The Benefits Of Restrictive Covenants In Commercial Real Estate

06/10/2026 10:34 AM       Mark Goodman

Before you purchase commercial property or agree to a commercial lease, one of the things your title services agency will look into is the existence of restrictive covenants on the property or as part of the purchase/lease agreement. These restrictive covenants place some specific rules on the property that govern how the land or the commercial entity is required to operate. While use restrictions can seem like a bad thing, they can have benefits for all involved parties. In today’s blog, we take a closer look at some of the benefits of restrictive covenants in commercial real estate. 

What Are Restrictive Covenants?

A restrictive covenant is a restriction put in place for property or business use. For example, a bank may place a restrictive covenant on a loan about what type of business cannot be opened on a property (tobacco, liquor, etc.) A bank may also require specific occupancy requirements during the term of the loan. If these covenants are not met, the lender could “call” the loan and require immediate repayment. 

However, not all restrictive covenants serve to hinder the buyer or the tenants. Some of these work to protect your investment. 

Benefits Of Restrictive Covenants For Lenders

For lenders, restrictive covenants are primarily put in place to protect their investment. They want to ensure that a property that has been secured with funds from their loan is being used in a way that serves their bottom line. They don’t want someone applying for a loan for one type of business only to have that individual pivot to a different, riskier commercial venture. This could put the bank’s initial investment at risk, and that’s what they are hoping to avoid. Restrictive covenants are oftentimes designed with the lenders best interests in mind to protect their investment. 

Benefits Of Restrictive Covenants For Tenants

That said, when used correctly, restrictive covenants can also help a commercial business grow and thrive. Restrictive covenants in commercial lease agreements can ensure your business isn’t harmed from competition, at least locally. For example, let’s say that you’re planning on opening a bicycle repair shop in a commercial real estate location that’s part of a larger shopping center or strip mall. The lease agreement may restrict any other bike repair businesses from operating within that same commercial area. You can have peace of mind knowing that you’re not going to sign a three-year lease only for Big Corporate Bike Repair to open a franchise store two spaces down from your shop. 

Other types of restrictive covenants can also be helpful to your commercial vision. A covenant that states that businesses in a shopping district can only be open from 9 a.m.-9 p.m. can make it easier for you to staff your business at appropriate times, or it can keep people away from your establishment at a time when you’re not normally open.  

Understanding Restrictive Covenants

If you’re at all confused about restrictive covenants that are included in your loan or your lease agreement, have your title services company review the property or the documents and ensure everything appears as it should. You want to operate your business in a specific manner consistent with your vision, let us ensure you can do it by reviewing any restrictive covenants. 

For more information about restrictive covenants, or for help with a different title issue, connect with the team at Commercial Partners today at (612) 337-2470.