covenants
Definition
Covenants are promises written into a contract that require you to do something or stop you from doing something. They show up constantly in business contracts, loan agreements, leases, and property deeds, and breaking one can have serious consequences even if everything else in the deal is going smoothly.
Example
A bank might include a covenant in your business loan saying you must keep a certain amount of cash on hand at all times, and if your balance drops below that number, the bank can demand full repayment immediately.
Watch Out
Pay close attention to negative covenants, which are the ones that restrict your behavior, because business owners often sign them without realizing they are promising not to open a competing location or take on additional debt.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.