Case Name: DAVIDSON BROS., INC., A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT, v. D. KATZ & SONS, INC., A NEW JERSEY CORPORATION; CITY OF NEW BRUNSWICK, A MUNICIPAL CORPORATION; C-TOWN, A DIVISION OF KRASDALE FOODS, INC., A NEW YORK CORPORATION, AND NEW BRUNSWICK HOUSING AUTHORITY, A BODY CORPORATE AND POLITIC, DEFENDANTS-RESPONDENTS
Court: Supreme Court of New Jersey
Jurisdiction: New Jersey
Decision Date: 1990-07-26
Citations: 121 N.J. 196
Docket Number: 
Parties: DAVIDSON BROS., INC., A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT, v. D. KATZ & SONS, INC., A NEW JERSEY CORPORATION; CITY OF NEW BRUNSWICK, A MUNICIPAL CORPORATION; C-TOWN, A DIVISION OF KRASDALE FOODS, INC., A NEW YORK CORPORATION, AND NEW BRUNSWICK HOUSING AUTHORITY, A BODY CORPORATE AND POLITIC, DEFENDANTS-RESPONDENTS.
Judges: 
Reporter: New Jersey Reports
Volume: 121
Pages: 196–235

Head Matter:
579 A.2d 288
DAVIDSON BROS., INC., A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT, v. D. KATZ & SONS, INC., A NEW JERSEY CORPORATION; CITY OF NEW BRUNSWICK, A MUNICIPAL CORPORATION; C-TOWN, A DIVISION OF KRASDALE FOODS, INC., A NEW YORK CORPORATION, AND NEW BRUNSWICK HOUSING AUTHORITY, A BODY CORPORATE AND POLITIC, DEFENDANTS-RESPONDENTS.
Argued September 25, 1989
Decided July 26, 1990.
Sheppard A. Guryan argued the cause for appellant (Lasser, Hochman, Marcus, Guryan and Kuskin, attorneys; Bruce H. Snyder, on the brief).
Arthur L. Phillips argued the cause for respondent D. Katz & Sons, Inc., a New Jersey Corporation.
Linda K. Anderson, Assistant City Attorney, argued the cause for respondent City of New Brunswick, a Municipal Corporation (William J. Hamilton, Jr., City Attorney, attorney).
Mary M. Cheh argued the cause for respondent C-Town, a Division of Krasdale Foods, Inc., a New York Corporation ('George J. Otlowski, Jr., attorney).
Robert J. Lecky argued the cause for respondent New Brunswick Housing Authority, a Body Corporate and Political (Siamberger & Lecky, attorneys).

Opinion:
The opinion of the Court was delivered by
GARIBALDI, J.
This case presents two issues. The first is whether a restrictive covenant in a deed, providing that the property shall not be used as a supermarket or grocery store, is enforceable against the original covenantor's successor, a subsequent purchaser with actual notice of the covenant. The second is 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.
I
The facts are not in dispute. 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 (the "George Street" property). Plaintiff operated a supermarket on that property for approximately seven to eight months. The store operated at a loss allegedly because of competing business from plaintiff's other store, located two miles away (the "Elizabeth Street" property). Consequently, plaintiff and Irisondra conveyed, by separate deeds, the George Street property to defendant D. Katz & Sons, Inc., with a restrictive covenant not to operate a supermarket on the premises. Specifically, each deed contained the following covenant:
The lands and premises described herein and conveyed hereby are conveyed subject to the restriction that said lands and premises shall not be used as and for a supermarket or grocery store of a supermarket type, however designated, for a period of forty (40) years from the date of this deed. This restriction shall be a covenant attached to and running with the lands.
The deeds were duly recorded in Middlesex County Clerk's office on September .10, 1980. According to plaintiff's complaint, its operation of both stores resulted in losses in both stores. Plaintiff alleges that after the closure of the George Street store, its Elizabeth Street store increased in sales by twenty percent and became profitable. Plaintiff held a leasehold interest in the Elizabeth Street property, which commenced in 1978 for a period of twenty years, plus two renewal terms of five years.
According to defendants New Brunswick Housing Authority (the "Authority") and City of New Brunswick (the "City"), the closure of the George Street store did not benefit the residents of downtown New Brunswick. Defendants allege that many of the 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 because there were no other markets in downtown New Brunswick, save for two high-priced convenience stores.
The residents requested the aid of the City and the Authority in attracting a new food retailer to this urban-renewal area. For six years, those efforts were unsuccessful. Finally, in 1986, an executive of C-Town, a division of a supermarket chain, approached representatives of New Brunswick about securing financial help from the City to build a supermarket.
