Although you're likely buying a home to avoid the many restrictions that come with living in an apartment, you could face new limitations due to a restrictive covenant.
These are legally binding agreements that set guidelines for what you can and cannot do with your property. The provisions of a covenant are imposed by private sellers - whether they be developers or individuals - and noncompliance with the restrictions can result in penalties. They are written into your deed or noted in the deed and filed with an homeowners association or county or municipal government. Typically, covenants are disclosed during the home buying process.
Similar to how you are allowed to determine the condition of a home via a home inspection, you have the right to be informed of any of these agreements. Furthermore, you can include a home buying contingency that allows you to back out of the deal if you don't like the covenants attached to a house you're considering.
Restrictive covenants are common in the U.S., particularly in planned communities that have HOAs. The rules can be minor or strict, ranging from what paint colors you can choose for the exterior of your house to time periods for when certain holiday decorations can be displayed.
Certain covenants are known as a covenant running with the land. These agreements dictate that the obligations apply to future owners as well.
In the past, covenants were used for unethical reasons, such as prohibiting buyers of certain ethnic backgrounds from purchasing a home in a community. These restrictions were outlawed by the U.S. Supreme Court in 1949.
What is the purpose of covenants?
Typically, these agreements are in place to give an HOA the power to enforce its rules, which are in place to ensure property values in the community increase. From a buyer perspective, covenants can be beneficial for resale value. The only caveat is the rules may be severely restrictive and not provide you enough flexibility to turn the house you're considering into a dream home.
Here are some of the limitations you may experience:
- Caps on how many individuals can live in the property
- Restrictions on types of fences that can be erected
- Landscaping standards
- An approved list of window treatments
- Guidelines for building structures in regard to distance from the street
- Rules regarding whether basketball hoops can be placed in a driveway