Radius Restriction Clauses in Commercial Leases: Complete 2026 Guide

You're a growing restaurant chain. You signed a retail lease in a shopping center three years ago. Business is booming. You want to open a second location 1.8 miles away in a higher-traffic corridor. Then your attorney pulls out the lease and points to Section 14.3: the radius restriction clause.

You can't open that second location — not without landlord consent and, in many cases, significant economic concessions. The landlord's interest is clear: they don't want you cannibalizing sales from your leased location with a nearby competitor, because your lease includes percentage rent tied to your gross sales at that location.

Radius restrictions are among the most growth-limiting clauses in retail and restaurant leases. Yet they're often buried in boilerplate and overlooked at signing. This guide explains how they work, what modern carve-outs you must negotiate, and how one restaurant chain lost $2.1M in revenue from a restriction they didn't read carefully enough.

What Is a Radius Restriction?

A radius restriction (also called a radius covenant or radius clause) prohibits the tenant from operating, owning, managing, or being affiliated with any business that is the same as or substantially similar to the use permitted under the lease within a specified geographic radius of the leased premises.

The restriction serves two landlord interests:

1. Percentage rent protection: If you operate a competing location nearby, some sales migrate from your leased location to the new one — reducing your gross sales at the leased property and therefore reducing the percentage rent the landlord receives.
2. Shopping center health: Landlords invest in curating tenant mix. A tenant who opens a competing location nearby draws customers away from the shopping center, reducing foot traffic and harming co-tenants.

Typical Radius Distances

Radius distances vary by retail category, market density, and bargaining leverage:

Food Service (QSR and Fast Casual)

• Neighborhood strip center: 1–2 mile radius
• Regional mall food court: 2–3 mile radius
• Urban inline (Manhattan, Chicago Loop): 0.25–0.5 mile radius

Full-Service Restaurant

• Suburban market: 2–3 miles
• Urban market: 0.5–1 mile
• Destination dining: 3–5 miles (unique concept with regional draw)

Specialty Retail

• Apparel / accessories: 3–5 miles
• Footwear: 3–5 miles
• Electronics / technology: 5–10 miles (landlords push hard given high ticket size)
• Beauty / personal care: 2–3 miles

Fitness and Wellness

• Boutique fitness studios: 1–2 miles
• Large-format gyms: 3–5 miles
• Yoga/Pilates studios: 1–2 miles

The $2.1M Lost Revenue Case Study

A regional fast-casual Mexican restaurant chain — call them TacoBravo (name changed) — signed a 10-year lease in 2019 in a suburban Columbus, Ohio shopping center. The lease contained a standard percentage rent clause at 5% of gross sales above the natural breakpoint, and a radius restriction prohibiting operation of any "substantially similar" restaurant within a 3-mile radius.

In 2021, TacoBravo identified a prime end-cap opportunity at a grocery-anchored center 2.2 miles away with significantly higher traffic counts. The new location was projected to generate $2.1M in Year 1 revenue at 18% net margins — roughly $378,000 in net profit.

The leasing attorney reviewed the radius clause and concluded:

• The new location (2.2 miles) was within the 3-mile restriction
• The concept was clearly "substantially similar" — same menu, same branding
• Opening without consent would breach the lease
• Breach remedy: landlord could include the new location's gross sales in the original location's percentage rent calculation

TacoBravo approached the landlord for consent. The landlord agreed — but demanded:

• A reduced natural breakpoint at the original location (from $1.4M to $1.1M), effectively lowering the threshold before percentage rent kicks in
• An additional 1% increase in the percentage rate (from 5% to 6%)
• Extension of the lease term by 2 years

Net present value of the landlord's demands: approximately $290,000 over the remaining lease term. TacoBravo accepted because the new location's $378,000 Year 1 net profit justified the cost.

The lesson: the radius restriction didn't block the expansion — but it gave the landlord enormous negotiating leverage that extracted $290,000 in value that TacoBravo could have retained had they negotiated a tighter radius (or a carve-out for locations approved by the landlord in advance) at lease signing.

Internet Sales Carve-Outs

The Core Principle

A radius restriction should not apply to online sales. No physical location is "operated" within the radius — customers transact digitally, and fulfillment may happen from a warehouse 50 miles away. The landlord's economic interest (protecting percentage rent from foot-traffic-based sales) is simply not implicated by e-commerce.

Why This Needs to Be Express

Older lease forms don't contemplate online sales and use broad language like "same or similar business" without qualification. A landlord could argue that operating a website that serves customers within the restricted radius constitutes operating a "business" within the radius. This argument is unlikely to prevail in litigation, but the uncertainty is worth eliminating with explicit carve-out language.

