121 N.J. 196, 579 A.2d 288
Prior to September 1980 plaintiff Davidson Bros., Inc., along with Irisondra, Inc., a related corporation, owned certain premises located at 263-271 George Street and 30 Morris Street in New Brunswick.1 Plaintiff operated a supermarket on that property for approximately seven to eight months.2 The store operated at a loss allegedly because of competing business from plaintiff's other store, located two miles away at the Elizabeth Street property.3
Consequently plaintiff and Irisondra conveyed the George Street property to defendant D. Katz & Sons, Inc., by separate deeds containing a restrictive covenant that the lands shall not be used as a supermarket or grocery store for a period of forty years from the date of the deed.4 The deeds were duly recorded in the Middlesex County Clerk's office on September 10, 1980.5 After the closure plaintiff's Elizabeth Street store sales increased by twenty percent and became profitable.6 Plaintiff held a leasehold interest in the Elizabeth Street property that commenced in 1978 for twenty years plus two renewal terms of five years.7
According to defendants New Brunswick Housing Authority and City of New Brunswick the closure did not benefit downtown residents.8 Residents who lived two blocks away from the George Street store in multi-family and senior-citizen housing units were forced to take public transportation and taxis to the Elizabeth Street store.9 There were no other markets in downtown New Brunswick, save for two high-priced convenience stores.10 The residents requested the aid of the City and the Authority in attracting a new food retailer to this urban-renewal area.11 For six years those efforts were unsuccessful.12 Finally in 1986 an executive of C-Town approached representatives of New Brunswick about securing financial help from the City to build a supermarket.13
On October 23, 1986 the Authority purchased the George Street property from Katz for $450,000 with actual notice of the covenant.14 The Authority agreed to lease from Katz at an annual net rent of $19,800 the adjacent land at 263-265 George Street for use as a parking lot.15 The Authority invited proposals for the lease of the property to use as a supermarket.16 C-Town was the only party to submit a proposal at a public auction.17 The proposal provided for an aggregate rent of one dollar per year during the five-year lease term with an agreement to make $10,000 in improvements to the exterior of the building and land.18 The Authority accepted the proposal in 1987.19 All the defendants in this case had actual notice of the restrictions contained in the deed and of plaintiff's intent to enforce the same.20 Not only were the deeds recorded but the contract of sale between Katz and the Housing Authority specifically referred to the restrictive covenant and the pending action.21
Plaintiff filed this action in the Chancery Division against defendants D. Katz & Sons, Inc., the City of New Brunswick, and C-Town.22 The first count of the complaint requested a declaratory judgment that the noncompetition covenant was binding on all subsequent owners of the George Street property.23 The second count requested an injunction against defendant City of New Brunswick from leasing the George Street property on any basis that would constitute a gift to a private party in violation of the state constitution.24 Both counts sought compensatory and punitive damages.25 That complaint was then amended to include defendant the New Brunswick Housing Authority.26 Plaintiff moved for summary judgment, to which defendants responded by submitting three affidavits alleging the need for a supermarket in the area of George Street.27 The trial court denied plaintiff's motion and granted defendants' subsequent summary judgment motion.28 The Appellate Division affirmed and the Supreme Court granted certification.29
The record contains no evidence of the purchase price paid by Katz to Davidson.30 Plaintiff alleges that the purchase price negotiated between it and Katz took into account the value of the restrictive covenant and that Katz paid less for the property because of the restriction.31 The evidence on whether the supermarket lease serves a public purpose consists solely of three conclusory and vague affidavits.32 The affidavits state in very general terms that there is need for a supermarket for some unspecified number of low and middle-income residents.33 Those residents presumably do not drive and must take taxicabs or public transportation to the Elizabeth Street store two miles away, or shop at nearer but more expensive convenience stores.34 There is a need for more documentation of these assertions.35 The lease between C-Town and the Authority contains none of the detailed restrictions evident in Roe that made that private agency an arm of the government for purposes of carrying out a traditional government purpose.36
