Insights
Legal and title
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8 min read
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A Deed Restriction Is the Recorded Limit That Outlasts the Seller
A deed restriction is treated as a formality that dies with the transaction. It does not. It is a recorded limit on how a parcel can be used or built, and once it runs with the land, it binds every future owner regardless of who signed it. The seller who agreed to the restriction, or the owner two transfers back who negotiated it, is long gone. The restriction is still on the land, still enforceable, and still governs what the buyer can lease, build, or operate. A deed restriction is not a term you negotiate at closing. It is a decision a prior owner made, recorded against the land, that you inherit whether or not you read it.
Key Takeaways
A deed restriction is a privately created limit on the use or improvement of real property, and when it runs with the land it passes the burden to every subsequent owner, per the title publication of Attorneys' Title Guaranty Fund.
A restrictive covenant in a deed runs with the land and can last indefinitely, while the same covenant in a lease ends when the lease ends, per the commercial real estate group at law firm Scarinci Hollenbeck.
A covenant runs with the land only if the parties intended it to run, it touches and concerns the land, and there is privity, per Attorneys' Title Guaranty Fund.
A former grocery box sold by Walmart in 2017 carried a 25-year covenant barring supermarket use, and an Albertsons deed restriction was drafted to block a grocer until 2038, per ecoRI News and Grocery Dive.
A recorded no-grocery covenant that blocks the tenant you underwrote is not a nuisance. Capitalized into value, a $225,000 annual rent gap can erase roughly $3.0 million of value at a 7.5% cap rate.
What Is a Deed Restriction, and Why Does It Outlast the Seller?
A deed restriction is a recorded limit on how a parcel may be used or improved, created privately between parties rather than by government. When it is written to run with the land, the burden passes to every subsequent owner, so the restriction survives the sale that created it and every sale after. The seller leaves. The limit stays.
Attorneys' Title Guaranty Fund, in its title-industry publication on covenants, conditions, and restrictions, states the mechanism plainly. Covenants are either personal, restricting only the party who signs, or they run with the land, passing the burden to subsequent property owners. A covenant runs with the land under three conditions: the parties intended it to run at conveyance, the covenant touches and concerns the land, and there is privity. The publication adds that restrictive covenants are almost uniformly deemed to touch and concern the land, which is why use restrictions in deeds bind successors so reliably.
The commercial real estate group at law firm Scarinci Hollenbeck draws the sharp line for operators. Restrictive covenants in leases end upon termination of the lease. Restrictive covenants in deeds often run with the land and can last indefinitely. That distinction is the whole point. A tenant restriction is a temporary constraint on a temporary occupant. A deed restriction is a permanent constraint on the land itself, and permanence is exactly what a buyer underwrites over a hold and an exit.
What Can a Deed Restriction Actually Control?
A deed restriction can control use, construction, occupancy, and even title itself. It can bar a category of business, cap building height or footprint, force a maintenance obligation, or hand a prior owner a right to retake the land if a condition is breached. The common thread is that each limit was recorded against the parcel and travels with it.
The forms differ in how they bite. Some restrict what you do, some dictate what you must do, and one category can cost you title itself. Attorneys' Title Guaranty Fund describes a condition subsequent as a limitation that, if violated, can forfeit the owner's interest through a right of re-entry, and a fee simple determinable that reverts automatically when the stated use ends. These do more than shrink cash flow.
Type of deed restriction | What it does | Effect if the buyer ignores it |
|---|---|---|
Use restriction | Bars or requires a category of use, such as no grocery, no drive-through, office only | A tenant or business you underwrote may be flatly prohibited |
No-compete or exclusive covenant | Blocks a competing use on the parcel, often for a fixed number of years | A vacated box can sit dark and unleaseable to its highest-paying user |
Building and setback restriction | Caps height, footprint, density, or design and materials | Planned expansion or redevelopment may be barred without a release |
Affirmative covenant | Requires action, such as maintenance, landscaping, or shared repair | A recurring cost obligation transfers to the buyer at close |
Condition subsequent or reverter | Reserves a prior owner's right of re-entry or automatic reversion | Breaching the condition can forfeit title, not just income |
Discriminatory covenant | Historic race or class restriction recorded in the chain | Void and unenforceable under the Fair Housing Act, but still clutters title |
Discriminatory covenants deserve a note. Scarinci Hollenbeck confirms that covenants restricting ownership or use based on protected criteria are prohibited under the Fair Housing Act and comparable state laws. They are unenforceable, but they still surface in title searches on older parcels and have to be identified and cleared rather than assumed dead.
