Restrictive Covenants on Real Property

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 Restrictive Covenants on Real Property

A restrictive covenant is an agreement between a property owner and others that limits how the property can be used. Usually, the covenant is drafted in the deed to the land or is alluded to. The covenant is also on public record at a county recorder’s office or city government; the homeowner’s association may also retain a record of the covenant.

What Is a Restrictive Covenant?

A restrictive covenant is a condition that determines, limits, restricts, or controls the actions of someone named in an enforceable agreement. In bond obligations, restrictive covenants restrict the amount issuers can pay in dividends. Restrictive covenants are typical 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; and
  • Positive

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.

Understanding Restrictive Covenants

As the name suggests, a restrictive covenant is an agreement that limits one of the parties in a contract from taking distinct measures. For instance, a restrictive covenant may determine how public companies pay their shareholders in dividends. It may also place a lid on executive salaries. Failure to abide by restrictive covenants can result in fines and other penalties, including legal action.

Restrictive covenants are typically 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:

  • Employment agreements (e.g., non-compete, non-disclosure, and non-solicitation contracts)
  • Mergers and acquisitions (M&A) agreements
  • Loan documents
  • Real estate contracts

What Are Restrictive Covenants in Real Estate Dealings?

Restrictive covenants are typical in real estate. They order owners and tenants to avoid or take precise measures intended to maintain the value and enjoyment of the adjoining land. Restrictive covenants are specified in a deed or a separately recorded document called a declaration of restrictive covenants.

Homeowner associations (HOAs) specify covenants, requirements, and restrictions to protect property values in the neighborhood. Covenants are typically deemed proper only if appropriate and of help to all the property owners within the neighborhood.

Restrictive covenants can cover things such as:

  • Minimum setback lines
  • Minimum house size (square footage)
  • Number of bedrooms
  • Building height, width, and arrangement on the property
  • Architectural procedures (e.g., construction materials, styles, and colors)
  • Fence height and type
  • Property use (e.g., business and rental use)
  • Kinds of animals allowed on the property (e.g., no livestock)
  • Flagpole height and flag size
  • Signage (e.g., for sale or political signs)
  • Landscaping
  • Upkeep (e.g., lawn mowing, tree trimming)
  • Outbuildings
  • Swimming pools
  • The number and kind of vehicles allowed on the property
  • The number of individuals who can inhabit the property

Covenants are unenforceable if they violate homeowners’ rights, federal or state laws, or are applied inconsistently or arbitrarily.

What Is the History of Restrictive Housing Covenants?

Historically, restrictive covenants were used in real estate exchanges to control the demographics of many communities in the U.S. The rules kept specific populations out of particular neighborhoods, promoting racial, ethnic, and cultural segregation.

It wasn’t unusual for real estate agreements to block Black and Jewish Americans from purchasing properties. For instance, covenants were used between the 1920s and 1940s in Washington State to keep underrepresented classes out of some Seattle-area communities. Black, Jewish, and Asian Americans were forced to seek housing elsewhere by creating segregated communities.

In 1948, the U.S. Supreme Court ruled that these racially charged conditions were unconstitutional under the country’s equal protection laws after hearing the case of Shelley v. Kraemer. The ruling came after Missouri’s top court blocked the Shelleys, a Black family, from possessing 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 prohibiting people of color from inhabiting the property.

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.

What Is the Fair Housing Act?

The Fair Housing Act is a federal law that covers people from discrimination when they rent or purchase a house, obtain a mortgage, seek housing assistance, or participate in other housing-related activities.

The Act forbids discrimination in housing based on race, color, national origin, religion, sex (including gender, gender identity, sexual orientation, and sexual harassment), familial status, and disability. The Fair Housing Act is also known as Title VIII of the Civil Rights Act of 1968.

Who Enforces Restrictive Covenants?

If you live in a planned neighborhood, the homeowners association (HOA) and the individual lot owners have the freedom to enforce covenants. Nevertheless, infringements 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 implement it until several years later, they could lose their privileges to enforce through laches—meaning, you get to keep your fence.

What Is a Restrictive Covenant Agreement in Real Estate?

A restrictive covenant in real estate requires owners and tenants to avoid or take specific actions to preserve the value and enjoyment of the adjoining land. For instance, restrictive covenants can discourage owners and tenants from renovating, having pets, parking RVs in the driveway, or raising livestock. Covenants that pass from owner to owner are conveyed to “run with the land.”

What Are the Reasons for Restrictive Covenants?

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 hinder your quality of life. Knowledge of such covenants is critical when choosing to buy a property.

Examples of Restrictive Covenants

Here are some examples of restrictive covenants:

  • Having a home-based company
  • Restrictions on building specific parts of your property
  • Keeping the property in sound condition
  • Conforming to the color and style of the other properties in the development
  • Parking on the property
  • Limitations on the breed of pet and number of pets
  • Limitations on the height of the fence
  • Rules on the installation of pools

Restrictive covenants “run with the land” in that the limitations apply to the property and any future purchasers.

Purchasing a Property

When buying a property, you should ask about any restrictive covenants. 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.

Adhering to the Covenant

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.

Should I Consult an Attorney?

If you have any questions about a restrictive covenant on your property, consult a property attorney, who can review the covenant and clarify any of its provisions for you.

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