Model Carve-Out Language

"The restrictions set forth in this Section shall not apply to: (i) sales made through Tenant's website, mobile application, or any other e-commerce channel, regardless of the delivery or fulfillment location of such orders; (ii) Tenant's marketing, advertising, or social media activities directed at customers within the restricted area."

Delivery-Only Dark Kitchen Exception

What Is a Dark Kitchen?

A dark kitchen (also called a ghost kitchen, cloud kitchen, or virtual restaurant) is a food production facility that prepares food exclusively for delivery — with no public-facing storefront, no dine-in capability, and no walk-up customer service. Customers order only through delivery apps (DoorDash, UberEats) and receive food at home.

Why Dark Kitchens Are Contested

Is a dark kitchen within a radius restriction? It depends on the restriction's language:

• "Operate any restaurant": A dark kitchen arguably IS a restaurant — it prepares and sells food. Under this language, a dark kitchen within the radius is likely a violation.
• "Operate any restaurant open to the public": A dark kitchen is NOT open to the public. Strong argument for no violation.
• "Operate any business substantially similar to the Permitted Use": Ambiguous — the permitted use (dine-in and carry-out food service) may or may not be "substantially similar" to a delivery-only operation.

Economic Argument for the Carve-Out

Dark kitchens don't draw customers away from your leased location in the way a competing storefront does. A customer who orders delivery from your dark kitchen may never have visited your leased location — they're a delivery customer, not a walk-in. The landlord's percentage rent is not harmed by delivery sales that never would have converted to in-store sales.

Model Dark Kitchen Carve-Out

"The radius restriction in this Section shall not apply to any food preparation facility operated by Tenant exclusively for delivery sales, provided that such facility: (i) is not open to the general public for walk-in service; (ii) does not display exterior signage visible from a public street bearing Tenant's primary brand name; and (iii) does not generate in-store or carry-out sales to walk-in customers."

Franchise Conflicts

The Structural Problem

Franchise tenants face a unique vulnerability: the radius restriction prohibits them from operating competing locations, but they typically have no control over where their franchisor grants competing franchises. A Subway franchisee operating under a 1-mile radius restriction may be prohibited from opening a second Subway franchise within that radius — but another franchisee could be granted a franchise by Subway Corporate within that same mile, and the original franchisee would be in breach of their lease through no action of their own.

Negotiating the Franchise Carve-Out

The carve-out should read:

"The radius restriction in this Section applies only to locations directly owned, operated, or controlled by Tenant, and shall not apply to any other franchisee or licensee of Tenant's franchisor or to locations operated independently by Tenant's franchisor or its affiliates."

Landlords will often resist this carve-out because it weakens the restriction. Counter-argument: you cannot contractually bind your franchisor to not grant competing franchises, and it would be commercially unreasonable to hold you liable for a franchisor's independent business decisions. Many courts have agreed — but litigation is expensive, and an express carve-out eliminates the dispute entirely.

Protected Territory in the Franchise Agreement

Before signing a commercial lease, review your franchise agreement's protected territory provisions carefully. If your franchise agreement grants you exclusive territory within 2 miles, and your lease imposes a 3-mile radius restriction, you have a gap: a third-party franchisee could open within miles 2–3 of your location with your franchisor's blessing, potentially breaching your lease. Align your franchise territorial grant with your lease radius restriction.

Sublease and Assignment Impact

The Successor Binding Problem

Radius restrictions in leases typically run with the lease and expressly bind successors, assigns, and subtenants. This creates two significant complications:

Business Sale Scenarios

If you sell your business to a buyer who already operates locations within your restricted radius, the acquisition creates an immediate breach of your lease radius restriction. Example: a buyer who owns five competing restaurants in the market acquires your restaurant — three of their existing locations are within your 3-mile radius. On Day 1 of ownership, you're in breach.

This is a real deal-killer in restaurant M&A. Due diligence on every acquisition must include a radius restriction audit: map the buyer's existing locations against the target company's lease radius restrictions and identify conflicts before signing the purchase agreement.

Sublease Scenarios

If you sublease the premises to a subtenant who operates a concept similar to yours, the radius restriction still applies — often to both you (as the original tenant) and the subtenant. A sublease for "substantially similar use" may constitute a violation of the radius restriction even when the original tenant no longer operates from the premises.

Negotiating Assignee/Sublessee Modifications

For business sales and subleases, negotiate an obligation for the landlord to negotiate a reasonable modification of the radius restriction in connection with a permitted assignment. Model language:

"In connection with any assignment of this Lease, Landlord agrees to negotiate in good faith a reasonable modification of the radius restriction set forth herein to accommodate the assignee's existing business operations, provided that any such modification shall not materially impair Landlord's percentage rent receipts from the Premises."

Remedies for Radius Restriction Violations

Percentage Rent Inclusion (Most Common)

The most common contractual remedy: gross sales from the prohibited location are included in the gross sales calculation for the leased location, triggering percentage rent obligations as if all sales were generated at the leased premises. This is economically equivalent to paying percentage rent on both locations as a single consolidated operation.

