For generations, this has been debated: Is a taco a sandwich? In a recent decision, a judge in Fort Wayne, Indiana, raised the question and ruled that a taco is indeed a sandwich. While this particular case received much media attention as a zoning dispute, this seemingly trivial decision actually stems from a complex legal dispute involving use restrictions. This article examines the nature of use restrictions and their enforcement, using this case as a focus.
Let’s unwrap this legal burrito.
Restrictive clauses
A non-compete covenant is a contractual term that limits the activities of one of the parties. These covenants are common in real estate and commercial leases and are designed to maintain certain standards or restrictions on property use. For example, owners may be required to paint their improvements a certain color or use only certain materials to maintain the aesthetics of the neighborhood. Businesses may also be subject to restrictions on the type of signage permitted or be required to include certain terms in all commercial leases, such as minimum lease terms, to ensure stability and predictability.
Non-compete agreements can apply to any type of property, but are particularly common in shopping malls or malls. In these contexts, large tenants or property owners seek to prevent direct competition by imposing restrictions while allowing non-competing businesses to occupy other premises. These agreements are binding on those who have knowledge of them, and whether conduct constitutes a breach of contract depends on the precise wording and the circumstances of the particular case.
Although they are enforceable, restraints of competition are often viewed negatively because they can hinder the free marketability of land. Courts typically interpret these restrictions as narrowly as possible to align the parties’ intentions with the principle of free use of land. Remedies for breach of a restraint of competition may be damages or injunctive relief. Damages may be calculated based on the difference in goodwill or expected loss of revenue due to the breach. Injunctive relief, which forces a party to stop certain actions, is available for express agreements but is subject to strict conditions.
Quintana v. Fort Wayne Plan Commission
The recent case of Quintana v. Fort Wayne Plan Commission is a practical example of the practical application of restraints of competition. In that case, a developer wanted to rezone a commercial area from single-family residential (R1) to limited commercial use (C2). To obtain approval from a nearby association, the developer agreed to private covenants that could be enforced by that association. These covenants specified that the area could accommodate a sandwich bar-type restaurant whose primary business was selling “made-to-order” or “Subway-style” sandwiches (e.g., “Subway” or “Jimmy John’s”), excluding traditional fast food (e.g., “McDonald’s,” “Arby’s,” “Wendy’s”). No outdoor seating, drive-thru service, or alcohol sales were permitted.
The developer ultimately decided to lease the space to a Mexican restaurant chain it owned. Although the association agreed, it attempted to amend the agreement to specifically permit the restaurant. However, the Planning Commission denied this, saying it was approving general uses, not specific business plans. The Planning Commission also found that the Mexican restaurant was not permitted under the existing restrictions. The judge agreed that the Planning Commission did not need to consider the amendment, but ultimately ruled that the amendment was unnecessary because the Mexican restaurant’s made-to-order tacos and burritos fell under the description of sandwiches contained in the agreement.
lessons learned
This case highlights several important principles in the drafting of non-compete agreements. First, it is important to draft clear and unambiguous clauses. Ambiguities in non-compete agreements can lead to courts interpreting them in a way that often results in the most narrow possible interpretation of the non-compete. Judges consider the parties’ intent at the time the contract was entered into, relying primarily on the wording of the non-compete. When the wording is ambiguous, courts will look at extrinsic evidence and interpret the ambiguity to the detriment of the party benefiting from the non-compete. This approach can lead to inconsistent decisions across jurisdictions—for example, a Massachusetts court ruled that tacos are not sandwiches.
Associations that enter into non-compete agreements should ensure that they are set out in a declaration or similar agreement so that all parties are effectively bound by them. Landlords must also ensure that non-compete agreements are included in their leases and are actively enforced. Tenants concerned about competitors can conduct a property search before signing a lease to determine any applicable restrictions. Alternatively, tenants can try to negotiate lease clauses that guarantee that their intended use is permitted. While landlords may balk at such broad clauses, negotiations can at least clarify whether the landlord has granted conflicting non-compete agreements to other tenants.
Diploma
The question of whether a taco is a sandwich may seem trivial, but it underscores the importance of precise language in noncompete agreements. Regardless of the case law, a well-drafted noncompete agreement should clearly reflect the intent of the parties. In real estate law, precision and clarity are paramount. In this case, the developer owned other Mexican restaurants, so if that style was even a possible intended use, the noncompete agreement could have been drafted with unambiguous language that would have expressly permitted it. Therefore, it is imperative for drafters to carefully draft their restrictions to avoid unintended legal consequences. Reservation Scriptor— Caution to the writer: Be thoughtful and precise when writing your draft to avoid unforeseen complications.
(View source code.)
