Key Takeaways

  • Covenants vs. Conditions: Covenants are promises to act (or not act) in a certain way, while conditions are contingencies that determine when rights or obligations begin or end.
  • Types of Covenants: These may be affirmative (requiring an action) or restrictive (prohibiting an action), often found in real estate, contracts, and deeds.
  • Conditions in Contracts: Conditions can be precedent (must occur before rights arise) or subsequent (terminate rights if they occur).
  • Enforceability: Breaching a covenant may lead to damages or specific performance, while failure to satisfy a condition may void or alter rights under the agreement.
  • Practical Applications: Covenants and conditions frequently appear in real estate transactions, HOAs, leases, and business contracts, shaping how agreements are performed and enforced.
  • Examples: HOA restrictions on architecture, noise, or pets illustrate covenants; lease payment requirements or insurance clauses often serve as conditions.

To understand contract conditions and contract covenants, you first need to understand what a covenant is. A covenant is basically a promise to do something. One type of covenant example is when a deed includes a covenant of quiet enjoyment. A condition within a covenant is a particular promise that must be met. If the promise isn't kept, then a certain property right may be lost, or it could be gained.

When Can a Covenant Be Used?

A covenant can be used when two or more parties decide to make an agreement, or if they make promises to one another. In some covenants, a pledge is made to perform a certain action. In others, a promise is made to not perform a certain action. A covenant can also include a written agreement that outlines what can and cannot take place on a certain piece of property.

Covenants are commonly used in the real estate industry. They can be used when leases are agreed upon as well as when mortgages and contracts for deed are created. If one party doesn't abide by the terms and conditions outlined in the contract, a breach of the covenant can be claimed.

Common Types of Covenants

Covenants generally fall into two categories:

  • Affirmative Covenants: These require a party to take a specific action, such as maintaining landscaping, paying taxes, or upholding insurance obligations.
  • Restrictive Covenants: These prohibit certain actions, such as operating a business on residential property, modifying structures without approval, or engaging in activities that create nuisances.

In real estate and business contracts, restrictive covenants are particularly important for maintaining property values and ensuring consistent use within communities or partnerships.

What Is a Covenant of a Warranty Deed?

When a covenant is used in a warranty deed, this means certain promises have been made by the grantor. If something happens and the promise in the covenant cannot be kept, the heir of the covenant will be compensated by the grantor.

Enforceability of Covenants

The enforceability of covenants depends on their clarity, scope, and compliance with public policy. Courts may enforce covenants through:

  • Damages: Monetary compensation if a covenant is breached.
  • Specific Performance: Ordering the breaching party to comply with their obligation.
  • Injunctions: Preventing parties from violating restrictive covenants.

However, overly broad or unreasonable covenants may be struck down. For example, a restrictive covenant that permanently bans future use of property without justification may be deemed unenforceable.

What Kind of Language Is Used in a Covenant?

A lot of the time, covenants use certain language, like:

  • Convey and warrant,
  • Warrant generally,
  • Warrant specifically.

It's important to understand that covenants are outlined in contracts, and if any promises aren't kept, this means a certain party in the covenant will be entitled to certain compensation for any damage that arose due to the breach.

Covenants, Conditions, and Restrictions (CC&Rs)

In property law, covenants and conditions are often bundled into Covenants, Conditions, and Restrictions (CC&Rs). These are the governing documents of homeowners’ associations (HOAs) that dictate how property owners may use their land. Common CC&Rs include:

  • Architectural Guidelines (such as limits on home exterior modifications)
  • Noise Restrictions (quiet hours or limits on disruptive activities)
  • Pet Policies (limits on size, number, or type of pets allowed)
  • Trash Disposal Rules (placement and timing for bins)

Violations can lead to fines, loss of privileges, or legal action by the HOA.

Are Conditions and Covenants the Same Thing?

Conditions are not covenants. They are more like contingencies or qualifications. They outline when a piece of property may be gained or lost if certain contingencies aren't met. Covenants are commonly indicated in a contract through various words, like:

  • Agree,
  • Undertake,
  • Promise.

Conditions, however, commonly use language like:

  • Unless,
  • Provide,
  • If,
  • When.

Key Differences Between Covenants and Conditions

While both play a role in contracts, their legal implications differ:

  • Covenants create obligations. Breaching a covenant allows the other party to pursue remedies, such as damages.
  • Conditions determine the effect of a contract. If a condition is unmet, the contract may not take effect, or an existing right may terminate.

For example, in a real estate purchase, a covenant might require the seller to maintain the property until closing, while a condition could be the buyer obtaining financing—without which the sale does not proceed.

What Are Precedent and Subsequent Conditions?

Conditions in no way create obligations. They simply outline various limitations. If a certain condition does not occur, this doesn't necessarily entitle a party to compensation for damages. Conditions can be one of the two types: precedent or subsequent. When a condition precedent is put into place, this means it must occur before a right to a piece of real estate is gained. When a condition subsequent is put into place, this outlines how the piece of property can be lost if a certain obligation is not carried out.

Example of Contract Conditions

An example of a lease that includes conditions is when a renter agrees to pay rent in exchange for having a place to live. In exchange, the landlord also agrees to provide landscaping duties, pay taxes, and keep the structure in a habitable condition. If the lease between the tenant and landlord contains conditions and one of these conditions is breached by the tenant, this may give the landlord the right to have the tenant evicted. Commercial leases are often used when a property owner leases part of his structure to a certain business to be used for commercial purposes.

Common types of covenants used when a person is selling a piece of property include:

  • The buyer makes a promise to pay.
  • The seller promises to deliver a marketable title as well as procure title insurance for the person buying the piece of property.

The seller may also be obligated to fix certain damages to the property in exchange for the buyer paying for the property.

When a commercial transaction takes place, a buyer will often want the seller to meet certain obligations during the period of time that the transaction is taking place, which can sometimes be several weeks or several months. For example, a buyer may want the seller to close up shop and not perform any further business out of the building while the sale is taking place.

Real-World Applications of Covenants and Conditions

Covenants and conditions are found across various agreements:

  • Leases: Tenants covenant to pay rent; conditions may include maintaining insurance as a prerequisite to occupancy.
  • Business Contracts: Parties may covenant not to compete; conditions may require achieving milestones before payments are released.
  • Real Estate Sales: Sellers covenant to provide clear title; conditions may require inspections or financing approval before closing.

Understanding how covenants and conditions interact ensures contracts are enforceable and reduces the risk of disputes.

Frequently Asked Questions

  1. What is the main difference between covenants and conditions?
    Covenants are promises to act or refrain from acting, while conditions are events that determine when contractual rights or duties take effect.
  2. Are covenants always enforceable in court?
    Not always. Courts may decline to enforce covenants that are overly broad, unclear, or against public policy.
  3. What are common examples of covenants in real estate?
    Examples include restrictions on building changes, noise limitations, pet ownership rules, and maintenance responsibilities.
  4. Can a condition in a contract be waived?
    Yes, if both parties agree, certain conditions may be waived, allowing the contract to proceed even if the event does not occur.
  5. How do CC&Rs relate to covenants and conditions?
    CC&Rs (Covenants, Conditions, and Restrictions) are binding rules, often in HOA communities, that combine both covenants and conditions to regulate property use.

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