Protective Covenants

Definition of "Protective covenants"

Written by

Patricia McCoy

Patricia McCoy Real Estate

Commonly, a covenant refers to a legal treaty or agreement between various parties. Explicitly, a stipulation comes into existence and is signed to confine particular financial transactions or regulate potential real estate disputes. 

Let’s inspect a financial covenant! The borrower concedes not to borrow an extra sum from another lender against a specific collateralized real estate. So, it presupposes that the first party assumes well-defined responsibilities and obligations towards the other party.

Protective covenant in business

An indenture’s or loan agreement’s section or paragraph can contain a protective covenant. Its purpose is to limit a company’s scope of action on a specific property. Thus, a protective covenant safeguards a lending institution’s interests during a loan term (investment, credit, or mortgage.) 

In addition, people often refer to protective arrangements as restrictive covenants, covering real estate deeds, employment relationships, acquisitions, and other business-related transactions. 

Protective covenants in terms of real estate

The Homeowners Association is responsible for stipulating covenants, conditions & restrictions (CCR) most prominently in real estate matters. It’s significant to stress that these agreements are legally binding. HOAs and even neighbors can likely file a lawsuit against the party that did not respect its terms.

Real-life examples

More precisely, such an agreement can regulate the number of residents or tenants. Secondly, it impedes specific actions against the greater good. For instance, a covenant can prohibit late-night parties and make a pet owner’s life difficult by restricting keeping pets at home. Thus, finding a pet-friendly rental can be a perplexing process. 

Homeowners Association and its area of authority

To avoid any unpleasant surprises, consult your Homeowner’s Association and its jurisdiction! Find out and honor covenants in effect, either protective or restrictive! They can limit your actions on your private property by, for example, raising animals. Additionally, the Association can urge you to build a division fence on your property as a new homeowner. Still, many have a high opinion of these positive covenants because they improve your home’s value in the long run.

Room for misinterpretations

As you must have noticed, the meanings of positive or protective covenants and restrictive covenants are interchangeable and open to interpretation. An owner might read a covenant as being restrictive personally. Yet from the perspective of the neighborhood, these measures can bring community protection to a certain degree. For this reason, we endorse you to consult a real estate agent and an HOA attorney!