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Beware of hidden covenants in your real estate transaction

One area of due diligence in real estate transactions involves searching for covenants. These are conditions or restrictions that apply to the land, regardless of its ownership. Consequently, liability to perform or abide by the terms of a covenant runs with the land and attaches to all subsequent owners.

A covenant may be listed on the deed, or simply incorporated by reference. For example, neighborhood covenants are created by a written document called a declaration of covenants. The declaration is typically filed in the local county recorder’s office.

A covenant may also have a set term, or an expiration date. In the case of a contractor, the builder generally includes covenants for each lot in the subdivision. The restrictions may be for the type of construction, such as only single-family structures, or include details about how far from the street a structure must be situated.

After construction is completed and buyers have purchased individual lots, the covenant may naturally expire. After all, the construction and location of the property would be moot. However, the homeowners’ association may elect to adopt these previous covenants, in order to control future aspects of neighborhood construction.

Laws regarding covenants may also change. A recent article examined the covenants utilized by former real estate developer and Maryland secretary of state, Col. Edward Brook Lee. The developer had included unlawful covenants in his Northwest Washington and lower Montgomery County subdivisions. Although the U.S. Supreme Court ruled in 1948 that the covenants were unenforceable, they unfortunately had already impacted the neighborhoods.

Before entering into a real estate purchase agreement, it is important to consult with an attorney. Our law firm focuses on real estate law and has performed due diligence for many prospective buyers, both residential and commercial.

Source: Washington Post, “There’s more to fighting racism than getting rid of a Confederate statue,” David Rotenstein, March 3, 2017

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