Noncompete Covenants and Covenants Restricting Land Tested By Different Standards

Under Virginia law, covenants restricting the free use of land are not favored and must be strictly construed. Restrictive covenants that are unreasonably broad will not be enforced. There is a growing body of case law in Virginia governing noncompete covenants in employment contracts, but does that body of law apply to restrictive covenants in deeds? Earlier this month, the Fourth Circuit answered that question in the negative.

BP Products v. Stanley involved an appeal from the Eastern District of Virginia by BP Products North America, which had lost its motion for summary judgment against Charles V. Stanley and his business, Telegraph Petroleum Properties. BP had sued Stanley and his company to enforce a restrictive covenant in a deed, but the district court found that the restriction was overbroad and unenforceable. The Court of Appeals disagreed and reversed, finding that when analyzed under the appropriate test, the challenged prohibition was too inconsequential to invalidate the entire covenant.

Stanley leased a service station from BP in Alexandria, Virginia, subject to an agreement containing a restriction against selling fuel that was not BP-branded. Following a disagreement regarding the price of the fuel, Stanley stopped selling BP-branded fuel and started selling AmeriGO fuel, prompting the lawsuit. BP Pump.jpg

The court held that covenants restricting land use, as opposed to employment opportunities, are valid “where the restraint is limited and there is a valuable consideration to support it,” so long as “the restraint imposed is reasonable as between the parties and not injurious to the public by reason of its effect upon trade.” The court further held that a restraint is reasonable if it “only affords a fair protection to the interests of the party in favor of whom it is given, and is not so large as to interfere with the interests of the public.” This standard, the court clarified, is less strict than the standard by which non-competition agreements in employment contexts are judged.

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