Despite its actual notice of the covenant the Authority, on October 23, 1986, purchased the George Street property from Katz for $450,000, and agreed to lease from Katz at an annual net rent of $19,800.00, the adjacent land at 263-265 George Street for use as a parking lot. The Authority invited proposals for the lease of the property to use as a supermarket. C-Town was the only party to submit a proposal at a public auction. 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. The Authority accepted the proposal in 1987. All the defendants in this case had actual notice of the restrictions contained in the deed and of plaintiffs intent to enforce the same. 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.
Plaintiff filed this action in the Chancery Division against defendants D. Katz & Sons, Inc., the City of New Brunswick, and C-Town. 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. 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. Both counts sought compensatory and punitive damages. That complaint was then amended to include defendant the New Brunswick Housing Authority.
Plaintiff moved for summary judgment, to which defendants responded by submitting three affidavits, one from Agnes Scott, President of the New Brunswick Home Tenants Council; one from Richard M. Keefe, Executive Director of the Housing and Urban Development Authority of New Brunswick; and one from Frank R. Nero, Director of the Department of Policy and Economic Development for New Brunswick, all alleging the need for a supermarket in the area of George Street.
The trial court denied plaintiff's motion and held, in an unreported opinion, that the covenant was unenforceable, relying on Brewer v. Marshall & Cheeseman, 19 N.J.Eq. 537 (E. & A.1868). That case held that the burden of a covenant will not run with the land and therefore bind a successor unless the covenant "affects the physical use of the land itself." This view "effectively stifles any possibility of covenants relating to competition," 5 R. Powell & P. Rohan, Powell on Real Property § 675[3], 60-108 (rev. ed. 1989). (5 Powell). Although the Brewer decision was an old case, (1868), the trial court was satisfied that it was still controlling and found that the covenant was unenforceable because it did not "touch and concern" the land. Additionally, the trial court noted that the enforcement of non-competition covenants is contrary to a longstanding public policy. However, the trial court observed that the determination of whether the covenant was reasonable and consistent with public policy would require a factual hearing and could not be made in a motion for summary judgment.
The trial court also held that the rent-free lease between the Authority and C-Town did not violate the New Jersey Constitution of 1947, article eight, section three, paragraphs two and three. The court found that the lease was valid inasmuch as it furthered a "public purpose" as defined by a two-part test set forth in Roe v. Kervick, 42 N.J. 191, 207, 199 A.2d 834 (1964).
After the court denied plaintiff's motion for summary judgment, defendants moved for summary judgment, which was granted. Plaintiff appealed, and in an unreported opinion, the Appellate Division affirmed the trial court's judgment. For purposes of its decision the Appellate Division assumed that Brewer was not applicable, that noncompetitive covenants may run with the land in appropriate cases, that a leasehold interest in land is a sufficient interest to enforce a covenant, that two miles between the burdened and benefitted properties does not itself prevent a covenant from being enforced, and that the George Street store would impair the profitability of the Elizabeth Street store. Although the Appellate Division found "some merit" to plaintiff's argument that Brewer v. Marshall, supra, 19 N.J.Eq. 537, no longer represented the current law in New Jersey, the court held that the covenant was unenforceable against a subsequent grantee because the benefit did not "touch and concern" plaintiff's Elizabeth Street property. Specifically, the court reasoned that because the covenant restricted such a comparatively small portion of the market area, less than one-half an acre, and did not impair the use of the other 2,000 acres in the market circle from which the Elizabeth store draws its clientele, the covenant did not enhance the value of the retained estate, and therefore, as a matter of law, would not bind a subsequent purchaser. In contrast to the trial court's decision, the Appellate Division's rationale was premised on the failure of the benefit of the covenant to run, not of the burden.
The Appellate Division also affirmed the trial court's judgment that the rent-free lease was constitutionally valid, substantially for the reasons expressed by the trial court.
We granted plaintiffs petition for certification. 113 N.J. 655, 552 A.2d 177 (1988).
II
A. Genesis and Development of Covenants Regarding the Use of Property
Covenants regarding property uses have historical roots in the courts of both law and equity. The English common-law courts first dealt with the issue in Spencer's Case, 5 Co. 16a, 77 Eng.Rep. 72 (Q.B.1583). The court established two criteria for the enforcement of covenants against successors. First, the original covenanting parties must intend that the covenant run with the land. Second, the covenant must "touch and concern" the land. Id. at 16b, 77 Eng.Rep. at 74. The court explained the concept of "touch and concern" in this manner:
But although the covenant be for him [an original party to the promise] and his assigns, yet if the thing to be done be merely collateral to the land, and doth not touch and concern the thing demised in any sort, there the assignee shall not be charged. As if the lessee covenants for him and his assignees to build a house upon the land of the lessor which is no parcel of the demise, or to pay any collateral sum to the lessor, or to a stranger, it shall not bind the assignee, because it is merely collateral, and in no manner touches or concerns the thing that was demised, or that is assigned over, and therefore in such case the assignee of the thing demised cannot be charged with it, no more than any other stranger. [Ibid.]
