restrictive covenant

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Restrictive Covenant

A provision in a deed limiting the use of the property and prohibiting certain uses. A clause in contracts of partnership and employment prohibiting a contracting party from engaging in similar employment for a specified period of time within a certain geographical area.

A Covenant is a type of contractual arrangement. A restrictive covenant is a clause in a deed or lease to real property that limits what the owner of the land or lease can do with the property. Restrictive covenants allow surrounding property owners, who have similar covenants in their deeds, to enforce the terms of the covenants in a court of law. They are intended to enhance property values by controlling development.

Land developers typically use restrictive covenants when they subdivide property for residential developments. A land developer, after platting the subdivision into lots, blocks, and streets, will impose certain limitations on the use of the lots in the development. These may include a provision restricting construction to single-family dwellings with no detached outbuildings, as well as specifying that the dwellings are to be built at least a specified distance from the street and from the side and back lot lines, commonly called a "set back" requirement. Another common restrictive covenant specifies a minimum square footage for dwellings. There may be a variety of other restrictive covenants that seek to control the way the development looks and is maintained. These covenants are filed with the approved plat.

A person who purchases a lot in a development with restrictive covenants must honor the limitations. When the purchaser resells the lot to a buyer, the new owner will take the property subject to the restrictive covenants, because the covenants are said to "run with the land."

If a person violates or attempts to violate one or more of the covenants, a person who is benefited by the covenants, usually an adjacent property owner, may sue to enforce the restrictions. Courts generally strictly construe restrictive covenants to allow a landowner to use her land for any purpose that is not specifically prohibited by the restrictive covenants or by the local government. Therefore, if a developer wants to restrict a subdivision to single-family residences, the developer must state "single family residential" rather than "residential" in the covenant.

Restrictive covenants at one time were used to prevent minorities from moving into residential neighborhoods. A group of homeowners would agree not to sell or rent their homes to African Americans, Jews, and other minorities by including this restriction in their real estate deeds. Until 1948 it was thought that this form of private discrimination was legal because the state was not involved. However, in Shelley v. Kraemer, 334 U.S. 1, 68 S. Ct. 836, 92 L. Ed. 1161 (1948), the U.S. Supreme Court held such covenants to be unenforceable in state courts because any such enforcement would amount to State Action in contravention of the Fourteenth Amendment to the U.S. Constitution. For a state court to enforce such an agreement would foster a perception that the state approved of racially restrictive covenants. Although this kind of restrictive covenant is no longer judicially enforceable, racial restrictions are still contained in some deeds.

Apart from real estate law, restrictive covenants may be used in partnership agreements or employment contracts to protect a business if a partner or employee leaves. For example, a life insurance company may require a prospective employee to sign an employment contract in which the employee agrees not to sell life insurance in that geographical area for a specified period of time after leaving the company. If the time and geographical restrictions are reasonable, a court may enforce the restrictions. Some restrictive covenants may be so unfair, however, that a court will declare them contrary to public policy and make them legally unenforceable.

Further readings

Breemer, J. David. 2000. "Strict Construction of a Common Restrictive Covenant." The University of Hawaii Law Review 22 (summer): 621–44.

Himmel, Brian T. 2003. "Remedies Available in Pennsylvania for Restrictive Covenant and Trade Secret Violations." Pennsylvania Bar Association Quarterly 74 (April): 67–70.

Sabey, Donald L., and Ann R. Everton. 1999. The Restrictive Covenant in the Control of Land Use. Aldershot, Hants, England; Brookfield, Vt.: Ashgate/Dartmouth.

Cross-references

Employment Law; Land-Use Control; Running with the Land; Zoning.

restrictive covenant

n. 1) an agreement (covenant) included in a deed to real property that the buyer (grantee) will be limited (restricted) as to the future use of the property. Example: no fence may be built on the property except of dark wood and not more six-feet high, no tennis court or swimming pool may be constructed within 30 feet of the property line, and no structure can be built within 20 feet of the frontage street. Commonly these covenants are written so that they can be enforced by the grantor and other owners in the subdivision, so that future owners will be bound by the covenant (called "covenant running with the land" if enforceable against future owners). 2) all restrictive covenants based on race ("the property may be occupied only by Caucasians") were declared unconstitutional in 1949, and if they still show on deeds, are null and void. (See: covenant that runs with the land)

restrictive covenant

a legal promise restricting the grantor's freedom. It is used in relation to an undertaking, restrictive in nature, enforceable in equity against a purchaser of land with notice of the existence of the undertaking by an owner of benefited land in the neighbourhood. It is also used in relation to agreements not to set up in business against a former employer or partner or the like. Such agreements are prima facie unenforceable as being in restraint of trade but will be allowed if they are fair in relation to the public interest in free competition and as between the parties.
References in periodicals archive ?
Employers should ensure they do not apply a blanket approach when drafting restrictive covenants as this will leave them open to challenge.
These comments support Mr Javid's view that restrictive covenants act as a barrier to entrepreneurship.
The court in BDO Seidman concludedBDO had not obtained a legitimate interest in clients brought to BDO by the employee sufficient to enforce a restrictive covenant where BDO had not expended its resources to create or maintain goodwill with those clients.
The Lands Tribunal has power in certain circumstances to modify or discharge restrictive covenants where the original purpose of the covenant has become inappropriate.
As with typical restrictive covenants employed in the real estate context, restrictive covenants that relate to environmental conditions on property run with the land and provide notice to interested persons of such conditions.
Buyers must be aware of what restrictive covenants are in place before they complete their purchase to ensure they will not be prevented from using the land for the purpose for which they purchased it.
The written employment contract for certain key workers, therefore, may contain a restrictive covenant, also referred to as a non-competition agreement, in which the employee has agreed not to work in the same industry within a specified territory for a period of time after leaving.
Assuming that restrictive covenants involving laboratory personnel are permitted, a non-compete clause can still be found invalid for a number of reasons.
In a February 10 letter, TEI expressed concerns about proposed amendments to the Canadian Income Tax Act to revise the tax treatment of restrictive covenants.
When mental health professionals join a group practice, their employment contract may include a restrictive covenant that is intended to limit their ability to compete with the group practice for a period of time should the employment relationship end.
Editor's Note: This case should serve as a lesson to all hospital officials who might seek to impose restrictive covenants on their employees, whether physicians or others, to ensure that the restrictive covenants are reasonable as to time limits as well as the radius of the restricted area, in which an employee is not to engage in the practice or otherwise compete with the employer.
Members of the legal profession, of course, see more than their fair share of restrictive covenants.