Restrictive Covenant

AAA

DEFINITION of 'Restrictive Covenant'

Any type of agreement that requires the buyer to either take or abstain from a specific action. In real estate transactions, restrictive covenants are binding legal obligations written into the deed of a property by the seller. These covenants can be either simple or complex and can levy penalties against buyers who fail to obey them.

INVESTOPEDIA EXPLAINS 'Restrictive Covenant'

Restrictive covenants can include such reasonable provisions as adequate maintenance of property and limitations pertaining to paint and decoration. They can also place more onerous restrictions on buyers, such as the number of tenants that can live in a property or even the timing of holiday decoration setup and removal.

Payments received for the release of restrictive covenants of investment properties are treated as capital gains.

RELATED TERMS
  1. Running With The Land

    The rights and covenants in a real estate deed that remain with ...
  2. Acceleration Clause

    A contract provision that allows a lender to require a borrower ...
  3. Negative Covenant

    A bond covenant preventing certain activities, unless agreed ...
  4. Principal Residence

    The primary location that a person inhabits. It doesn't matter ...
  5. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  6. Covenant

    A promise in an indenture, or any other formal debt agreement, ...
RELATED FAQS
  1. What does the American Dream mean to different generations?

    The American Dream at its core is the belief that every generation should enjoy greater prosperity than the generation before ... Read Full Answer >>
  2. When should a real estate broker release earnest money deposit funds?

    As soon as an agent or broker accepts an earnest money deposit, he becomes an escrow agent. This means that, in most cases, ... Read Full Answer >>
  3. Why does the loan-to-value ratio matter?

    For mortgage lenders and borrowers, the loan-to-value ratio is an important factor in determining the repayment terms of ... Read Full Answer >>
  4. What is the difference between a PMI (primary mortgage insurance) loan and a Federal ...

    Home buyers who are unable to contribute a traditional down payment of 20% may think home ownership is out of reach. However, ... Read Full Answer >>
  5. Why would a homebuyer need to take out PMI (private mortgage insurance)?

    Most conventional mortgage lenders carry strict requirements for home buyers, including credit history and score minimums, ... Read Full Answer >>
  6. Does the bank set up an escrow account for the buyer and seller in a home sale?

    An escrow service, rather than a bank, typically sets up an escrow account for the buyer and seller in the sale of a home. ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Retirement

    Holding Titles On Real Property

    Find out how best to claim and convey ownership on your assets.
  3. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  4. Taxes

    Avoid Capital Gains Tax On Your Home Sale

    If you have property to sell and want to avoid capital gains tax, a Section 1031 exchange may be the answer.
  5. Home & Auto

    Strategies To Buy The Perfect Vacation Home

    Ask yourself these six questions to make the right decision about a vacation property.
  6. Credit & Loans

    The Homebuyer's Guide To Jumbo Mortgages

    What they are – and what it takes to get one.
  7. Credit & Loans

    Jumbo Vs. Conventional Mortgages: How They Differ

    Size does matter – and it affects everything from down payments to interest deductions.
  8. Home & Auto

    Will Downsizing Your Home Pay Off?

    A little math can help you determine whether downsizing your home is worth it. It involves subtracting the costs of such a transition from expected gains.
  9. Home & Auto

    Deducting Interest on Your Second Mortgage

    It's a little tricky, but the effort can save you thousands.
  10. Credit & Loans

    How To Get A Mortgage On A Houseboat

    You actually can't get a mortgage on a houseboat, but you can get a loan. A floating home, however, is eligible for a mortgage. Read on for advice.

You May Also Like

Hot Definitions
  1. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  3. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!