Last week, the Court of Appeals of Georgia affirmed a trial court decision finding that a restrictive covenant in a retail lease was not overly ambiguous and was not therefore unenforceable, and thereafter affirmed the trial court ruling in favor of the landlord. The upshot for business owners here is to understand that restrictive clauses in leases can be enforced.
In a nutshell, the tenant operated a women's clothing boutique near an Atlanta-area shopping mall. The lease included a restriction preventing the tenant from opening or operating another store within a five mile radius of the leased location without the landlord's consent. The lease provided that if the tenant breached this term of the lease, the tenant would be in default of the lease. The lease also granted the tenant an opportunity to renew the lease for an additional period of time provided that it was not in default.
As the expiration of the lease drew near, the tenant contacted the landlord and sought to renew the lease, but was advised that because the tenant had opened and was operating two other women's clothing stores within the five-mile radius, the tenant was in default and the lease would not be extended. The tenant filed for a declaratory judgment that it was not in default. The trial court granted summary judgment to the landlord, and the appeal then followed.
The Court of Appeals affirmed the trial court, finding that the restrictive clause was not overly ambiguous, and applied the statutory rules of contract construction to resolve the ambiguity as to the meaning of the words "another store" in favor of the landlord. The court further held that the application of statutory construction rules did not equate to any impermissible blue-penciling of the agreement by the court, and further affirmed the trial court's findings that the duration and scope of the restricted activity were reasonable. The case is Fab'Rik Boutique, Inc. v. Shops Around Lenox, Inc., (A14A0937, 9/8/2014).
The take-away for businesses is to ensure that your contracts are carefully crafted and that you understand, and agree to, all restrictive covenants and clauses in the document before you sign it, because it may very well be sought to be enforced against you. Courts can and do enforce restrictive clauses and covenants in Georgia.