The English common-law courts also developed additional requirements of horizontal privity (succession of estate), vertical privity (a landlord-tenant relationship), and that the covenant have "proper form," in order for the covenant to run with the land. C. Clark, Real Covenants and Other Interests Which Run With the Land 94, 95 (2d ed. 1947) (Real Covenants ). Those technical requirements made it difficult, if not impossible, to protect property through the creation of real covenants. Commentary, "Real Covenants in Restraint of Trade — When Do They Run With the Land?," 20 Ala.L.Rev. 114, 115 (1967).
To mitigate and to eliminate many of the formalities and privity rules formulated by the common-law courts, the English chancery courts in Tulk v. Moxhay, 2 Phil. 774, 41 Eng.Rep. 1143 (Ch. 1848), created the doctrine of equitable servitudes. In Tulk, land was conveyed subject to an agreement that it would be kept open and maintained for park use. A subsequent grantee, with notice of the restriction, acquired the park. The court held that it would be unfair for the original covenantor to rid himself of the burden to maintain the park by simply selling the land. In enjoining the new owner from violating the agreement, the court stated:
It is said that, the covenant being one which does not run with the land, this court cannot enforce it, but the question is, not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased. Of course, the price would be affected by the covenant, and nothing could be more inequitable than that the original purchaser should be able to sell the property the next day for a greater price, in consideration of the assignee being allowed to escape from the liability which he had himself undertaken.
[Id. at 777-78, 41 Eng.Rep. 1144],
The court thus enforced the covenant on the basis that the successor had purchased the property with notice of the restriction. Adequate notice obliterated any express requirement of "touch and concern." Reichman, "Toward a Unified Concept of Servitudes," 55 S.Cal.L.Rev. 1177, 1225 (1982); French, "Toward a Modern Law of Servitudes: Reweaving Ancient Strands," 55 S.Cal.L.Rev. 1261, 1276-77 (1982). But see Burger, "A Policy Analysis of Promises Respecting the Use of Land," 55 Minn.L.Rev. 167, 217 (1970) (focusing on language in Tulk that refers to "use of land" and "attached to property" as implied recognition of "touch and concern" rule).
Some early commentators theorized that the omission of the technical elements of property law such as the "touch and concern" requirement indicated that Tulk was based on a contractual as opposed to a property theory. C. Clark, supra, Real Covenants, at 171-72 nn. 3 and 4; 3 H. Tiffany, Real Property § 861, at 489 (3d ed. 1939); Ames, "Specific Perform anee For and Against Strangers to Contract," 17 Harv.L.Rev. 174, 177-79 (1904); Stone, "The Equitable Rights and Liabilities of Strangers to the Contract," 18 Colum.L.Rev. 291, 294-95 (1918). Others contend that "touch and concern" is always, at the very least, an implicit element in any analysis regarding enforcement of covenants because "any restrictive easement necessitates some relation between the restriction and the land itself." MeLoone, "Equitable Servitudes — A Recent Case and Its Implications for the Enforcement of Covenants Not to Compete," 9 Ariz.L.Rev. 441, 444, 447 n. 5 (1968). Still others explain the "touch and concern" omission on the theory that equitable servitudes usually involve negative covenants or promises on how the land should not be used. Thus, because those covenants typically do touch and concern the land, the equity courts did not feel the necessity to state "touch and concern" as a separate requirement. Berger, "Integration of the Law of Easements, Real Covenants and Equitable Servitudes," 43 Wash. & Lee L.Rev., 337, 362 (1986). Whatever the explanation, the law of equitable servitudes did generally continue to diminish or omit the "touch and concern" requirement.
B. New Jersey's treatment of noncompetitive covenants restraining the use of property
Our inquiry of New Jersey law on restrictive property use covenants commences with a re-examination of the rule set forth in Brewer v. Marshall & Cheeseman, supra, 19 N.J.Eq. at 537, that a covenant will not run with the land unless it affects the physical use of the land. Hence, the burden side of a noncompetition covenant is personal to the covenantor and is, therefore, not enforceable against a purchaser. In Brewer v. Marshall & Cheeseman, the court objected to all noncompetition covenants on the basis of public policy and refused to consider them in the context of the doctrine of equitable servitudes. Similarly, in National Union Bank at Dover v. Segur, 39 N.J.L. 173 (Sup.Ct.1877), the court held that only the benefit of a noncompetition covenant would run with the land, but the burden would be personal to the covenantor. See 5 R. Powell, supra, § 675[3] at 60-109. Because the burden of a noncom-petition covenant is deemed to be personal in these cases, enforcement would be possible only against the original covenantor. As soon as the covenantor sold the property, the burden would cease to exist.