For a tenant generating $3M at the leased location and $2M at the prohibited location, with a 5% percentage rent above a $2M breakpoint: landlord could potentially claim percentage rent on $3M + $2M = $5M − $2M breakpoint × 5% = $150,000/year — vs. the $50,000 that would be owed based on only the leased location's sales.

Injunctive Relief

Landlords can seek injunctions requiring the tenant to close the offending location. Courts have generally been willing to grant injunctions for clear radius restriction violations, particularly where the lease remedy provision expressly authorizes equitable relief. An injunction closing a profitable location can be far more economically damaging than the percentage rent remedy.

Lease Termination

Some leases provide termination rights for radius restriction violations, typically after notice and a cure period. This is the nuclear option — most landlords prefer to monetize the relationship rather than terminate a paying tenant. But the termination right exists as leverage and should not be ignored.

Negotiation Tactics

Tactic 1: Carve Out Existing Locations

At lease signing, identify every existing location your brand operates and list them in a schedule attached to the lease as "Pre-Existing Locations" exempt from the radius restriction. This protects your existing portfolio regardless of proximity to the leased premises.

Tactic 2: Reduce the Radius in Dense Markets

In urban markets, a 3-mile radius restriction covers hundreds of thousands of potential customers and dozens of high-traffic corridors. Push hard to reduce the radius to 0.5–1 mile in dense urban areas where market trade areas are naturally smaller.

Tactic 3: Tie Radius Restriction to Percentage Rent

Propose eliminating the radius restriction entirely in any lease year when your gross sales fall below the natural breakpoint (meaning no percentage rent is owed). The restriction's economic justification disappears if it's not protecting percentage rent income. Model language:

"The radius restriction in this Section shall be of no force or effect during any Lease Year in which Tenant's Gross Sales do not exceed the Natural Breakpoint, and shall automatically reinstate for any subsequent Lease Year in which Tenant's Gross Sales exceed the Natural Breakpoint."

Tactic 4: Sunset the Restriction

Negotiate a sunset provision — the radius restriction expires after the initial lease term and does not apply during any renewal period. By the time you're exercising a renewal option, you've proven the concept at the leased location; the landlord's percentage rent concern is addressed by the already-established baseline.

Tactic 5: Negotiate Landlord Pre-Approval Rights Instead of Outright Ban

Replace the absolute prohibition with a right-of-first-refusal mechanism: before opening a competing location within the radius, you must notify the landlord, who has 30 days to either (a) consent unconditionally, (b) consent with mutually agreed economic adjustments, or (c) deny consent with specific written reasons (limited to demonstrable harm to percentage rent). This preserves landlord protection while giving tenants a clearer path to expansion.

12-Point Radius Restriction Checklist

Frequently Asked Questions

What is a radius restriction in a commercial lease?

A radius restriction prohibits a tenant from operating the same or similar business concept within a specified distance of the leased premises. It protects the landlord's percentage rent income by preventing the tenant from cannibalizing sales from the leased location with a nearby competing location. Restrictions typically apply during the lease term and sometimes 12–24 months after expiration.

What is the typical radius in a retail lease radius restriction?

Typical distances range from 1 to 5 miles depending on retail category and market density. Neighborhood strip centers often use 1–2 miles; regional malls 2–5 miles; dense urban markets may use 0.25–0.5 miles. Food service typically sees 1–3 miles; specialty retailers 2–5 miles. National chains negotiate carve-outs for existing locations already open before lease signing.

Does a radius restriction apply to online and delivery sales?

A well-drafted radius restriction should not apply to online sales — no physical location is operated within the radius for e-commerce. Delivery-only operations (dark kitchens) are contested: they're physical locations within the radius but lack public-facing storefronts. Always negotiate express carve-outs for both e-commerce and delivery-only operations.

How does a radius restriction affect a franchise tenant?

Franchise tenants face a structural conflict: the franchisor may grant competing franchises within the restricted radius without the tenant's control. Negotiate that the restriction applies only to locations directly owned or operated by Tenant, not to other franchisees or the franchisor itself.

What happens to a radius restriction when you sublease or assign the lease?

Radius restrictions typically run with the lease and bind successors and assigns. This creates significant complications in M&A — a buyer who already operates within your restricted radius creates an immediate breach on closing day. Always conduct radius restriction mapping in M&A due diligence.

What are the consequences of violating a radius restriction?

Consequences typically include: (1) inclusion of the competing location's gross sales in the leased location's gross sales for percentage rent calculation; (2) injunctive relief forcing closure; (3) lease termination rights in severe cases. The percentage rent inclusion remedy is most common and can result in dramatically increased percentage rent obligations.