of violating a radius restriction typically include: (1) sales from the competing location being added to the percentage rent calculation for the leased premises (as if they were made there), increasing the tenant's rent obligation; (2) lease default if the violation is not cured within a specified period; (3) damages including lost percentage rent the landlord would have received if the sales had been captured at the leased location; and (4) injunctive relief preventing the tenant from continuing to operate the competing location. The percentage rent inclusion remedy is the most common because it restores the landlord's economic position without requiring the tenant to close a successful store.

Q: Is a radius restriction clause enforceable as a restraint of trade?

Courts generally enforce radius restriction clauses in commercial leases if they are reasonable in scope (geography, duration, and type of business restricted), supported by legitimate business justification (protecting the landlord's percentage rent interest), and not broader than necessary to protect that interest. An unreasonably large radius, or one that restricts business activities unrelated to the percentage rent justification, may be struck down or modified under the doctrine of reasonableness. Some states apply stricter scrutiny to non-compete provisions — California, for example, broadly restricts non-compete agreements, though courts have applied commercial lease radius restrictions differently from employment non-competes.

📅 March 21, 2026⏱ 14 min read✍ LeaseAI Team

A radius restriction clause is one of the most frequently overlooked provisions in retail lease negotiations — and one of the most consequential. Sign a lease with a broad radius restriction without understanding its implications, and you may find yourself legally prohibited from opening a second location in your primary market, barred from expanding into adjacent neighborhoods, or forced to include online sales revenues in your percentage rent calculation.

In 2026, radius restriction clauses are being tested by three converging forces: the rise of multi-concept retail, the normalization of omni-channel commerce, and the explosion of franchise conflicts in a consolidating retail market. Understanding what a radius restriction covers, what it doesn’t cover, and how to negotiate it is essential for any retail tenant contemplating expansion.

5–10

miles: typical radius restriction for inline mall tenants

3×

more disputes involving online sales in 2025 vs. 2020

35%

of franchise disputes involve radius restriction conflicts

additional rent if you negotiate an online sales carve-out

What Is a Radius Restriction Clause?

A radius restriction clause — also called a radius clause, radius covenant, or geographic non-compete provision — prohibits a commercial tenant from opening, operating, or holding an ownership interest in a competing business within a defined geographic radius of the leased premises. The restriction is written into the lease by the landlord primarily to protect the percentage rent income stream.

The underlying logic: if a tenant operating in a shopping center can open a competing location one mile away, sales that would have been made at the center location (and counted toward percentage rent) will instead be made at the new location, reducing the landlord’s income without any change in the landlord’s fixed costs.

Radius restrictions are most common in:

Regional and super-regional mall leases (where percentage rent is standard)
Lifestyle center and power center leases with high-volume anchor tenants
Leases for fast-casual and quick-service restaurant concepts (high expansion velocity)
Entertainment and fitness tenants where exclusivity and draw area are significant

They are less common in office, industrial, and triple-net retail leases without a percentage rent component, because there is no landlord income diversion to protect.

How Radius Is Defined and Measured

The geographic scope of a radius restriction can be defined in several ways, each with different implications for expansion planning:

Mileage Radius (Most Common)

A straight-line (as the crow flies) radius from the center point of the leased premises. A 5-mile radius from a mall in a suburban market covers a large geographic area. In a dense urban environment, 5 miles can encompass dozens of neighborhoods and millions of potential customers. Always map the restriction before signing.

Driving Distance Radius

Some leases specify radius based on driving distance rather than straight-line distance. This is more complex to measure and administer, but can better reflect actual trade area overlap. A 5-mile driving distance in a congested urban area may restrict far fewer locations than a 5-mile straight-line radius that crosses a bay, river, or highway.

Named Geographic Boundaries

Urban leases sometimes define restrictions by named boundaries (zip codes, city neighborhoods, boroughs, or county lines) rather than mileage. These are more predictable to administer but may not accurately reflect the trade area. A zip code boundary restriction may be more or less restrictive than a 3-mile radius depending on the specific geography.