Brewer and National Union Bank have been subsequently interpreted as embodying the "unnecessarily strict" position that "while the benefit of [a noncompetition covenant] will run with the land, the burden of the covenant is necessarily personal to the covenantor." 5 Powell, supra, § 675[3] at 60-109. This blanket prohibition of noncompetition covenants has been ignored in more recent decisions that have allowed the burden of a noncompetition covenant to run, see Renee Cleaners Inc. v. Good Deal Supermarkets of N.J., 89 N.J.Super. 186, 214 A.2d 437 (App.Div.1965) (enforcing at law covenant not to lease property for dry-cleaning business as against subsequent purchaser of land); Alexander's v. Arnold Constable Corp., 105 N.J.Super. 14, 28, 250 A.2d 792 (Ch.1969) (enforcing promise entered into by prior holders of land not to operate department store as against current landowner). Nonetheless, Brewer may still retain some vitality, as evidenced by the trial court's reliance on it in this case.
The per se prohibition that noncompetition covenants regarding the use of property do not run with the land is not supported by modern real-covenant law, and indeed, appears to have support only in the Restatement of Property section on the running of real covenants, § 537 comment f. 5 Powell, supra, at § 675[3] at 60-109. Specifically, that approach is rejected in the Restatement's section on equitable servitudes, see Restatement of Property, § 539 comment k (1944); see also Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 95-96, 390 N.E.2d 243, 249 (1979) (overruling similarly strict approach inasmuch as it was "anachronistic" compared to modern judicial analysis of noncompetition covenants, which focuses on effects of covenant).
Commentators also consider the Brewer rule an anachronism and in need of change, as do we. 5 Powell, supra, ¶ 678 at 192. Accordingly, to the extent that Brewer holds that a noncompetition covenant will not run with the land, it is overruled.
Plaintiff also argues that the "touch and concern" test likewise should be eliminated in determining the enforceability of fully negotiated contracts, in favor of a simpler "reasonableness" standard that has been adopted in most jurisdictions. That argument has some support from commentators, see, e.g., Epstein, "Notice and Freedom of Contract in the Law of Servitudes," 55 S.Cal.L.Rev. 1353, 1359-61 (1982) (contending that "touch and concern" complicates the basic analysis and limits the effectiveness of law of servitudes), including a reporter for the Restatement (Third) of Property, see French, "Servitudes Reform and the New Restatement of Property: Creation Doctrines and Structural Simplification," 73 Cornell L.Rev. 928, 939 (1988) (arguing that "touch and concern" rule should be completely eliminated and that the law should instead directly tackle the "running" issue on public-policy grounds).
New Jersey courts, however, continue to focus on the "touch and concern" requirement as the pivotal inquiry in ascertaining whether a covenant runs with the land. Under New Jersey law, a covenant that "exercise[s] [a] direct influence on the occupation, use or enjoyment of the premises" satisfies the "touch and concern" rule. Caullett v. Stanley Stilwell & Sons, Inc., 67 N.J.Super. 111, 116, 170 A.2d 52 (App.Div.1961). The covenant must touch and concern both the burdened and the benefitted property in order to run with the land. Ibid.; Hayes v. Waverly & Passaic R.R., 51 N.J.Eq. 3, 27 A. 648 (Ch. 1893). Because the law frowns on the placing of restrictions on the freedom of alienation of land, New Jersey courts will enforce a covenant only if it produces a countervailing benefit to justify the burden. Restatement of Property § 543, comment c (1944); Reichman, supra, 55 S.Cal.L.Rev. at 1229.
Unlike New Jersey, which has continued to rely on the "touch and concern" requirement, most other jurisdictions have omitted "touch and concern" from their analysis and have focused instead on whether the covenant is reasonable. See, e.g., Doo v. Packwood, 265 Cal.App.2d 752, 71 Cal.Rptr. 477 (1968) (covenant not to sell groceries on property conveyed); Natural Prods. Co. v. Dolese & Shepard Co., 309 Ill. 230, 140 N.E. 840 (1923) (covenant not to sell stone on property conveyed); Coomes v. Aero Theatre & Shopping Center, 207 Md. 432, 114 A.2d 631 (1955) (covenant not to compete with shopping center); Raney v. Tompkins, 197 Md. 98, 78 A.2d 183 (1951) (covenant not to compete with gas station); Sun Oil Co. v. Trent Auto Wash, Inc., 379 Mich. 182, 150 N.W.2d 818 (1967) (covenant not to use retained land as gas station); Kerrick v. Schoenberg, 328 S.W.2d 595 (Mo.1959) (covenant not to use retained land for gasoline station); Hall v. American Oil Co., 504 S.W.2d 313 (Mo.Ct.App.1973) (covenant not to use land for gasoline station); Johnson v. Shaw, 101 N.H. 182, 137 A.2d 399 (1957) (covenant not to use land for gasoline stations or overnight cabins); Quadro Stations Inc. v. Gilley, 7 N.C.App. 227, 172 S.E.2d 237 (1970) (covenant not to use land for sale of petroleum products); Gillen-Crow Pharmacies, Inc. v. Mandzak, 5 Ohio St.2d 201, 215 N.E.2d 377 (1966) (covenant not to sell drugs or prescriptions on premises); Hodge v. Sloan, 107 N.Y. 244, 17 N.E. 335 (1887) (covenant not to sell sand on property conveyed); Hercules Powder Co. v. Continental Can Co., 196 Va. 935, 86 S.E.2d 128 (1955) (covenant not to engage in manufacture of pulp on property conveyed); Carneal v. Kendig, 196 Va. 605, 85 S.E.2d 235 (1955) (covenant not to use land for moving-picture business); Oliver v. Hewitt, 191 Va. 163, 60 S.E.2d 1 (1950) (covenant not to sell groceries and soft drinks on land conveyed); Colby v. McLaughlin, 50 Wash.2d 152, 310 P.2d 527 (1957) (covenant not to sell drugs, beer, or ice cream on land conveyed); see also McLoone, supra, 9 Ariz.L.Rev. at 442 n. 3 (noting that "great majority" of jurisdictions enforce as equitable servitude both benefit and burden of covenant not to compete on mere principles of notice).
