What is A Restrictive Covenant?

A Restrictive Covenant is a clause in a contract that limits a party’s actions or activities to protect the interests of another party. These covenants are commonly used in employment contracts, property deeds, and business agreements. Here’s a detailed explanation tailored for a UK audience:


  1. Definition:
    • Restrictive Covenant: A restrictive covenant is a binding legal agreement that restricts a party from engaging in certain activities or behaviors. These covenants are often included in employment contracts, property deeds, and commercial agreements to protect business interests, property values, or competitive advantages.
  2. Types of Restrictive Covenants:
    • Employment Contracts:
      • Non-Compete Clauses: Prevent an employee from working for a competitor or starting a competing business for a specified period and within a certain geographical area after leaving the employer.
      • Non-Solicitation Clauses: Restrict an employee from soliciting the employer’s clients, customers, or other employees for a set period after leaving the company.
      • Non-Disclosure Agreements (NDAs): Prohibit an employee from disclosing confidential information or trade secrets during and after their employment.
    • Property Deeds:
      • Land Use Restrictions: Limit how the property can be used (e.g., residential use only, no commercial activities).
      • Building Restrictions: Specify what can or cannot be built on the property, such as limiting the height of buildings or types of structures allowed.
    • Commercial Agreements:
      • Exclusive Dealings: Prevent a business from entering into agreements with competitors or selling competing products.
      • Territorial Restrictions: Limit the areas where a business can operate or sell its products.
  3. Purpose:
    • Protection of Interests: Safeguard the business interests of employers, property owners, and companies by preventing unfair competition or misuse of confidential information.
    • Preservation of Property Value: Ensure that property use aligns with community standards and zoning laws to maintain property values.
    • Business Integrity: Maintain the integrity and competitive edge of businesses by restricting activities that could harm their market position or reputation.
  4. Enforceability in the UK:
    • Reasonableness: For a restrictive covenant to be enforceable, it must be reasonable in scope, duration, and geographical area. Courts will consider whether the restriction goes beyond what is necessary to protect legitimate business interests.
    • Public Interest: The covenant should not be against public interest. For example, overly broad non-compete clauses may be deemed unenforceable if they unfairly restrict an individual’s ability to earn a livelihood.
    • Consideration: There must be adequate consideration (something of value exchanged) for the covenant to be binding. In employment contracts, the job itself often serves as consideration.
  5. Examples:
    • Employment: A software company includes a non-compete clause in an employment contract, preventing the employee from working for a competitor within 50 miles for one year after leaving the company.
    • Property: A homeowner’s deed includes a restrictive covenant prohibiting the construction of multi-story buildings to maintain the neighborhood’s character.
    • Commercial: A franchisor includes a territorial restriction in a franchise agreement, preventing the franchisee from opening new locations within a certain distance of other franchises.
  6. Legal Considerations:
    • Drafting: Careful drafting is essential to ensure that restrictive covenants are clear, specific, and enforceable. Vague or overly broad covenants are more likely to be challenged in court.
    • Review: Regular review and updating of restrictive covenants are necessary to ensure they remain relevant and enforceable under current laws and business practices.
    • Legal Advice: Seeking legal advice when drafting, reviewing, or enforcing restrictive covenants can help avoid disputes and ensure compliance with UK laws.

In summary, a restrictive covenant in the UK is a legal clause that limits certain actions to protect business interests, property values, or competitive advantages. It is enforceable if it is reasonable, necessary, and not against public interest, with careful consideration given to its drafting and scope.