Restrictive covenants are restrictions placed on the use of a property. In commercial real estate, restrictive covenants may be placed on a property by a lender, restricting the activity of the owner while a loan is being repaid, or, by an owner, restricting the activity of tenants. In addition, restrictive covenants can also be written into a property's deed, either for a certain number of years or indefinitely.

For example, a lender may not permit certain, specific types of businesses from opening on a property (such as alcohol or tobacco stores). Alternatively, a landlord may have a restrictive covenant that prohibits businesses from being opened before or after certain hours (ex. 8am to 10pm).

More Examples of Restrictive Covenants in Commercial Real Estate: While business use and operating hour restrictions are some of the most popular kinds of restrictive covenants in commercial real estate, they're far from the only ones. In some cases, a lender may require a borrower to keep the property in good repair for the duration of the loan. Lenders may also mandate a specific occupancy requirement for the property for the loan's duration. If these restrictions are not met, a lender could potentially "call" the loan and demand immediate repayment.

Restrictive covenants can be placed on a property by a lender or an owner, and can be written into a property's deed for a certain number of years or indefinitely. Examples of restrictive covenants in commercial real estate include business use and operating hour restrictions, a requirement to keep the property in good repair for the duration of the loan, and a specific occupancy requirement for the property for the loan's duration.

Business use restrictions may include not permitting certain, specific types of businesses from opening on a property (such as alcohol or tobacco stores). Operating hour restrictions may include prohibiting businesses from being opened before or after certain hours (ex. 8am to 10pm).

Restrictive covenants in commercial real estate can provide a variety of benefits. For lenders, restrictive covenants can help protect their investment by ensuring that the property is used in a way that is beneficial to the lender. For example, a lender may not permit certain, specific types of businesses from opening on a property (such as alcohol or tobacco stores).

For tenants, restrictive covenants can help protect their business from over-competition from similar businesses. For example, if a grocery store signs a lease in a large shopping center, there may be a restrictive covenant in the lease preventing any other grocery stores from signing a lease in the same shopping center.

Overall, restrictive covenants can help protect both lenders and tenants by ensuring that the property is used in a way that is beneficial to all parties involved.

Restrictive covenants can affect the value of a commercial property in a variety of ways. On one hand, restrictive covenants can protect the value of a property by preventing competition from similar businesses. This can help to ensure that the property remains attractive to potential tenants and can help to maintain the value of the property. On the other hand, restrictive covenants can also limit the potential uses of a property, which can reduce its value. For example, if a property has a restrictive covenant that prevents certain types of businesses from opening on the property, this could limit the potential uses of the property and reduce its value.

Restrictive covenants in commercial real estate can have a variety of legal implications. For example, if a tenant violates a restrictive covenant in their lease, they may be subject to legal action from the property owner or lender. Additionally, if a borrower fails to meet the occupancy or repair requirements of a loan, the lender may be able to call the loan and demand immediate repayment.

For more information, please see the following sources:

• Restrictive Covenants in Commercial Real Estate
• Retail Property Loans

The risks associated with restrictive covenants in commercial real estate depend on the type of covenant. For example, if a lender requires a borrower to keep the property in good repair for the duration of the loan, the borrower may be at risk of defaulting on the loan if they fail to do so. Similarly, if a lender requires a specific occupancy requirement for the property for the loan's duration, the borrower may be at risk of defaulting on the loan if they fail to meet the requirement. Additionally, if a tenant signs a retail lease with restrictive covenants designed to prevent them from over-competition from similar businesses, they may be at risk of not being able to compete with other businesses in the same shopping center.