A restrictive covenant agreement refers to an arrangement or contract that limits the actions of a particular party in a signed agreement. Real estate contracts and employment contracts are renowned as the two most prevalent instances where restrictive covenants come into play.
These covenants limit how a person can use a property or how an individual can utilize confidential company data. Restrictive covenants function similarly to other pacts or signed agreements. Most often, these pacts are drafted in plain English for both parties, and when they have understood the details of the agreement, they would sign the paperwork to formalize the agreement.
Aside from real estate contracts and the employee-employer relationship, restrictive covenant agreements can also be useful in other business dealings. Non-compete and non-solicitation clauses, along with non-disclosure provisions are also included in partnership agreements. This is particularly prevalent when new owners or partners join an established business.
Numerous restrictive covenants are lawful, but courts have voided particular elements of restrictive covenants in certain cases. Whenever the restrictions are stringent and constrain a person’s freedom, courts may refuse to consider cases involving covenant violations.
Restrictive Covenants Agreement in Employment Contracts
The most prevalent restrictive covenants are discovered in employment contracts. Many such covenants forbid workers from engaging in specific actions either within the period of the contract or for a timeframe after employment is terminated. Here are the basic types of restrictive covenant agreement:
- A non-compete agreement limits the operations of one party who approves not to stand toe to toe with another, frequently their employer, for a predetermined amount of time and within a set detailed region.
- A non-disclosure agreement limits information exchange. One party concedes not to divulge confidential business information, trade secrets, proprietary mechanisms, or other business-related data.
- A non-solicitation agreement limits the advertising and recruitment operations of one participant in a business agreement. One party concedes not to try to attract workers or clients from the other.
- An “anti-raiding” provision forbids a former worker from procuring the former employer’s employees to work at a competing business.
- A confidentiality agreement forbids a former manager from divulging as well as using proprietary or sensitive information of his or her former employer or customers. The information at issue does not have to be a “trade secret” in the traditional sense; it has to be classified and not be made available to the public.
- A “garden leave provision” is more or less a recent deal from the United Kingdom and other European countries to the United States. This clause mandates workers to give notice of their impending departure.
While restrictive covenants are most frequently encountered in employment contracts, they can also be discovered in a variety of other agreements. Stock grant agreements, severance agreements, and shareholder agreements are some examples.
Restrictive Covenant Agreement in Real Estate Contracts
A restrictive covenant is a written agreement you enter into with an HOA that restrains what you can do with a property. They are guidelines that all homeowners in the neighborhood are expected to comply with especially since they are voted on by members of the HOA.
However, note that the use of restrictive covenants can be both advantageous and disadvantageous to homeowners. Some of the examples include the following;
- Restriction On Home Color: HOAs are very specific about paint color, which is a limitation contained in almost every CC&R. A good number of paint restrictions clearly state a list of permitted home colors while restricting others.
When considering a home with such a paint color covenant, anticipate that your design options will be limited to neutral colors.
- Rent and Lease Restrictions: If you like to rent out your home, firstly you should check your CC&Rs. Many homeowners’ associations severely restrict your right to rent or lease out your home. You might only be able to lease out your home for a few months out of the year, or you might not be able to rent it out at all.
- Business Use Restrictions: Your CC&Rs would include a provision that forbids you from running a business from your home.
If you are self-employed, this agreement can easily become a major issue. While most HOAs are unconcerned if you convert your spare bedroom into a home office, anything at all that increases traffic for your nearest neighbors may raise red flags.
- Limitations on Permissible Pets: Some HOAs restrict the sorts of pets that can be kept on your property. The size of your animals may also be restricted by your CC&R. For instance, your HOA may state that you are just permitted to own a medium-sized or even a small-sized dog.
Your HOA could also impose breed restrictions, particularly on more combative breeds such as German Shepherds and pit bulls. The CC&R may also impose significant boundaries on commercial breeding.
- Exterior Maintenance Requirements: Your CC&Rs will specify the type of repairs you must conduct on your property. You may be required to clip your lawn on a regular basis, take down holiday decorations after a specific date, or only position trash outside on trash day. If you reside in a community that offers exterior repairs, the HOA will ensure that the outside of your property is up to standards.
- Exterior Construction Restrictions: Your CC&Rs can also include constraints on the design changes and structures you build on your property. You might be unable to construct a barn, detached garage, or fence unless the design has been accepted by the HOA first. Some CC&Rs outright prohibit new construction.
A restrictive covenant, as the title suggests, is an agreement that forbids one of the agreement’s parties from trying to take particular actions. State rules regulate restrictive covenant agreements. These rules can differ from location to location in terms of what terms are permitted and which are not.
Whether you are drawing up or attempting to enter into a restrictive covenant agreement, consult a lawyer in your state. Its final implementation will be determined not just by your state’s laws but also by local dynamics, so it is critical to pursue specialist advice.