Reverse Radius Clause
A reverse radius clause is a provision commonly included in the leases of tenants in shopping centers, aiming to prevent the shopping center owner from establishing, owning, or developing additional competing retail properties within a specified geographical radius. This clause is particularly beneficial for tenants as it protects their business interests by ensuring that a significant level of exclusive market traffic is maintained.
Examples
Example 1: Department Store Concerns A department store named Senney’s was set to lease space in a newly developed shopping mall built by Simons Developers. To safeguard its customer traffic, Senney’s insisted on a reverse radius clause in its lease, stipulating that Simons cannot create a similar retail property within a five-mile radius of the existing mall. This strategy was to prevent the dilution of customer traffic that could occur if a new, nearby shopping center emerged.
Example 2: Restricting Competition A high-end retailer signs a lease with a large shopping center. As part of the agreement, the retailer negotiates a reverse radius clause that prevents the shopping center’s owner from developing or acquiring any new retail spaces or malls within a 10-mile radius that could compete with the shopping center. This ensures that the retailer remains one of the few options for high-end products within that area.
Frequently Asked Questions (FAQs)
Q1: What is the main objective of a reverse radius clause?
A1: The primary objective is to prevent the shopping center owner from building or acquiring competing properties close to the existing shopping center, thus protecting the tenant’s market share and customer traffic.
Q2: How does a reverse radius clause benefit tenants?
A2: It prevents market saturation and competition within close proximity, thereby protecting the tenant’s investment in their store location and potentially increasing their chances of profitability.
Q3: Are reverse radius clauses standard in all retail leases?
A3: No, reverse radius clauses are not standard in all retail leases. They are typically negotiated terms that depend on the bargaining power of the tenant and the strategic interests of the property owner.
Q4: Can reverse radius clauses be negotiated after the lease is signed?
A4: Typically, reverse radius clauses need to be negotiated and included in the original lease agreement. Post-signing amendments would require mutual consent and likely entail negotiation.
Q5: What are typical geographical limits stated in reverse radius clauses?
A5: The geographical limits can vary widely but commonly range from a few miles to as much as 10-20 miles, depending on the density and scale of the retail market in question.
Related Terms
1. Radius Clause
A provision in a tenant’s lease that restricts the tenant from operating another similar business within a specified distance from the leased location.
2. Exclusive Use Clause
A lease clause that grants a tenant the exclusive right to sell certain products or services within the shopping center, preventing the landlord from leasing to competing businesses.
3. Non-Compete Clause
A clause that restricts parties (typically employees or contractors) from engaging in business activities that compete with their current employer or counterpart.
Online Resources
- Investopedia - Commercial Real Estate Terms
- LoopNet - Commercial Lease Definitions
- LegalMatch - Retail Property Lease Agreement Basics
- Law Insider - Clause Library
References
- Beatty, R.H., & Lederer, P., “Real Estate Leasing: A Guide for Retail, Commercial, and Industrial Tenants and Landlords.” (McGraw-Hill, 2007).
- Prum, N., “Negotiating Commercial Real Estate Leases,” (Negotiation Press, 2015).
- Blair, R., & Massa, L.J., “Shopping Center Management and Leasing,” (Urban Land Institute, 1997).
Suggested Books for Further Studies
- “The Complete Guide to Real Estate Options: What Smart Investors Need to Know - Explained Simply” by Steven Stark.
- “Commercial Real Estate Leases: Preparation and Negotiation” by Mark J. Kohler.
- “The Handbook of Commercial Real Estate Investing: State of the Art Standards for Investment Transactions, asset Management, and Financial Reporting” by John McMahan.
- “Retail Operations Management: A Strategic Approach” by Robert E. Walters and Michael Kiely.
- “Negotiating Commercial Real Estate Leases” by Martin I. Zankel.
