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.