The Enforcement of Restrictive Covenants in Commercial Leases

HNWBusiness and Corporate Legal Services, Real Estate, Landlord/Tenant, and Zoning

  • Restrictive covenants prohibiting competition by tenants in a shopping center can be enforced in New Jersey.
  • This article discusses when and when not a restriction on selling products and services in a shopping center will be enforced.

shopping center
For business owners in a shopping center, competitors next door can be problematic, especially for a business with an exclusive right to sell products and/or product lines set forth in a lease. No business wants to compete with its next door neighbor (except for Wendy’s hamburgers who seems to like opening next door to McDonald’s) concerning the same products and/or product lines.
Some commercial leases have restrictions against tenants selling competing goods and services. The New Jersey Supreme Court has recognized that such restrictive covenants can be (in certain situations), pro-competitive and enforceable.

Courts will enforce restrictive covenants when they are reasonable under the circumstances. In determining whether a restrictive covenant should be enforced, courts will examine whether the restrictive covenant serves the legitimate business interest of the business in whose favor it would be enforced. If the covenant the tenant is seeking to enforce is reasonable under the circumstances, and serves a legitimate business purpose, a court is likely to enforce that covenant. If the covenant fails to serve a legitimate business purpose, it is not likely to be enforced.

Consequently, a business owner seeking to open a new location in a shopping center to sell a product line – but believes he or she is prohibited from doing under a preexisting restrictive covenant – should carefully study the restriction. If there is no longer a legitimate business interest in enforcing it, a court may declare the covenant unenforceable, and permit the intended action to go forward.

To discuss your NJ business law matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq., of Hanlon, Niemann & Wright, a Freehold, New Jersey Business Attorney

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