How Restrictive Covenants Impact Your Property Rights

How Restrictive Covenants Impact Your Property Rights

Restrictive covenants are common in real estate transactions, and they can impact you whether you purchase or lease property. Because a restrictive covenant can limit how you use the property, such as prohibiting certain business activities or limiting changes to the property, it is imperative to review these provisions carefully and ensure that you fully understand how they may impact your rights.

Restrictive covenants are provisions in a real property conveyance that limit your use of the property. Some restrictive covenants dictate actions a person must take, i.e. maintain landscaping, while others prohibit certain actions, such as building an addition.

Restrictive covenants can be established in a deed or a separately recorded document known as a declaration of restrictive covenants. They may also be included in both commercial and residential leases. While restrictive covenants in leases end upon termination of the lease, restrictive covenants in deeds often “run with the land” and can last indefinitely.

Residential vs. Commercial Restrictive Covenants

In the residential context, restrictive covenants are common in planned communities, condominiums, cooperatives, and apartment complexes. They may address a wide range of issues, including:

• Minimum setback lines and home size
• Number of bedrooms
• Building height, width, and location on the property
• Architectural guidelines, such as construction materials, designs, and colors
• Pets and other animals allowed on the property, such as no livestock or small dogs only
• Construction of additions and outbuildings, such as sheds and detached garages
• Swimming pools
• The number and type of vehicles stored on the property, such as no boats or RVs
• Fence height and type
• Maintenance, such as painting, roof cleaning, and lawn mowing

Covenants can also be used to control the use of commercial property. Landlords frequently include them in leases to regulate tenants’ use of the premises. For example, a landlord may include a restrictive covenant in a lease agreement that prevents businesses from being opened before or after certain hours (i.e., 8 am to 10 pm) or restricts the type of activities that can be conducted (i.e., no alcohol or cannabis sales).

Tenants can also negotiate for one to be included in a lease. For instance, it can be beneficial to include a provision in a retail lease preventing the landlord from leasing to a similar, competing business, i.e. another hardware store in the same shopping center.

In the commercial context, lenders may also place restrictive covenants on a property. Such covenants may restrict the activity of the owner while a loan is being repaid, require the owner to keep the property in good repair, or impose certain occupancy requirements.

Legality of Restrictive Covenants

Covenants in residential deeds are generally considered valid if they are reasonable and designed to benefit to all the property owners within the community. Meanwhile, restrictive covenants in leases and loan agreement are generally governed by traditional contract principles. Lawful uses of restrictive covenants include maintaining land for public parks or nature preserves, or permitting only single-family homes, or prohibiting industrial activities on the land.

Discriminatory restrictive covenants in deeds for real property are prohibited under various laws. These laws include the Fair Housing Act and the New Jersey Law Against Discrimination (LAD). Such covenants restrict ownership or use of real property based on specific criteria. These prohibitions include restrictions on race, creed, color, or national origin. They also apply to ancestry, age, marital status, or affectional or sexual orientation. Familial status and disability are also protected under these laws. Liability for service in the Armed Forces of the United States is another protected category. Other protected categories include nationality, sex, gender identity or expression. Additionally, restrictions based on lawful income sources for rent or mortgage payments are prohibited.

Enforcing a Restrictive Covenant

In the residential context, homeowners associations (HOA) and individual property owners typically have the right to enforce covenants. HOAs may issue warnings, impose fines, or pursue legal action.

If a tenant or landlord violates a restrictive covenant in their lease, they may be subject to legal action, which may include termination of the lease or monetary damages. If a borrower fails to comply with the occupancy or repair requirements of a loan, the lender may be able to call the loan and demand immediate repayment.

Restrictive covenants can be useful in maintaining property values, ensuring uniformity in a community, or limiting competition. However, because they also restrict how a property can be used, it is imperative to do your homework before leasing or purchasing a property.

The attorneys of Scarinci Hollenbeck’s Commercial Real Estate Group have decades of experience conducting due diligence, as well as negotiating, drafting and enforcing restrictive covenants. We encourage you to contact us with any questions about how real estate covenants can impact your rights.