Purchaser’s covenants: Overview, definition, and example
What are purchaser’s covenants?
Purchaser’s covenants refer to the specific promises or obligations made by the purchaser (buyer) in a contract, particularly in the context of a sale of goods, property, or assets. These covenants outline the purchaser's commitments to act in a certain way during or after the transaction, and they often address matters such as the payment of purchase price, compliance with laws, proper maintenance of property, or handling of liabilities. Purchaser’s covenants are typically binding and are enforceable by the seller if the purchaser fails to meet their obligations as agreed.
These covenants help ensure that both parties understand their respective rights and duties in the transaction, and they can provide the seller with legal recourse if the purchaser does not fulfill their commitments.
Why are purchaser’s covenants important?
Purchaser’s covenants are important because they define the legal obligations of the purchaser and help protect the interests of the seller in a transaction. These covenants ensure that the purchaser will meet the terms of the agreement, whether it involves paying for goods, taking care of an asset, or fulfilling other contractual responsibilities. By clearly setting out these obligations, purchaser’s covenants reduce the risk of disputes and ensure that the transaction proceeds smoothly and fairly.
For the seller, these covenants provide assurance that the purchaser will act in a way that upholds the value of the transaction and meets legal or regulatory requirements. For the purchaser, covenants clarify their responsibilities and outline what is expected to avoid potential legal complications or financial penalties.
Understanding purchaser’s covenants through an example
Imagine a purchaser buying a commercial property. The purchaser’s covenants in the contract may include commitments to pay the agreed purchase price on time, maintain the property in good condition, and comply with all zoning and environmental laws. The purchaser may also covenant not to alter the use of the property without the seller’s consent. If the purchaser fails to uphold these covenants, the seller can seek legal remedies, including damages or contract termination.
In another example, a company purchasing intellectual property (IP) might make covenants to protect the IP rights, not use the IP in a way that infringes on existing patents, and not sell or transfer the rights without prior approval. These covenants help ensure that the IP remains protected and that the purchaser does not take actions that would harm the value of the IP or breach the terms of the original agreement.
An example of a purchaser’s covenants clause
Here’s how a clause like this might appear in a purchase agreement:
“The Purchaser covenants and agrees to: (1) pay the full purchase price of the Property in accordance with the terms set forth in this Agreement; (2) maintain the Property in good condition and repair; (3) comply with all applicable laws, ordinances, and regulations; and (4) not make any alterations or improvements to the Property without the prior written consent of the Seller. Any failure to comply with these covenants will constitute a breach of this Agreement, subjecting the Purchaser to potential remedies as specified herein.”
Conclusion
Purchaser’s covenants are essential in a variety of transactions, ensuring that the purchaser fulfills specific obligations that protect the interests of the seller and the integrity of the transaction. By clearly outlining these responsibilities, purchaser’s covenants help prevent legal disputes, clarify expectations, and ensure the smooth execution of the agreement. Understanding and adhering to these covenants is crucial for both purchasers and sellers to uphold the terms of their contracts and avoid potential legal complications.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.