Whether a restrictive covenant in a deed providing that the property shall not be used as a supermarket or grocery store for forty years is enforceable against the original covenantor's successor, a subsequent purchaser with actual notice of the covenant?37
The enforceability of a restrictive covenant in a commercial land transaction is determined by a reasonableness test considering the intention of the parties when the covenant was executed, whether the covenant had an impact on the considerations exchanged, whether the covenant clearly and expressly sets forth the restrictions, whether the covenant was in writing and recorded with actual notice to the subsequent grantee, whether the covenant is reasonable concerning area time or duration, whether the covenant imposes an unreasonable restraint on trade or secures a monopoly, whether the covenant interferes with the public interest, and whether changed circumstances now make the covenant unreasonable.38 The touch and concern test is but one factor in the reasonableness inquiry and the per se prohibition from Brewer v. Marshall is overruled.39
Yes. The established facts demonstrate that the covenant was expressly set forth in recorded deeds.40 All defendants including the Authority and C-Town had actual notice of the covenant and the pending action.41 The original parties intended the covenant to run with the land to protect the Elizabeth Street store from competition as evidenced by the twenty percent sales increase after closure.42
The lower courts erred by applying the overruled Brewer rule and an overly rigid touch and concern analysis that ignored the benefit conveyed to the Elizabeth Street property.43 Although the covenant restricts use of the land and satisfies several reasonableness factors on the existing record the facts are insufficient to resolve the public interest and changed circumstances inquiries without further development at trial.44
The covenant is not per se unenforceable under outdated rules and the matter is remanded for application of the reasonableness test to determine enforceability against the subsequent purchaser with actual notice.45
Related opinions on this issue
Joined by Justice Clifford
Justice Pollock concurs in the remand but on different terms.46 The critical consideration in determining the validity of this covenant is whether it is reasonable as to scope and duration, a point that has never been at issue in this case.47 The original parties intended the covenant to run with the land.48
All defendants had actual notice and privity exists.49 The covenant touches and concerns both properties as shown by the sales increase at the Elizabeth Street store.50 The majority's reasonableness test confuses validity of the original contract with enforceability against successors and introduces uncertainty into real property law where certainty is essential.51
The only issue on remand should be whether the appropriate remedy is damages or an injunction.52 Enforcement by injunction would deprive downtown residents of convenient shopping.53 Refusal to enforce would deprive Davidson of the benefit of its covenant.54
Whether an alleged rent-free lease of lands by a public entity to a private corporation for use as a supermarket constitutes a gift of public property in violation of the New Jersey Constitution of 1947, article eight, section three, paragraphs two and three?55
A lease by a public entity to a private corporation does not violate the New Jersey Constitution of 1947, article eight, section three, paragraphs two and three, if the activity serves a public purpose that benefits the community as a whole and is directly related to the function of government.56 The private entity must be so circumscribed in its operation as to be considered a controlled instrumentality for accomplishing that public purpose under the two-part test from Roe v. Kervick.57
No. The established facts show that the Authority purchased the property for $450,000.58 It leased the property to C-Town for one dollar per year in exchange for ten thousand dollars in improvements.59 The only evidence addressing public purpose consists of three conclusory affidavits.60 Those affidavits allege a general need for a supermarket among low and middle income residents.61 They lack detailed documentation of how the lease serves a public purpose or how the means are restricted to ensure the private entity acts as a controlled instrumentality.62
The lease lacks the detailed restrictions present in Roe that would make C-Town an arm of the government.63 The record is therefore insufficient to establish that the purchase lease and operation constitute a public purpose or that the Authority's means were justified under the constitutional standard.64
The record is insufficient to determine whether the lease constitutes an impermissible gift of public property and the matter is remanded for further proceedings on whether the transaction serves a public purpose and employs justifiable means.65