Restrictive covenants


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Restrictive covenants

Provisions that place constraints on the operations of borrowers, such as restrictions on working capital, fixed assets, future borrowing, and payment of dividends.

Restrictive Covenant

A bond covenant that forbids the issuer from taking certain actions. For example, a restrictive covenant may prevent an issuer from issuing more debt until the bond matures. More commonly, a restrictive covenant limits the dividends an issuer may pay to shareholders so as to reduce the risk to the bond. It contrasts with a positive covenant, which requires the issuer to take certain enumerated actions. It is also called a negative covenant.
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In its ruling, the Appellate Division noted that the developers had demonstrated that Hempstead's restrictive covenant was "of no actual and substantial benefit to the Town," and Hempstead officials had "offered no explanation to rebut this showing.
One of the most important considerations when drafting restrictive covenants is deciding the length of the covenant.
However, more than one of those business people went on to add that restrictive covenants were needed because they made people unwilling to leave and set up business on their own.
In a novel analysis, the court reasoned that to determine whether the restrictive covenant was reasonable it must somehow distinguish between, and perhaps compare, goodwill independently created by Doerfler and goodwill created by Marsh.
If the restrictive covenants were imposed years before it may be difficult to trace the person having the benefit.
4) Restrictive covenants are typically favored to the extent they tend to be binding on property regardless of changes in the law, do not require change in ownership, provide for enforcement by third parties, allow for productive uses that would not be allowed in conservation areas, and tend to appear during typical title searches.
The recent case of Davies v Dennis shows how broad ranging restrictive covenants can be.
Employees found in breach of reasonable restrictive covenants may be required to account for and pay profits earned as a result of the breach to the former employer.
Restrictive covenants must also be in writing and agreed to by both parties.
The court acknowledged that restrictive covenants in employment contracts involving physicians are enforceable under existing New Jersey law if they protect a legitimate interest of the employer, impose no undue hardship on the employee, and are not injurious to the public.
The employment agreements contained post-employment restrictive covenants that prohibited Dr.