Restrictive Covenant Law and Legal Definition

A restrictive covenant is a clause in a deed to real property that the buyer (grantee) will be limited as to the future use of the property. All restrictive covenants based on race are illegal.

A restrictive covenant is also used in employment contracts or financing documents. Such a restrictive covenant imposes an obligation an employee or director preventing the employee/director from doing something during or after his employment has terminated. This usually deals with engaging in competitive businesses or poaching staff or customers.

A noncompetition covenant is reasonable if the restraint:

  1. is no greater than is required for the protection of the employer,
  2. does not impose undue hardship on the employee, and
  3. is not injurious to the public.