Even the majority of courts that have retained the "touch and concern" test have found that noncompetition covenants meet the test's requirements. See, e.g., Dick v. Sears-Roebuck & Co., 115 Conn. 122, 160 A. 432 (1932) (holding "touch and concern" element satisfied where noncompetition covenants restrained "use to which the land may be put in the future as well as in the present, and which might very likely affect its value"); Singer v. Wong, 35 Conn.Supp. 640, 404 A.2d 124 (1978) (restrictive covenant in deed providing that premises not be used as shopping center "touched and concerned" land because it materially affected value of land); Rosen v. Wolff, 152 Ga. 578, 110 S.E. 877 (1922) ("touch and concern" rule satisfied where noncompetition covenant affected nature, quality, value, or mode of enjoyment of demised premises); Whitinsville Plaza, Inc. v. Kotseas, supra, 378 Mass. 85, 390 N.E.2d 243 (noncompetition covenant satisfied "touch and concern" rule within the ordinary sense and meaning of the phrase"); Gonzales v. Reynolds, 34 N.M. 35, 275 P. 922 (1929) (noncompetition covenant satisfied "touch and concern" requirement by affecting use or value of it). But see Savings Bank v. City of Blytheville, 240 Ark. 558, 401 S.W.2d 26 (1966) (anticompetitive agreement increased value of land only indirectly therefore did not "touch and concern"); Kettle River R. Co. v. Eastern Ry. Co., 41 Minn. 461, 43 N.W. 469 (1889) (covenant that denied access to other railroads did not "touch and concern" land inasmuch as it was not a "privilege affecting the land" of either party to covenant). See generally McLoone, supra, 9 Ariz.L.Rev. at 448 n. 28 (listing cases that recognize that a covenant not to use land competitively meets the "touch and concern" test, notwithstanding diverse definitions of "touch and concern").
The "touch and concern" test has, thus, ceased to be, in most jurisdictions, intricate and confounding. Courts have decided as an initial matter that covenants not to compete do touch and concern the land. The courts then have examined explicitly the more important question of whether covenants are reasonable enough to warrant enforcement. The time has come to cut the gordian knot that binds this state's jurisprudence regarding covenants running with the land. Rigid adherence to the "touch and concern" test as a means of determining the enforceability of a restrictive covenant is not warranted. Reasonableness, not esoteric concepts of property law, should be the guiding inquiry into the validity of covenants at law. We do not abandon the "touch and concern" test, but rather hold that the test is but one of the factors a court should consider in determining the reasonableness of the covenant.
A "reasonableness" test allows a court to consider the enforceability of a covenant in view of the realities of today's commercial world and not in the light of out-moded theories developed in a vastly different commercial environment. Originally strict adherence to "touch and concern" rule in the old English common-law cases and in Brewer, was to effectuate the then pervasive public policy of restricting many, if not all, encumbrances of the land. Courts today recognize that it is not unreasonable for parties in commercial-property transactions to protect themselves from competition by executing noncompetition covenants. Businesspersons, either as lessees or purchasers may be hesitant to invest substantial sums if they have no minimal protection from a competitor starting a business in the near vicinity. Hence, rather than limiting trade, in some instances, restrictive covenants may increase business activity.
We recognize that "reasonableness" is necessarily a fact sensitive issue involving an inquiry into present business conditions and other factors specific to the covenant at issue. Nonetheless, as do most of the jurisdictions, we find that it is a better test for governing commercial transactions than are obscure anachronisms that have little meaning in today's commercial world. The pivotal inquiry, therefore, becomes what factors should a court consider in determining whether such a covenant is "reasonable" and hence enforceable. We conclude that the following factors should be considered:
1. The intention of the parties when the covenant was executed, and whether the parties had a viable purpose which did not at the time interfere with existing commercial laws, such as antitrust laws, or public policy.
