Radius restriction clauses are often found in retail, hotel, and restaurant commercial lease agreements.
As a commercial real estate owner or property manager, you need to be aware of any restrictions that may be present. Here’s what you need to know about tracking radius restrictions in commercial leases.
What Is a Restriction in a Commercial Lease?
Some commercial leases have a radius restriction clause. This type of clause can work in two different ways. It may work in favor of a landlord, prohibiting a tenant from opening a like business operation within a particular radius of the leased premises. For instance, a lease with a Dollar Store may have a clause stating that the owner cannot operate, manage, or have any interest in another dollar store within five miles.
Restrictions could also work in favor of a tenant, prohibiting a landlord from signing a lease with a similar or competing business within a certain radius. For example, let’s say you have a tenant that operates a restaurant in one of your buildings. You might agree not to lease any of the units within the same building to another restaurant.
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How Restrictions Can Protect You and Your Tenants
Radius restrictions may protect your interests in a few different ways:
- Ensuring that you don’t lose percentage rent income due to reduced sales
- Preventing customer diversion from your commercial property
- Reducing the likelihood of a tenant defaulting under the lease due to reduced sales
What a Radius Restriction Clause Should Specify
If you’re writing a restriction clause into a commercial lease, you should make sure it contains the following information:
- The parameters of the restricted area, whether it’s a radius of X miles or a certain neighborhood/building
- The duration of the restriction, whether it’s the duration of the lease or different
- A thorough definition of what qualifies as a competing business
- Consequences for violations
- What constitutes a violation
- Additional parties that may be included in the restriction
If you’re writing a restriction clause, make sure it offers the protection you’re looking for while remaining reasonable in scope and breadth.
Check out our Quick Guide to Lease Administration for additional tips!
How to Track Restrictions in Commercial Leases
As a commercial property owner, you may already have leases with restrictions or you may wish to enact them in future lease agreements. Keeping track of radius restrictions is just one of the many ways you can use STRATAFOLIO to your advantage.
For example, perhaps you rent out one of your storefronts to a coffee shop. They requested a clause in the lease agreement stating that you cannot sign a lease with any other coffee shops in that specific neighborhood. If you weren’t keeping tabs on your restrictions, you could mistakenly sign a lease in violation of those terms. But when you are tracking restrictions, you can check before signing a new lease to ensure you aren’t violating any of your existing ones.
When you organize your lease information with STRATAFOLIO, you won’t have to sift through lease agreements to find restriction clauses. We help you track them so they are always easily viewable. Schedule a demo today to learn more about how we can help you!
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Thanks for the information, Chase! Radius restrictions are frequent in leases for facilities that earn revenue from consumer sales, such as hotels and restaurant premises. A landlord and tenant must first agree on the physical limit of the restriction before discussing a radius restriction. This is sometimes accomplished by establishing a circular exclusionary zone encircling the premises with a predetermined radius from a particular location. Understanding and knowing the radius limits in any commercial real estate lease is crucial for property management.