Tenant Type	Typical Radius	Basis	Common Exceptions
Regional mall anchor	2–5 miles	Straight-line	Pre-existing locations, airport
Mall inline tenant	5–10 miles	Straight-line	Pre-existing locations
Power center / lifestyle	3–7 miles	Straight-line or driving	Pre-existing, franchise requirements
QSR / fast casual	1–3 miles	Driving distance	Airport, hospital, campus, franchise
Fitness / entertainment	5–15 miles	Straight-line	Pre-existing, different concept
Grocery / food retail	1–5 miles	Straight-line	Pre-existing locations

Online Sales and the Radius Restriction Problem

The most contested area of modern radius restriction law involves e-commerce. Traditional radius restriction clauses were drafted in an era when “operating a competing business” meant opening a physical store. The explosive growth of omni-channel retail has created a legal grey zone: does selling products online from a website “divert sales” from the restricted trade area?

The Landlord’s Argument for Including Online Sales

Landlords argue that online sales ship into the trade area and substitute for in-store purchases that would have occurred at the center location. From the landlord’s perspective, a customer who would have driven to the mall to buy a product is instead buying it online from the tenant’s website — reducing the percentage rent base without any change in the underlying demand. The landlord’s economic interest is identical whether the customer goes to a second physical location or buys online.

The Tenant’s Argument for Excluding Online Sales

Tenants argue that:

A website has no physical location and therefore cannot be “within” any geographic radius
Online sales are a national (or global) business that cannot be geographically cabined
The parties did not contemplate e-commerce when the radius restriction was drafted, and ambiguity should be resolved against the drafter (typically the landlord)
Restricting online sales would give the landlord an undue windfall far beyond the legitimate purpose of the radius clause

2026 Trend: Courts have generally sided with tenants where lease language is ambiguous about online sales. However, landlords have begun drafting explicit language in new leases: “...including without limitation all sales made through the internet, a website, a mobile application, or any other electronic channel, where the order is placed by a customer located within the Restricted Area.” Review new lease drafts carefully for this language.

Negotiating an Online Sales Carve-Out

The best approach is to negotiate an explicit carve-out before signing:

“The Radius Restriction shall not apply to, and there shall be excluded from any percentage rent calculation, any and all sales made through Tenant’s internet website(s), mobile application(s), or any other electronic commerce platform, regardless of whether such orders are placed by customers located within the Restricted Area, fulfilled from within or outside the Restricted Area, or delivered to addresses within or outside the Restricted Area.”

Alternatively, some tenants negotiate a hybrid approach: online sales that are fulfilled by shipping (not BOPIS/click-and-collect from the restricted location) are excluded from the radius restriction and the percentage rent calculation. BOPIS fulfillment from a physical location within the radius may appropriately be included.

Franchise Conflicts with Radius Restrictions

Franchise retail tenants face a unique problem: the radius restriction in their lease may conflict with the territorial provisions in their franchise agreement. These conflicts can create situations where the tenant is legally obligated under the franchise agreement to do something the lease prohibits, or vice versa.

Common Conflict Scenarios

Conflict Type	Description	Tenant’s Exposure
Franchisor opens corporate store	Franchisor opens a corporate-owned location within the lease’s restricted radius	May constitute co-tenancy or exclusivity violation by landlord, but not a lease breach by tenant
Required expansion	Franchise agreement requires franchisee to open a second location that falls within the lease’s restricted radius	Tenant may breach lease by opening required location; franchise agreement vs. lease conflict
Territory overlap	Franchise protected territory and lease radius restriction are different sizes, creating gaps or overlaps	Tenant may have rights in area where lease prohibits operation
Concept change	Franchisor rebrands or introduces a new concept; does the radius restriction apply to the new concept?	Depends on definition of “competing business” in the radius clause

Protecting Franchise Tenants

Franchise tenants should negotiate:

A carve-out from the radius restriction for locations opened pursuant to obligations under the franchise agreement (e.g., “Tenant may open additional franchise locations within the Restricted Area if required to do so under Tenant’s then-existing Franchise Agreement”)
A definition of “competing business” that specifies the format (e.g., only full-service locations, not kiosks or express formats) to prevent the restriction from capturing all variations of the brand
An explicit statement that the radius restriction applies only to locations where Tenant or an affiliate holds a direct or indirect ownership interest of more than 50% — so a separately owned franchise location operated by a different franchisee of the same brand does not trigger the restriction

Tip: Before signing a retail lease as a franchisee, have your franchise attorney review the lease’s radius restriction alongside your franchise agreement. These documents are routinely drafted in isolation by different parties, and conflicts are discovered only when an expansion decision forces the conflict into the open.

