Business & Insurance Litigation Newsletter for Indiana

Enforceability of Restrictive Covenants in Commercial Lease

In Tippecanoe Assoc. II, LLC v. Kimco Lafayette 671, Inc., 2004 WL 1489861 (Ind. Ct. App., July 6, 2004), a restrictive covenant in a commercial lease which prohibited the lessor from leasing any property in a two-mile radius to any other grocery store was enforced even where the original lessee, Kroger Company, had assigned its rights to Tippecanoe, who leased the property to H. H. Gregg, an appliance store. The lessor, SES, asked the Court to declare the covenant unenforceable because it could only find a grocery store to fill a vacancy in the plaza, and H. H. Gregg would not be injured by allowing a grocery store to move in. The Court reasoned that, in order to declare such a covenant void, radical changes in the neighborhood must have occurred, defeating the purpose of the covenant. Here, the Court determined that although significant changes had occurred, Tippecanoe, the owner of the lease, would be injured by declaring the covenant unenforceable. Tippecanoe owned other grocery stores in the area, consequently the restrictive covenant was valuable to Tippecanoe and served its purpose in limiting competition. Thus even though enforcing the covenant worked a hardship on SES, it served its purpose to Tippecanoe and was enforceable.