What are Restrictive Covenants?
The Short Answer
Restrictive Covenants explained simply
Restrictive covenants are legal rules that control how a property can be used or what a person can do in a business context. For property, these rules are often found in deeds or homeowner association (HOA) documents. They might dictate things like building size, fence height, or even paint colors. In employment, these covenants are typically part of an employment contract. They can prevent former employees from competing with their old company, poaching clients, or sharing trade secrets for a set period after they leave.
Real-World Example
The Coffee Shop Non-Compete
Imagine you own a popular coffee shop. You hire a new manager and include a restrictive covenant in their employment contract. This covenant states that if they leave your company, they cannot open a competing coffee shop within a 5-mile radius for two years. This protects your business from direct competition from someone who knows your operations and customer base.
Why this matters
Restrictive covenants are important because they protect the value and character of property, and they safeguard businesses from unfair competition. For property owners, they ensure a consistent neighborhood aesthetic and prevent undesirable uses. For business owners, they protect trade secrets, client relationships, and market share when employees move on.
Always have a lawyer review any restrictive covenants you are asked to sign or plan to implement. These agreements can be complex and have significant legal implications if not drafted or understood correctly.
Always have a lawyer review any restrictive covenants you are asked to sign or plan to implement. These agreements can be complex and have significant legal implications if not drafted or understood correctly.
Need expert guidance?
Don't navigate the buying process alone. Connect with a verified expert to help you find and close the right deal.
