The Taco Always Wins… and a Reminder of the Importance of Good Legal Drafting When It Comes to Enforceable Covenants

An Indiana zoning case recently dredged up the age-old law school conundrum of what constitutes a sandwich and why we should care.  Well, maybe the court didn’t actually weigh in on why we should care… but, it did make a determination that the taco IS, in fact, a sandwich.  This was a win for the taco because the restrictive covenant under the review of the court restricted development (within the shopping center in question) to sandwich shops.  So, the court’s finding that the taco constituted a sandwich enabled the taco shop owner to open the taco shop.[1]  Though this particular decision was a win for the taco, it turns out that not all tacos are created equal. In a 2006 Massachusetts case, the court relied on Merriam Webster’s definition of a sandwich as ‘two thin pieces of bread, usually buttered, with a thin layer (as of meat, cheese, or savory mixture) spread between them’ to make its determination that a taco was NOT a sandwich.[2]  This was a win for the Mexican food chain in that case because another restaurant held an exclusive covenant to sell sandwiches in that shopping center and the distinction between the taco and the sandwich allowed the taco shop to open[3].  As is clear from the two cases above; not all states can agree on the important legal distinction between a taco and sandwich.

Now, why should we care?  Well, if you are a taco purveyor looking to lease space in a shopping center, you might.  In fact, most retail tenants want some control over who else will be leasing space and operating nearby.  Preferably, they want complimentary uses and more importantly, they want  to keep competitors out.  The best way to accomplish this goal is to get the landlord to agree to give the retail tenant the right to an “exclusive use” in the shopping center in the lease or to record a restrictive covenant that prohibits certain (competing or less complimentary) uses.  An exclusive use or restriction that is imposed as a covenant in the lease that the Landlord has to enforce is what’s known as a “personal covenant”. An exclusive or restrictive covenant set forth in a recorded document that puts others on notice and encumbers the property or “runs with the land” is what’s known as a “real property covenant”.  In Winn-Dixie Stores, Inc. v. Big Lots Stores, Inc., the court delved into the world of personal and real property covenants and whether one can be transformed into the other and the subsequent enforceability of the same.[4] The case was brought by the Winn-Dixie chain against the parent company of certain dollar store chains in several states in order to enforce Winn-Dixie Stores’ exclusive (for the sale of grocery items) in their leases as further described in their short form leases which were recorded.[5]  The case eventually went before the Eleventh Circuit Court of Appeals where the court identified the distinction between a restriction governing a landlord’s behavior and a restriction on the land prohibiting certain uses. In other words, the covenant in the lease was a personal one but when the short form lease was recorded… was it still an obligation on the landlord or has it been converted into a real property covenant that ran with the land and put others on notice? In which case, should the dollar stores have known they were in violation and is it enforceable against them? Unfortunately, the court did not provide a clear determination regarding how such covenants should be interpreted or enforced in the future and left landlords and retailers alike “with more questions than answers.” [6] That said, there were a few takeaways that are consistent with the tenets of real property law: when drafting a covenant, the language needs to be unambiguous and specific and, if recorded, others have been put on notice.[7]  

So, how does a taco shop navigate this crazy world of exclusive and restrictive covenants (personal or real property) and remain the only taco shop in the shopping center? While the path to drafting the perfect enforceable exclusive or restrictive covenant remains clouded, and though not all courts can agree as to when a taco is a sandwich and when it is not; a few rules of thumb remain universal: avoid ambiguity (be as clear and specific as possible), avoid overreaching, and be sure to clearly state the restriction runs with and restricts the land and then record the document.  And, remember, the taco always wins!

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[1] See Quintana v. Fort Wayne Plan Comm’n, No. 02D02-2212-PL-414 (Ind. Super. Ct. May 13, 2024).

[2] See White City v. PR Restaurants, No. 2006196313 (Mass. Cmmw. Oct. 31, 2006).

[3] Id.

[4] See Winn-Dixie Stores, Inc. v. Big Lots Stores, Inc., 886 F. Supp. 2d 1336 – 39 (S.D. Fla. 2012), see also Winn-Dixie Stores, Inc. v. Dolgencorp, L.L.C., 746 F.3d 1008, 1016–17 (11th Cir. 2014) .

[5] Id.

[6] Tanya D. Marsh, Because of Winn-Dixie: The Common Law of Exclusive Use Covenants, 69 U. Miami L. Rev. 935 (2015).

[7] See Winn-Dixie Stores, Inc. v. Dolgencorp, L.L.C., supra.