• Covenants are agreements between multiple parties that create a legally binding agreement on how each party should act.

  • Covenants can either promote an activity (positive covenant) or prohibit an event or condition (negative covenant).
  • Debt covenants are the most common because they impose financial covenants on the borrower and lender as part of the loan agreement.
  • Covenants are legally binding provisions and violation of them will result in compensatory or other legal claims.
  • There are covenants in many sectors, including finance, real estate, law and religion, although they are used in a wide variety of contexts within each group.