Legal Definitions - collateral covenant

A collateral covenant is a promise or agreement that exists alongside, and supports, a primary contract or agreement, but is not its central purpose. While it is legally binding, a breach of a collateral covenant might not necessarily invalidate the entire main contract, though it can still lead to legal remedies. It's an ancillary promise that helps facilitate or enhance the main transaction without being the fundamental reason for the agreement.

Here are some examples:

• Real Estate Lease: Imagine a tenant signs a lease agreement for an apartment. The main purpose of this contract is for the tenant to rent the property and for the landlord to receive rent. A collateral covenant within this lease might be the tenant's promise to regularly clean and maintain the small, shared garden area accessible to all residents. While important for communal living, the garden maintenance is secondary to the core agreement of renting the apartment itself.

  How it illustrates the term: The primary contract is the lease of the apartment. The promise to maintain the shared garden is a supporting, but not central, agreement that enhances the living arrangement without being the fundamental reason for the lease.

• Business Acquisition: A large corporation agrees to purchase a smaller technology startup. The main contract outlines the sale of assets, intellectual property, and shares. A collateral covenant in this agreement might be the startup's founder promising to remain with the new company for six months to assist with the transition and train the acquiring company's staff on the startup's proprietary software. The training and transition support are important, but the core agreement is the acquisition of the business itself.

  How it illustrates the term: The primary agreement is the sale and purchase of the startup. The founder's promise to provide transitional support and training is a related, but secondary, commitment that helps ensure the success of the main acquisition.

• Service Contract: A homeowner hires a landscaping company to completely redesign their backyard, including installing new patios, plants, and an irrigation system. The main contract details the scope of work, materials, and payment schedule. A collateral covenant might be the landscaping company's promise to provide a detailed, personalized plant care guide and a complimentary follow-up visit three months after completion to ensure all plants are thriving. The guide and follow-up are valuable additions, but the core service is the backyard redesign itself.

  How it illustrates the term: The primary contract is for the extensive backyard redesign. The promise of a plant care guide and a follow-up visit are supporting services that enhance the client's satisfaction and the longevity of the work, but they are not the central purpose of the landscaping project.