Restrictive covenants are conditions attached to a contract that binds a party for doing or refraining from any action. For example, a restriction can be attached to a sales deed in which the seller restricts the buyer from selling the property to another buyer for a period of 6 months. In case of a bond or loan, the companies or banks can put some restrictions like not using the loan in repayment of any other liabilities.
The covenants refraining a company or party from doing a particular action are called negative restrictive covenants. The examples discussed above are for negative covenants. Positive covenants can include a clause forcing a party to perform a certain action. For example, a loan raised for the purpose of constructing a qualifying asset can contain a clause to start construction on a certain date.
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