Consequences of Violating a Radius Restriction

When a radius restriction is violated, the lease typically specifies one or more consequences:

1. Sales Attribution for Percentage Rent

The most common remedy is adding the sales from the competing location to the percentage rent calculation for the leased premises, as if those sales had been made at the center location. This effectively requires the tenant to pay percentage rent on revenue generated elsewhere.

Radius Violation Percentage Rent Attribution

Leased location annual gross sales: $1,200,000
Percentage rent rate: 6% over natural breakpoint of $1,000,000
Normal percentage rent: ($1,200,000 - $1,000,000) x 6% = $12,000

Competing location sales (within restricted radius): $800,000
Combined sales attributed to lease location: $1,200,000 + $800,000 = $2,000,000
Adjusted percentage rent: ($2,000,000 - $1,000,000) x 6% = $60,000

Additional rent owed due to radius violation: $60,000 - $12,000 = $48,000/year

A single undisclosed competing location cost this tenant $48,000/year in additional percentage rent

2. Lease Default

Many radius restriction provisions expressly provide that a violation constitutes a lease default, triggering the landlord’s full default remedies (including lease termination) if not cured within the notice and cure period. Some provisions make the violation a non-curable default if the competing location is not closed within a specified period.

3. Injunctive Relief

Landlords may seek a court injunction requiring the tenant to close the competing location within the restricted radius. Courts have generally been willing to grant preliminary injunctions where a clear radius restriction exists and the competing location is demonstrably within the restricted area.

Negotiation Strategies for Tenants

Pre-Existing Locations Carve-Out

The most important carve-out to negotiate is for locations already in operation at the time of lease signing. The radius restriction should explicitly exclude: “any location of Tenant’s business that is open and operating as of the Commencement Date, as listed on Exhibit [X] attached hereto.” Attach a complete list of all current locations as a lease exhibit.

Reduce the Radius Distance

Negotiate the radius down to the genuine trade area of the center. Research the center’s actual customer draw area using traffic data, loyalty program data, or consumer surveys. In dense urban markets, a 1–2 mile restriction is more appropriate than a 5-mile restriction; argue that the trade area data supports a reduced radius.

Limit the Restriction to the Same Concept

If you operate multiple restaurant or retail concepts, negotiate a definition of “competing business” that applies only to the specific concept leased at this location. If you operate a fine dining restaurant, the restriction should not prevent you from opening a fast-casual concept within the restricted area.

Sunset the Restriction

Negotiate a shorter restriction duration than the full lease term. A 5-year radius restriction in a 10-year lease gives you the freedom to expand in the second half of the term. Alternatively, tie the restriction to the percentage rent component: if percentage rent is not triggered (i.e., your sales are below the natural breakpoint) in any 12-month period, the radius restriction becomes unenforceable for the following year.

Map the radius restriction on a real map before signing — identify whether existing or planned locations fall within it
Negotiate an explicit online sales carve-out covering all e-commerce, mobile, and digital channels
Exclude all pre-existing locations by name and address in a lease exhibit
Limit “competing business” to the same concept and format, not all businesses operated by tenant
Reduce radius distance to actual trade area size supported by market data
Include a franchise agreement carve-out for locations required under the franchise agreement
Limit the restriction to locations where tenant holds a direct ownership interest >50%

Negotiate a sunset period: restriction lapses after 5 years or when percentage rent is not triggered

Exclude airport, hospital, campus, hotel, and captive-audience locations from the restriction

Require landlord to provide written notice and a cure period before asserting a radius violation

Cap the percentage rent attribution remedy at a fixed dollar amount rather than unlimited exposure

Cross-reference the radius restriction with any exclusivity clause to prevent conflicts

Find Your Radius Restriction Before It Finds You

LeaseAI extracts all radius restriction provisions, geographic limitations, competing business definitions, and percentage rent attribution clauses from your lease in under 60 seconds. Know what your lease prohibits before your next expansion decision.

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Enforceability: Is Your Radius Restriction Valid?

