People sometimes treat the paperwork involved in a commercial real estate transaction as a mere technicality. They assume that the forms they sign are standard boilerplate documents that transfer ownership of the property to a new party. Anyone with a background in real estate will tell you that carefully reviewing paperwork for a real estate transaction is crucial for your protection.
There are many pages of paperwork that all require careful review before you sign your name on the final page. Otherwise, you may find out too late that you cannot use the property the way that you intended. The sellers sometimes include restrictive covenants in the paperwork for a real estate transaction that can limit how you make use of the property after the purchase.
How do restrictive covenants work?
Restrictive covenants play an important role in many real estate contracts. They specifically limit what either party can do with a property in the future. For example, those who want their family property to become a park might transfer the property to local authorities or a trust with a restrictive covenant in place that prevents any commercial development of the land.
Common restrictive covenants include rules forbidding the removal of certain trees or improvements from the property. Other times, the seller may prohibit the division of the property into numerous smaller parcels.
If you discover a restrictive covenant in your closing paperwork, you may need to renegotiate with the seller or potentially walk away from the purchase if the terms imposed by the seller would affect how you intend to use the property.
Out-of-date documents could also lead to court
Sometimes, restrictive covenants have outlived their usefulness. For example, they may specifically forbid the removal of a building that eventually burned down decades ago due to a lightning strike. The property may have transferred ownership multiple times since then or may even be subject to different zoning rules than in previous years. It may occasionally be possible for owners of real estate that is subject to restrictive covenants to go back to court and remove the limitations on their land use.
Learning more about the unusual situations that can complicate the purchase or ownership of commercial real estate in Massachusetts can help you make smarter decisions about your investments.