2. Whether the covenant had an impact on the considerations exchanged when the covenant was originally executed. This may provide a measure of the value to the parties of the covenant at the time.
3. Whether the covenant clearly and expressly sets forth the restrictions.
4. Whether the covenant was in writing, recorded, and if so, whether the subsequent grantee had actual notice of the covenant.
5. Whether the covenant is reasonable concerning area, time or duration. Covenants that extend for perpetuity or beyond the terms of a lease may often be unreasonable. Alexander's v. Arnold Constable, 105 N.J.Super. 14, 27, 250 A.2d 792 (Ch.Div.1969); Cragmere Holding Corp. v. Socony Mobile Oil Co., 65 N.J.Super. 322, 167 A.2d 825 (App.Div.1961).
6. Whether the covenant imposes an unreasonable restraint on trade or secures a monopoly for the covenantor. This may be the case in areas where there is limited space available to conduct certain business activities and a covenant not to compete burdens all or most available locales to prevent them from competing in such an activity. Doo v. Packwood, 265 Cal.App.2d 752, 71 Cal.Rptr. 477 (1968); Kettle River R. v. Eastern Ry. Co., 41 Minn. 461, 43 N.W. 469 (1889).
7. Whether the covenant interferes with the public interest. Natural Prods. Co. v. Dolese & Shepard Co., 309 Ill. 230, 140 N.E. 840 (1923).
8. Whether, even if the covenant was reasonable at the time it was executed, "changed circumstances" now make the covenant unreasonable. Welitoff v. Kohl, 105 N.J.Eq. 181, 147 A. 390 (1929).
In applying the "reasonableness" factors, trial courts may find useful the analogous standards we have adopted in determining the validity of employee covenants not to compete after termination of employment. Although enforcement of such a covenant is somewhat restricted because of countervailing policy considerations, we generally enforce an employee non-competition covenant as reasonable if it "simply protects the legitimate interests of the employer imposes no undue hardship on the employee, and is not injurious to the public." Solari Indus. v. Malady, 55 N.J. 571, 576, 264 A.2d 53 (1970). We also held in Solan that if such a covenant is found to be overbroad, it may be partially enforced to the extent reasonable under the circumstances. Id. at 585, 264 A.2d 53. That approach to the enforcement of restrictive covenants in deeds offers a mechanism for recognizing and balancing the legitimate concerns of the grant- or, the successors in interest, and the public.
The concurrence maintains that the initial validity of the covenant is a question of contract law while its subsequent enforceability is one of property law. Post at 221, 579 A.2d at 300. The result is that the concurrence uses reasonableness factors in construing the validity of the covenant between the original covenantors, but as to successors-in-interest, claims to adhere strictly to a "touch and concern" test. Post at 222, 579 A.2d at 301. Such strict adherence to a "touch and concern" analysis turns a blind eye to whether a covenant has become unreasonable over time. Indeed many past illogical and contorted applications of the "touch and concern" rules have resulted because courts have been pressed to twist the rules of "touch and concern" in order to achieve a result that comports with public policy and a free market. Most jurisdictions acknowledge the reasonableness factors that affect enforcement of a covenant concerning successors-in-interest, instead of en gaging in the subterfuge of twisting the touch and concern test to meet the required result. New Jersey should not remain part of the small minority of States that cling to an anachronistic rule of law. Supra at 210, 579 A.2d at 295.
There is insufficient evidence in this record to determine whether the covenant is reasonable. Nevertheless, we think it instructive to comment briefly on the application of the "reasonableness" factors to this covenant. We consider first the intent of the parties when the covenant was executed. It is undisputed that when plaintiff conveyed the property to Katz, it intend-. ed that the George Street store would not be used as a supermarket or grocery store for a period of forty years to protect his existing business at the Elizabeth Street store from competition. 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. There is no evidence, however, of the purchase price. It is also undisputed that the covenant was expressly set forth in a recorded deed, that the Authority took title to the premises with actual notice of the restrictive covenant, and, indeed, that all the defendants, including C-Town, had actual notice of the covenant.
The parties do not specifically contest the reasonableness of either the duration or area of the covenant. Aspects of the "touch and concern" test also remain useful in evaluating the reasonableness of a covenant, insofar as it aids the courts in differentiating between promises that were intended to bind only the individual parties to a land conveyance and promises affecting the use and value of the land that was intended to be passed on to subsequent parties. Covenants not to compete typically do touch and concern the land. In noncompetition cases, the "burden" factor of the "touch and concern" test is easily satisfied regardless of the definition chosen because the covenant restricts the actual use of the land. Berger, supra, 52 Wash.L.Rev. at 872. The Appellate Division properly con- eluded that the George Street store was burdened. However, we disagree with the Appellate Division's conclusion that in view of the covenant's speculative impact, the covenant did not provide a sufficient "benefit" to the Elizabeth Street property because it burdened only a small portion (George Street store) of the "market circle" (less than one-half acre in a market circle of 2000 acres).
