Restrictive Covenants

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Restrictive covenants, also known as negative covenants, limit the way in which the buyer of a real estate property can use the property. When a buyer agrees to a contract containing restrictive covenants, he or she agrees to not engage in certain actions and accepts to be refrained from using the property in certain ways prohibited by the restrictive covenants.

What You Should Know

  • Restrictive covenants, or negative covenants, limit the way in which homeowners can use their properties by refraining them from taking certain actions
  • Restrictive covenants can put restrictions on everything, from the color of your roof, to whether you will be able to rent out the property
  • Restrictive covenants are legally binding, and their breach can lead to penalties such as fines or legal action being taken against you
  • HOAs use restrictive covenants to regulate the community, avoid dispute, and maintain property values

What is a Restrictive Covenant?

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Restrictive covenants are agreements in a contract or deed that limit the way the buyer can use the real estate property that they own. While covenants define the way the property can be used, restrictive covenants define how the property cannot be used. For example, if you agree to a restrictive covenant regarding the color of your home, you will not be allowed to paint your home in any color other than the one outlined in the restrictive covenant.

Restrictive covenants are legally binding and there are legal consequences to breaching one of them. Restrictive covenants are agreements between private parties and the government is typically not involved in it.

Restrictive covenants are largely used by homeowners’ associations that attempt to regulate a community through covenants, conditions and restrictions, or CC&Rs. For example, in order for the neighborhood and houses to maintain a uniform look, the HOA places restrictive covenants that limit the way in which you can change the exterior look of your house or front yard. In a condominium, an HOA can put restrictions on which type of pets the owners can carry in their condos. These covenants are decided upon by the board of directors running the HOA in order to ensure peace and order in the community.

Types of Restrictive Covenants

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We can categorize restrictive covenants into 3 main subsections according to how they affect and limit your enjoyment of the property you own.

  • Limitations on Property Use

    If you simply plan to use the property you have purchased for residential use, then you are only concerned that this use is permitted by the covenants. On the other hand, if you are interested in using the property to run a small business from your home, then restrictive covenants may come in the way of you doing so. In some cases, you may not be allowed to have even a home office in your house. There may be fines or other penalties if you are caught running a business in breach of the restrictive covenants. Therefore, depending on what you are planning to use the property for, be it residential or commercial use, make sure that you are aware of all the restrictions on the contract that may interfere.

  • Limitations on Architecture

    These types of limitations affect the way that you can change the appearance of your house or property. Limitations on architecture are in place to ensure that all the houses within a neighborhood or community look uniform. The uniform look of the houses in a neighborhood has the power to affect the property values in that community. These limitations typically include the color of your home, the fencing, the roofing and general design.

    If you do want to make a change or renovation to your property, it will have to be approved by either an architectural review community or the board of directors running the HOA your property is a part of. Therefore, if you plan to make changes to the property you are interested in, learn more about what types of architectural restrictions the property is a subject of before buying it.

  • Limitations on Leasing

    This can also be viewed as a limitation on the use of the property. Some restrictive covenants may prohibit homeowners from leasing their properties altogether, or they may restrict short-term leasing. This means that if you were planning to rent out a part of your home to earn some rental income throughout the year in order to cover your mortgage payments, you may not be able to do so. Or, in other cases, you may not be allowed to rent out the property or a part of it for a period of less than 6 months.

Other Examples of Restrictive Covenants

  • Restrictions on Pets

    Some restrictive covenants place restrictions on what type of pets you are allowed to have. This can include the type of animal, the breed and size. For example, a restrictive covenant may only allow a certain size of dogs and breeds that are considered not aggressive. Therefore, if you were planning to bring your German Shepherd puppy with you to your new home, then you may have to look for a new place. This type of restriction might also limit the number of pets you can have. For example, you may be allowed a maximum of 2 pets.

  • Exterior Construction

    Also included in the architectural limitations, exterior constructions in your property, such as modifications or additions, can be prohibited or be subject to approval. For example, if you plan to build a separate garage in your property, then you will need the approval of the HOA board. In some cases, all types of constructions in the properties are strictly prohibited by restrictive covenants.

  • Maintenance of properties

    Some covenants don’t limit the use of the property per say, but they do put obligations on what you are expected to do while owning the property. These are typically related to the upkeep and maintenance of your property. For example, you may be expected to shovel the snow off your driveway, mow the loan a certain number of times per month, or they can even outline how often you are expected to paint your house. When the HOA takes care of some of these duties for you, then you are expected to pay a larger fee to them.

Pros and Cons of Restrictive covenants

Some people may find that restrictive covenants make their life easier by imposing rules on the entire community, while others may not want to be told what they can and cannot do with the property they own. It all depends on your own specific situation and mainly on how you plan to use it. To decide whether living in a house with restrictive covenants is worth it for you, make sure to evaluate the pros and cons that these type of covenants present:

ProsCons
Less disputes between community membersRestricted control over property
Uniform look of the neighborhoodConsequences to non-compliance
Properties maintain their valueAssociated fees

Pros

Less disputes between community members - All members of the community are expected to follow the rules imposed by restrictive covenants. This leaves little room for dispute between neighbors, which can give you some peace of mind, especially when living in communities such as condos or townhouses.

Uniform look of the neighborhood - By imposing restrictions on how the owners of the properties can interfere with the exterior look, restrictive covenants ensure that houses look the same. From the color of the house to exterior constructions permitted, homeowners are not allowed to make changes without approval.

Properties maintain their value - The uniform look of the neighborhood contributes to the value of all the properties in the area. This happens because the value of a property also depends on factors such as the look of the surrounding area. Moreover, by enforcing rules on the maintenance of the properties, covenants ensure the upkeep of the whole neighborhood.

Cons

Restricted control over property - After spending most of your life savings on a home, it may be frustrating to find out that you cannot use the property as you wish. Thus, one of the main drawbacks of restrictive covenants is that they limit the control the homeowners have on their properties.

Consequences of non-compliance - When living in a community regulated by an HOA, you will have to follow the rules imposed by it, outlined on the CC&R contract. This document is legally binding and there are consequences of not complying with the rules set. In most cases, the HOA will impose fines for violating the terms of the contract. However, in more severe cases, the HOA may even request foreclosure on your home.

Associated Fees - HOA needs funding in order to oversee the compliance of the restrictive covenants. This funding comes in the form of monthly, quarterly or yearly fees paid by the members of the community.

History of Restrictive Housing Covenants

Restrictive covenants were once used to prohibit some minorities from purchasing real estate and keep them out of the community. This practice started in most of the United States in the 1920s up until the 1940s. However, there were still deeds being created containing these types of covenants until the Fair Housing Act was passed in 1968.

Restrictive covenants that used to prevent members of minority groups from purchasing properties are now illegal because of their discriminatory nature. While they can no longer be enforced, there are still some house deeds containing racially restrictive covenants. The cases of these deeds should be brought to court.

Should I purchase a property with restrictive covenants?

The answer to this question may not be the same for every individual buyer. Whether purchasing a house that comes with restrictive covenants is worth it or not depends on your use of the property. Would you want to rent it out in the future? Do you own a large pet you would have to leave behind? Do you currently like the exterior look of your future home? And most importantly, are you okay with someone else imposing rules on how you can use your own property for the greater benefit of regulating the community? Depending on how you answered these questions and more, you will be able to decide whether to purchase a house subject to restrictive covenants. Remember that it is very important to ask for a detailed list of the restrictive covenants on a house and to understand what each of them means. While some of the covenants may slightly affect your enjoyment of the property, others can be a deal-breaker.

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