Davidson Brothers, Inc. v. D. Katz & Sons, Inc.

Supreme Court of New Jersey · 1990 · Property

579 A.2d 288 (N.J. 1990)

Updated July 23, 2026

Propertyrestrictive covenantsrunning with the landpublic purposegift of public propertyrestrictive covenantnoncompetition covenantcommercial land transaction

Facts

Plaintiff sold its George Street property to Katz in 1980 by deeds containing a recorded covenant that the land could not be used as a supermarket or grocery store of a supermarket type for forty years, stating that the restriction would run with the land. Plaintiff alleged that after closing its George Street supermarket, its nearby Elizabeth Street store increased sales and became profitable. In 1986, the New Brunswick Housing Authority, with actual notice of the covenant, bought the George Street property from Katz and accepted C-Town's proposal to lease it for five years at one dollar per year plus $10,000 in exterior improvements for supermarket use. Defendants asserted that downtown residents needed a supermarket because no comparable market operated nearby.

Issue

Whether a restrictive deed covenant barring supermarket use is enforceable against a successor purchaser with actual notice in a commercial land transaction. Whether the Housing Authority's low-rent lease of the property to C-Town for supermarket operation constituted an unconstitutional gift of public property.

Rule

In New Jersey, the enforceability of a restrictive noncompetition covenant in a commercial land transaction is governed by a test of reasonableness, not rigid adherence to the traditional touch-and-concern doctrine. Relevant factors include: the parties' intent and lawful purpose at execution; the covenant's effect on the exchanged consideration; clarity of the restriction; whether it was written, recorded, and known to the subsequent grantee; reasonableness as to area and duration; whether it imposes an unreasonable restraint on trade or secures a monopoly; whether it interferes with the public interest; and whether changed circumstances have made it unreasonable. For an alleged gift of public property, the government action must serve a public purpose benefiting the community and directly related to government function, and the means used must be sufficiently controlled and limited to that purpose.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Newark, Oak Terrace Markets sold a small retail parcel to Lena Ortiz. The recorded deed stated that for 25 years the parcel could not be used as a pharmacy, and that the restriction would run with the land. Five years later, Ortiz sold to Harbor Square Retail, which bought with actual notice and now argues the covenant is unenforceable because it does not "touch and concern" land.

How should a court most likely analyze enforceability against Harbor Square Retail?

Explanation. The majority rejected rigid reliance on touch and concern and overruled the older per se rule that noncompetition covenants do not run with land. In a commercial land transaction, the proper inquiry is overall reasonableness. Recording and actual notice strongly support enforcement, but they do not automatically decide the issue.