Legal Definitions - covenantor

A covenantor is an individual or entity who makes a formal promise or agreement, known as a covenant. This person or entity is legally bound to fulfill the terms of that promise, thereby carrying the responsibility or "burden" of the covenant.

Here are some examples to illustrate the role of a covenantor:

• Real Estate Development: Imagine a property developer who sells plots of land in a new residential community. To maintain a consistent aesthetic, the developer includes a covenant in the sales agreement for each plot, stating that all homes built must use a specific type of roofing material. In this scenario, each individual who purchases a plot of land and agrees to these terms becomes a covenantor. They have formally promised to adhere to the roofing material requirement, and they bear the burden of fulfilling that promise when constructing their home.

• Business Acquisition: When a small business owner sells their company to a larger corporation, the sales contract often includes a covenant where the seller promises not to start a similar competing business within a certain radius for a period of five years. Here, the small business owner is the covenantor. They are making a binding promise (the non-compete covenant) to the acquiring corporation, and they are obligated to refrain from competitive activities as per the agreement.

• Loan Agreement: A company takes out a significant loan from a bank. As part of the loan agreement, the company agrees to a covenant promising to maintain a specific debt-to-equity ratio throughout the loan term to ensure financial stability. In this situation, the borrowing company acts as the covenantor. It has made a formal promise to uphold a particular financial standard, and it is legally bound to ensure its financial statements reflect this commitment.