The Basics of a Restrictive Covenant

A restrictive covenant can cast a shadow on real estate transactions to the point where buyers are not interested in the property or lease. These covenants restrict the property owner from freely using the property the way they want to. Where the restrictive covenant is in a lease, there may be a restriction on occupancy, as well as use.

Impact on Real Estate Transactions

Let’s say there’s a vacant land for sale in a rural area that is reasonably priced. It has no water, needs to be cleared, but the price is appealing to buyers. If there’s a restrictive covenant in the deed that forbids placing a mobile home or other temporary structure on the property, there may be less interest in the property.  It may not sell because of the restriction. Buyers may need the mobile home as temporary shelter while “working the land” and preparing to build a new home. This is just one example of how a restrictive covenant can hinder the sale of property.

As a buyer, it’s important to research all covenants that affect the property. Sellers need to be flexible on the price and terms when there are such covenants if they want to sell their property.

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