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You Thought You Had a Radius Clause: Wells Fargo v. Diamond Point Plaza May Change Your Mind

By Gary A. Goodman and Elizabeth A. Gable

A landlord secures an anchor tenant with a big-name, stable, and successful chain store. The landlord negotiates that a percentage of this successful tenant's gross sales out of the landlord's location will constitute a portion of the rental payments. In order to protect his percentage rent, the landlord ensures that the lease contains a provision that (it thought) would forbid the tenant from opening another store in close proximity to the landlord's property. Therefore, the landlord has sufficiently guaranteed not only a base rental payment, but also a portion of the tenant's success, and it is confident the tenant will be very successful in the area. The landlord is thrilled, right? Maybe not. New case law indicates that courts may interpret the landlord's lease provision protecting against a new store, a radius clause, in a manner different from the way the landlord had intended.

What Is a Radius Clause?

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