What Is A Breach Of Covenant
A breach of covenant is the noncompliance to the agreement or promise made in a written contract. In essence, it means that one or more parties have not acted under the covenant that is currently in place.
The breaching of a covenant comes in different forms. It could be a loan, employment, rental property, etc. In a loan, a breach of covenant occurs when a debtor or lender violates the terms and conditions that accompany the lending agreement. Every violation of a covenant has a consequence, and a loan isn’t an exception. When a debtor violates the lending agreement, the lender has the authority to demand repayment before the loan’s expected maturity date. Aside from the hasty repayment of the loan, the lender may charge the debtor a penalty fee. It could be an increase in interest or collateral.
In a rental property, it’s an agreement between a landlord and a tenant. Once the deal is signed, the tenant has access to a property for a particular period, and the landlord grants access to the tenant. However, a breach of covenant occurs when the landlord or tenant takes actions not explicitly authorized in the agreement. It could be the failure to pay rent dues, damage of properties, taking steps without the tenant’s consent, etc. In a rental property, the consequence of breaching an agreement isn’t as severe as a loan. It could be as lenient as losing access to the property, replacing damaged properties. In other cases, if the landlord violates the agreement, the tenant has the right to be refunded his rental dues.
Breach Of Covenant Example
An instance is a spy working at a secret agency. The spy signs an agreement and promises to keep the activities of the agency confidential. However, if the spy provides any information about the agency to outsiders, the spy automatically loses the job and could be fined heavily.
Another example is an employee who leaves a job and gives out marketing strategies of the former company to the new employer.« Back to Glossary Index