The size of the burdened property relative to the market area is not a probative measure of whether the Elizabeth store was benefitted. Presumably, the use of the Elizabeth Street store as a supermarket would be enhanced if competition were lessened in its market area. If plaintiff's allegations that the profits of the Elizabeth Street store increased after the sale of the George Street store are true, this would be evidence that a benefit was "conveyed" on the Elizabeth Street store. Likewise, information that the area was so densely populated, that the George Street property was the only unique property available for a supermarket, would show that the Elizabeth Street store property was benefitted by the covenant. In this connection the C-Town executive in his deposition noted that the George Street store location "businesswise was promising because there's no other store in town." Such evidence, however, also should be considered in determining the "reasonableness" of the area covered by the covenant and whether the covenant unduly restrained trade.
Defendants' primary contention is that 'due to the circumstances of the neighborhood and more particularly the circumstances of the people of the neighborhood, plaintiff's covenant interferes with the public's interest. Whether that claim is essentially that the community has changed since the covenant was enacted or that the circumstances were such that when the covenant was enacted, .it interfered with the public interest, we are unable to ascertain from the record. "Public interest" and "changed circumstances" arguments are extremely fact-sensitive. The only evidence that addresses those issues, the three affidavits of Mr. Keefe, Mr. Nero and Ms. Scott, are insufficient to support any finding with respect to those arguments.
The fact-sensitive nature of a "reasonableness" analysis make resolution of this dispute through summary judgment inappropriate. We therefore remand the case to the trial court for a thorough analysis of the "reasonableness" factors delineated herein.
The trial court must first determine whether the covenant was reasonable at the time it was enacted. If it was reasonable then, but now adversely affects commercial development and the public welfare of the people of New Brunswick, the trial court may consider whether allowing damages for breach of the covenant is an appropriate remedy. C-Town could then continue to operate but Davidson would get damages for the value of his covenant. On the limited record before us, however, it is impossible to make a determination concerning either reasonableness of the covenant or whether damages, injunctive relief, or any relief is appropriate.
In sum, we reject the trial court's conclusion because it depends largely on the continued vitality of Brewer, which we hereby overrule. Supra at 201-202, 579 A.2d at 290-291. Likewise, we reject the Appellate Division's reliance on the "touch and concern" test. Instead, the proper test to determine the enforceability of a restricted noncompetition covenant in a commercial land transaction is a test of "reasonableness," an approach adopted by a majority of the jurisdictions.
Ill
The other issue before us concerns whether the lease granted by the Housing Authority to C-Town constitutes an impermissible gift of public property in violation of the State Constitution. The five-year term lease was conditioned on the operation of a full-service supermarket in exchange for one dollar a year and ten thousand dollars in improvements to the property.
The New Jersey Constitution of 1947, article eight, section three, paragraphs two and three provides:
2. No county, city, borough, town, township or village shall hereafter give any money or property, or loan its money or credit, to or in aid of any individual, association or corporation, or become security for, or be directly or indirectly the owner of, any stock or bonds of any association or corporation.
3. No donation of land or appropriation of money shall be made by the State or any county or municipal corporation to or for the use of any society, association or corporation whatever.
Those provisions, which prohibit donations of public funds for private use, were taken from the 1844 Constitution, as amended in 1875. Hill v. Summit, 64 N.J.Super. 522, 166 A.2d 610 (Law Div.1960). They were precipitated by a number of abusive practices that occurred during the nineteenth century when railroads and other private corporations were provided direct public assistance to the serious detriment of the taxpayers under the guise of "encouraging development." Roe v. Kervick, supra, 42 N.J. at 206, 199 A.2d 834. The provisions were intended to signal "the retreat to a fundamental doctrine of government, i.e., that public money should be raised and used only for public purposes." Id. at 207, 199 A.2d 834.
In Roe v. Kervick, supra, 42 N.J. at 191, 199 A.2d 834, we established the tests to ascertain whether a public entity's action in lending funds to private entities is violative of the constitutional provisions. In Roe we held that where a governmental entity contracts with a private entity in order to carry out a traditional public-government function, and where the contractual relationship is such that the governmental entity, as a practical matter, completely controls the private entity's actions in performing that public service, the fact that the private entity also derives an incidental benefit or profit will not invalidate the agreement.
The issue in Roe was whether the New Jersey State Area Redevelopment Assistance Act (Redevelopment Act), which authorized government loans to finance private for-profit redevel opment projects aimed at providing job opportunities in economically distressed areas in New Jersey was constitutional under N.J. Constitution of 1947, article eight, section 3, paragraphs two and three. To decide this case, the Court posed the following two questions:
(1) Is legislative provision for financial aid to relieve unemployment a public purpose, and (2) if so, is the method of relief provided in this instance so consonant with the accomplishment of that public purpose as to be beyond the limitations on the use of public money laid down by Article VIII of the Constitution?