Radius restriction clauses are subject to legal challenges as unreasonable restraints of trade. Courts apply a reasonableness test that considers:

Legitimate business purpose: Does the restriction serve the landlord’s legitimate interest in protecting the percentage rent income stream? (Generally yes, if percentage rent is present)
Proportionality: Is the geographic scope proportionate to the actual trade area and the legitimate interest being protected?
Duration: Does the restriction extend only for as long as necessary to protect the landlord’s interest?
Business type: Are the businesses restricted actually in competition with the leased premises, or is the restriction overbroad?

Courts in most states will enforce a reasonable radius restriction but may modify or invalidate an unreasonably broad one. California presents special considerations — its Business and Professions Code Section 16600 broadly voids non-compete agreements — though courts have generally distinguished commercial real estate radius restrictions from employment non-competes, applying them under a different analytical framework.

Frequently Asked Questions

What is a radius restriction clause in a commercial lease?

A radius restriction clause prohibits a retail tenant from opening, operating, or owning an interest in a competing location within a defined geographic radius of the leased premises. The restriction is designed to protect the landlord’s property from competition by the same tenant, which could divert customers and reduce the percentage rent the landlord receives. Radius restrictions are most common in percentage rent leases where the landlord has a financial stake in the tenant’s sales volume at the specific location.

How large is the typical radius restriction in a retail lease?

Radius restriction distances vary by tenant type and market density. Regional mall anchors may face restrictions of 2–5 miles. Inline mall tenants typically face 5–10 miles. Lifestyle center tenants may face 3–7 miles. In dense urban markets, landlords sometimes specify restrictions by neighborhood rather than mileage. The restriction should be proportionate to the tenant’s actual trade area — an unreasonably large radius may be unenforceable as an unreasonable restraint of trade.

Do radius restrictions apply to online sales?

This is one of the most contested issues in modern retail leasing. Traditional radius restriction clauses were drafted before e-commerce existed and do not explicitly address online sales. Courts have generally sided with tenants where lease language is ambiguous, but some landlords have successfully argued that sales fulfillment from a warehouse within the restricted radius triggers the clause. Tenants should negotiate an explicit online sales carve-out in any lease with a radius restriction.

Can a radius restriction clause conflict with franchise agreements?

Yes, and this conflict is one of the most frequent sources of litigation in franchise retail leasing. Conflicts arise when the franchisor opens a corporate-owned location within the franchisee’s lease-restricted radius, the franchisee is required to open additional locations that would violate the radius restriction, or the franchise protected territory doesn’t match the lease radius. Franchisees should review both documents side-by-side before signing either.

What are the consequences of violating a radius restriction clause?

Consequences typically include: sales from the competing location being added to the percentage rent calculation (increasing rent obligation); lease default if the violation is not cured; damages including lost percentage rent; and injunctive relief preventing the tenant from continuing to operate the competing location. The percentage rent inclusion remedy is the most common because it restores the landlord’s economic position without requiring the tenant to close a successful store.

Is a radius restriction clause enforceable as a restraint of trade?

Courts generally enforce radius restriction clauses if they are reasonable in scope, supported by a legitimate business justification (protecting the landlord’s percentage rent interest), and not broader than necessary. An unreasonably large radius may be struck down or modified. Some states apply stricter scrutiny to non-compete provisions — California broadly restricts non-compete agreements, though courts have applied commercial lease radius restrictions differently from employment non-competes.

The Bottom Line

Radius restriction clauses are deceptively simple in concept but complex in execution. A tenant who signs a 10-year lease with a 10-mile radius restriction in a dense suburban market has effectively limited their expansion in their core market for a decade. A franchisee who doesn’t reconcile the radius clause with their franchise agreement may face irreconcilable legal obligations. An omni-channel retailer who signs without an online sales carve-out may be attributing e-commerce revenue to a percentage rent calculation on a lease they signed before their website existed.

The negotiation investment is modest — a few hours of legal review and thoughtful carve-out drafting — relative to the operational constraints that a poorly negotiated radius restriction can impose over a lease term. Map the restriction before you sign. Carve out online sales explicitly. Protect your pre-existing locations. And reconcile the restriction with your franchise agreement before both documents are finalized.

With AI-powered lease analysis, surfacing radius restriction provisions — and understanding exactly what geographic area and business types they cover — takes seconds rather than hours. Know what your lease prohibits before your expansion strategy encounters it.