A restrictive covenant on real property is an agreement between a property owner and others that limits how the property can be used. Usually, the covenant is drafted or alluded to the deed to the land. The covenant is also on public record at a county recorder’s office or city government, and the homeowner’s association may also retain a record of the covenant.
Restrictive covenants are governed by the body of law known as property law.
A restrictive covenant is a condition that determines, limits, restricts, or controls the actions of someone named in an enforceable agreement. They are common in bond obligations; restrictive covenants restrict the amount issuers can pay in dividends. Restrictive covenants are also common in real estate deeds and leases, limiting how owners and tenants can use a property.
It’s necessary to distinguish between the two primary types of covenants:
Negative covenants are steps you can’t take, while positive covenants are steps you must take. For instance, a negative covenant in real estate could stop you from raising chickens on your property. On the other hand, a positive covenant could instruct you to mow your lawn.
As the name suggests, a restrictive covenant is an agreement that limits one of the parties in a contract from taking particular steps.
For instance, a restrictive covenant may determine how public companies pay dividends to their shareholders. It may also cap executive salaries.
Restrictive covenants are often used to stop a bond issuer from issuing more debt until one or more series of bonds mature. The issuer may also be prohibited from paying dividends above a specific amount to shareholders, to minimize bondholders’ default risk. That’s because if more money is paid to shareholders, less is available to meet payment obligations to lenders.
Restrictive covenants are also seen in:
Restrictive covenants are typical in real estate. They order owners and tenants to avoid, or to take, specific measures. This is for the benefit of the adjoining land. For instance, restrictive covenants can discourage owners and tenants from having pets, parking RVs in the driveway, renovating, or raising livestock. Homeowner associations (HOAs) often specify covenants to protect property values in the neighborhood.
While covenants are common and are generally enforced, they are unenforceable if they violate a homeowners’ rights, federal or state laws, or are applied inconsistently or arbitrarily. Covenants are typically deemed proper only if appropriate and of help to all the property owners within the neighborhood.
Here are some examples of restrictive covenants:
Restrictive covenants are essentially deed restrictions, and they “run with the land,” meaning that the limitations are permanent. They apply to the current property owner and to any future purchasers.
If you live in a planned neighborhood, the homeowners association (HOA) and the individual lot owners have the right to enforce covenants. That means that you can be sued by your HOA or by your neighbors if they want to enforce a covenant against you.
Claims against you can become unenforceable through “laches” (the loss of a privilege through undue delay or failure to assert it). For instance, say you construct a fence that disregards the restrictive covenants. If the HOA doesn’t require you to remove it until several years later, they could lose their privileges to enforce the covenant through laches—meaning, you get to keep your fence.
Restrictive covenants help maintain the property values of the houses in the neighborhood. Whether or not you reside in a condominium or development, it is to your advantage to be informed about any restrictive covenants because they may change how you can use your property.
Knowledge of such covenants is critical when choosing to buy a property.
When buying a property, you should ask about any restrictive covenants that exist. Before making an offer, it is critical that you first get a copy of the covenant from the seller or your realtor. If neither of them has a copy, you can request one from the county courthouse.
Suppose you refuse to adhere to the covenant and, as a result, grievances are filed. In that case, the association charged with enforcing the covenant will inform you of its decision regarding your right to remain on the property.
Failure to abide by restrictive covenants can result in fines and other penalties, including legal action.
Historically, restrictive covenants were used in real estate to control the demographics of many communities in the U.S. The rules kept specific populations out of particular neighborhoods, to create racial, ethnic, and cultural segregation.
In 1948, the U.S. Supreme Court ruled that these racially charged conditions were unconstitutional under the country’s equal protection laws.
This came out of the case of Shelley v. Kraemer. Missouri’s top court had blocked the Shelleys, a Black family, from entering into the home they purchased in 1945 in St. Louis. The Kraemers, a White family who lived nearby, sued to stop the Shelleys from moving into the vicinity, citing a restrictive covenant that prohibited people of color from inhabiting the property.
The Supreme Court overruled the Missouri court, holding that racially restrictive real estate covenants are unconstitutional.
Despite the ruling, racial deed constraints remain on the books in nearly every state in the U.S. While the covenants are no longer enforceable, the language still exists.
If you have any questions about a restrictive covenant on a property you are considering buying, consult a property attorney who can review the covenant and clarify any of its provisions for you.
If you live in an area that has restrictive covenants and there is a dispute concerning the effect of one vis-a-vis your property, seek legal help. Attorneys are skilled at negotiation, and your attorney could help you avoid court by working out an agreement with your HOA or with your neighbor.
If the matter cannot be successfully resolved through negotiation, then your lawyer will defend you, or will seek to enforce a covenant against one of your neighbors.
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