Restrictive Covenant
Candlefocus EditorIn real estate, restrictive covenants are commonly used to spell out the various covenants and restrictions placed upon a property. These covenants may govern everything from the color of paint used on the home to the number of occupants who can live in the building. These restrictions are often put in place to ensure that the property owner does not cause a nuisance or hazard to their neighbors.
In business and financial agreements, restrictive covenants are typically used to reduce the risk of default. In bonds, for example, the issuer may use restrictive covenants to limit their expenditure on investor dividends in order to minimize the risk of default.
Although restrictive covenants are binding and enforceable, it is important to remember that they were once used to keep communities racially segregated. Thankfully, that kind of discriminatory behavior is now illegal.
Overall, restrictive covenants are a useful tool used to ensure the orderly conduct of real estate transactions, business relationships, and other contracts. They can be used to protect the interests of all parties involved in the agreement, while also giving those parties peace of mind in knowing that the other party will abide by the restrictions written in the contract. However, it is important to be aware of their history and make sure that they are not used in a way that violates local or federal laws.