Covenant: Definition, Example and Related Terms
What is a Covenant ?
For example, in a commercial lease agreement, an affirmative covenant may require the tenant to maintain the property in good condition, while a negative covenant might prohibit the tenant from making structural changes to the property without the landlord’s consent.
Covenants are crucial in various types of agreements, including real estate transactions, loan agreements, and partnership agreements. They help to clearly define the obligations and restrictions for the parties involved, which can prevent disputes and misunderstandings.
It’s essential for both parties to understand the covenants in a contract, as these promises are legally binding. Failing to comply with a covenant can result in legal consequences, such as penalties or the termination of the contract.
Example(s)
Scenario Description Lease Agreement In a lease agreement, a negative covenant might prohibit the tenant from subletting the property without the landlord’s permission. Loan Agreement In a loan agreement, an affirmative covenant might require the borrower to maintain insurance on the collateral securing the loan. Partnership Agreement In a partnership agreement, a covenant might require partners to contribute a certain amount of capital to the business.