Is a Taco a Sandwich? An Indiana Court Weighs In: How to Approach Real Estate Restrictive Covenants 

For generations, people have long debated: Is a taco a sandwich? In a recent decision, a judge in Fort Wayne, Indiana weighed in and ruled that a taco is, in fact, a sandwich. While this particular case attracted attention from many news outlets as a zoning dispute, this seemingly trivial determination actually arises from a complex legal dispute involving restrictive covenants. This article explores the nature of restrictive covenants and their enforcement, using this case as a focal point.

Let’s unwrap this legal burrito.

Restrictive Covenants

A restrictive covenant is a condition in a contract that limits the activities of one of the parties. These covenants are prevalent in real estate and commercial leases, serving to maintain certain standards or restrictions on property use. For instance, owners might be required to keep their improvements painted a specific color or only use certain materials to maintain neighborhood aesthetics. Businesses may further face restrictions on the type of signage permitted or be required to insert certain terms into all commercial leases, such as minimum lease durations, to ensure stability and predictability.

Restrictive covenants can apply to any type of property, but they are particularly common in shopping centers or strip malls. In these contexts, major tenants or property owners seek to prevent direct competition by imposing restrictions while allowing non-competing businesses to occupy other spaces. These covenants bind those who have notice of them, and whether conduct amounts to a covenant breach depends on the specific wording and the circumstances of each case.

Although enforceable, restrictive covenants are often viewed unfavorably because they can inhibit the free marketability of land. Courts typically interpret these covenants as narrowly as possible to balance the parties’ intent with the principle of free land use. Remedies for breaching a restrictive covenant can include monetary damages or injunctive relief. Monetary damages might be calculated based on the difference in business value or anticipated lost sales due to the breach. Injunctive relief, which compels a party to cease certain actions, is available for express covenants but is subject to stringent conditions.

Quintana v. Fort Wayne Plan Commission

The recent case of Quintana v. Fort Wayne Plan Commission provides a practical illustration of restrictive covenants in action. In this case, a developer sought to rezone a commercial development from single-family (R1) to limited commercial (C2). To gain approval from a nearby association, the developer agreed to private covenants enforceable by the association. These covenants specified that the development could host a sandwich bar-style restaurant whose primary business is to sell ‘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-through service, or alcohol sales were allowed.

The developer ultimately decided to lease the space to a chain of Mexican restaurants he owned. Although the association agreed, they sought to amend the covenant to explicitly permit the restaurant. The Plan Commission, however, declined, stating they approve general uses, not specific business plans. The Plan Commission further found that the Mexican restaurant was not permitted under the existing restrictions. The judge agreed that the Plan Commission did not need to consider the amendment but ultimately ruled the amendment unnecessary, determining that the Mexican restaurant’s made-to-order tacos and burritos fell within the covenant’s description of sandwiches.

Lessons Learned

This case underscores several vital principles when drafting restrictive covenants. First, it is essential to draft clear and unambiguous clauses. Ambiguity in restrictive covenants can lead to judicial interpretation, often resulting in the narrowest possible reading of the covenant. Judges will consider the parties’ intent at the time the contract was formed, relying primarily on the covenant’s language. If the language is ambiguous, courts will examine extrinsic evidence and construe ambiguity against the party benefiting from the restriction. This approach can lead to inconsistent rulings across jurisdictions—a Massachusetts court, for instance, determined that tacos are not sandwiches.

Associations entering into restrictive covenants should ensure these covenants are recorded in a declaration or similar agreement to bind all parties effectively. Landlords must also ensure that restrictive covenants are included in their leases and actively enforced. Tenants concerned about competitors may consider conducting a title search to identify any applicable restrictions before signing a lease. Alternatively, tenants can try to negotiate lease clauses that guarantee their intended use is permitted. While landlords may resist such broad clauses, negotiations can at least clarify whether the landlord has granted any other tenants conflicting restrictive covenants.

Conclusion

The question of whether a taco is a sandwich may seem trivial, but it underscores the importance of precise language in restrictive covenants. Regardless of the jurisdiction, a well-drafted restrictive covenant should clearly reflect the parties’ intent. In real estate law, precision and clarity are paramount. Here, the developer owned other Mexican restaurants, so if this style was even a possible intended use, the restrictive covenant could have been drafted with unambiguous language that would have expressly permitted it. Thus, it is imperative for drafters to meticulously articulate their restrictions to avoid unintended legal consequences. Caveat scriptor—drafter beware—be deliberate and precise in your drafting to prevent unforeseen complications.