Restrictive Covenants – Is the Intent of the Parties Clear?
By Kluger Kaplan December 17, 2012
By Steve Silverman and Marilyn Kohn
In August, Kluger Kaplan obtained a major victory for Dollar Tree against Winn Dixie. The case dealt with numerous, complex legal issues relating to restrictive covenants, but one particularly interesting facet dealt with ascertaining the intent of the restrictive covenants incorporated into leases that were up to 40 years old. Winn Dixie claimed that the term “groceries” included a variety of non-food items, including, for example, food storage and cleaning supplies. Likewise Dollar Tree and Winn Dixie battled over the definition of the term “sales area.” Winn Dixie claimed that, despite the absence of any language to that effect, “sales area” included the shelves that housed the groceries as well as a portion of the aisle where the consumer would stand and select the items. The court rejected both definitions proposed by Winn Dixie. Holding that the terms were ambiguous, the Court applied the least restrictive interpretation, as proposed by Dollar Tree. The narrower definition of the terms allowed Dollar Tree to achieve a successful outcome in the case.
The lesson learned from this case is key for anyone entering into a long-term lease: the intent of the parties must be clearly set forth in a lease containing a restrictive covenant. Many years after a lease is signed, memories have faded and it may not be possible to locate the original drafters and signatories. Moreover, industry standards may change during the term of the lease, making certain language in a lease take on a different meaning as the years pass. An important takeaway from this case is to be sure that the underlying purpose and intent of the parties is clearly set forth in the lease to avoid disputes far in the future.