[42 N.J. at 212, 199 A.2d 834].
In answering the first question, the Court established a two-part test to define the concept of public purpose. The activity must be one that "serves a benefit to the community as a whole, and which, at the same time is directly related to the function of government." Id. at 207, 199 A.2d 834. The Court recognized however that the concept of a public purpose "cannot be static in its implications," and that
[t]o be serviceable it must expand when necessary to encompass changing public needs of a modern dynamic society. Thus it is incapable of exact or perduring definition. In each instance where the test is to be applied the decision must be reached with reference to the object sought to be accomplished and to the degree and manner in which the object affects the public welfare.
[Ibid. (citations omitted).]
After a detailed examination of the design and scheme of the Redevelopment Act, the Court first concluded that the purpose to "relieve substantial and persistent unemployment" in distressed areas of New Jersey constituted a "public purpose." It benefitted the public and was directly related to the function of government. The Court then addressed whether the means of relief was so consonant with the purpose of the statute to be within the constitutional limits imposed by Article VIII of the Constitution. Again, after a detailed examination of the Redevelopment Act, the Court concluded that the scope and public purpose of the agency's agreed undertaking was clearly delineated and so circumscribed by the federal and state acts, that
by virtue of the contract, the private operator is so closely identified with accomplishment of the public purpose, and his business activity is so strictly pointed in that direction, that for practical purposes he represents the controlled means by which the government accomplished a proper objective.
[Ibid. at 219, 199 A.2d 834].
The Court's language in Roe is instructive of the strict standards that public entities must meet if their expenditures are to be deemed constitutional under Article eight, section three, paragraphs two and three:
When the character of the contract is studied in light of the scope and restrictions of the federal and State laws, the fact becomes evidence that although the agency establishing the project is a private one, it is so circumscribed in its operation as to be considered in a sense a controlled instrumentality with respect to its use of the limited public financial assistance. Obviously the funds of the State or a county or municipality could not be loaned to a private agency to be used as the agency pleased. Clearly the Constitution would stand in the way. But when the loan is granted for an obvious public purpose and its use confined to the execution of that purpose through a reasonable measure of control by a public authority by means of contractual stipulation, statutory and administrative regulation, the private agency takes on the form of a special public agent for the paramount purpose of devoting the money to relief of unemployment.
[Id. at 222, 199 A.2d 834 (citations omitted).]
The present situation is not totally analogous to that in Roe. In that case, the public purpose clearly was set forth in the statute itself and directly related to a function of government. The acquisition of land to facilitate the operation of a supermarket is not a traditional governmental function. Yet, there may be ways to justify this kind of government involvement or subsidy. In N.J. Housing & Mortgage Fin. Agency v. Moses, 215 N.J.Super. 318, 324, 521 A.2d 1307 (App.Div.1987), the court decided that the exercise of eminent domain for the purpose of constructing a shopping center was justifiable. A shopping center would, the court determined, enhance the livability of publicly financed residential properties in the area by providing food and other services to the residents of those properties. Likewise, there may be a legitimate government purpose involved in the operation of C-Town in this context.
The record in this case is not sufficient to establish that the operation of this supermarket constitutes such a purpose. The evidence consists solely of three conclusory and vague affida vits. The affidavits state in very general terms that there is need for a supermarket for some unspecified number of low and middle-income residents who 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. There is a need for more documentation of these assertions.
Accordingly, we find that there is insufficient evidence on this record to establish that the purchase, lease, and operation of the George Street property as a supermarket constituted a "public purpose" under the Roe standard. Likewise, we find that there are insufficient facts to support a conclusion that the Authority's means of accomplishing the public purpose were sufficiently restricted. 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. This lease may fall short of fulfilling the public good.
We reject plaintiff's assertion, however, that Scott v. Town of Bloomfield, 94 N.J.Super. 592, 229 A.2d 667 (Law Div.1967), aff'd, 98 N.J.Super. 321, 237 A.2d 297 (App.Div.), appeal dismissed, 52 N.J. 473, 246 A.2d 129 (1968), and East Orange v. Board of Water Commissioners, 79 N.J.Super. 363, 191 A.2d 749 (App.Div.), aff'd on other grounds, 41 N.J. 6, 194 A.2d 459 (1963), command that the public entity receive fair consideration for the lease. Neither case is on point. Moreover, a public entity need not receive fair consideration for a lease so long as the activity sponsored is for a public purpose and the private entity represents the controlled means by which the government accomplishes the public purpose.
We remand to the trial court to determine whether the purchase, lease, and operation of the supermarket constituted a public purpose, and, if so, whether the Housing Authority used justifiable means to attract a supermarket to the area of downtown New Brunswick.
Judgment reversed and cause remanded for further proceedings consistent with this opinion.