How Much Can a Use Restriction Cost When It Blocks a Tenant or Redevelopment?
A use restriction costs whatever the blocked use was worth minus the next-best permitted use, capitalized over the life of the covenant. If a buyer underwrites a grocer at grocery rent and a recorded covenant bars supermarket use, the parcel drops to a lower-rent tenant, and the gap compounds every year the covenant runs. The number is not small.
The pattern is documented. Grocers have long recorded no-compete covenants against boxes they vacate so a rival cannot backfill the site. Reporting by ecoRI News and Grocery Dive describes a former Walmart that closed in 2011, sat vacant for years, and was sold in 2017 with a 25-year restrictive covenant prohibiting supermarket use, and an Albertsons deed restriction drafted to keep a grocer out of a vacated space until 2038. A buyer who acquires that pad to re-tenant it with food is underwriting a use the recorded document forbids.
Work the cost through with stated inputs.
Assume a 45,000-square-foot former supermarket box acquired to re-tenant.
The buyer underwrites a replacement grocer at $14.00 per square foot triple net, or $630,000 per year.
A recorded no-grocery covenant, on the model of the 25-year Walmart restriction, bars supermarket use for the balance of its term.
The best permitted alternative, a discount or soft-goods user, leases at $9.00 per square foot, or $405,000 per year.
The annual rent gap is $630,000 minus $405,000, or $225,000, every year the covenant runs.
Capitalized at a 7.5% cap rate, that gap reduces value by $225,000 divided by 0.075, or roughly $3.0 million.
That figure ignores the carrying cost of the extra vacancy while the site is re-tenanted to a lower use, which only widens the loss. The cost of the title diligence that would have surfaced the covenant is a rounding error against a $3.0 million valuation swing. The restriction was recorded. The rent roll the buyer paid for assumed it away.
How Do You Find and Price Deed Restrictions Before Closing?
You find deed restrictions in the title commitment and the recorded chain, then read every referenced instrument in full and price each limit against the business plan. The title search lists them as exceptions. The work is reading the underlying documents, confirming which run with the land, and modeling what each one forbids or requires, not confirming they exist.
Three checks carry most of the risk. First, pull every recorded declaration, deed, and covenant in the chain and read the use restrictions and exclusives, because a single no-compete clause can bar the tenant the whole underwriting depends on. Second, identify any condition subsequent or reverter, since those threaten title rather than income and are not curable by a rent adjustment. Third, confirm duration, because term is where these restrictions vary widely. Attorneys' Title Guaranty Fund notes that a covenant running with the land can last indefinitely, while some state statutes cap related interests. Illinois limits enforcement of a condition subsequent to 40 years under its Rights of Entry and Reentry Act, and Indiana law has capped comparable durations at 30 years. A restriction may also be limited by its own recorded term, as the 25-year and 2038 grocery covenants show.
One more rule matters to redevelopment. Attorneys' Title Guaranty Fund states that a restrictive covenant does not supersede a zoning ordinance, and whichever restriction is more stringent prevails. Favorable zoning does not release a private deed restriction. A deed restriction sits alongside other recorded limits like an easement, and on shared-parcel deals it stacks with the rules in a reciprocal easement agreement. The buyer prices all of them or prices none of them.
Frequently Asked Questions
What is the difference between a deed restriction and a restrictive covenant?
The terms are used interchangeably. Attorneys' Title Guaranty Fund treats a restriction as a limitation on how a parcel can be used and notes the terms restrictive covenant and restriction are used interchangeably. Both are private limits recorded against the land, and both can run with the land to bind future owners.
Does a deed restriction bind a buyer who never agreed to it?
Yes. When a restriction is written to run with the land, it binds every subsequent owner, per Attorneys' Title Guaranty Fund, provided the buyer had notice, which recording provides. A buyer inherits the recorded use restrictions, covenants, and conditions at closing regardless of whether it read them.
How long does a deed restriction last?
It depends on the instrument. A covenant running with the land can last indefinitely, per Attorneys' Title Guaranty Fund, unless the document sets a term or the restriction is released or terminated. Some states cap related interests. Illinois limits a condition subsequent to 40 years, and Indiana has capped comparable durations at 30 years.
Can a deed restriction be removed?
Sometimes. A restriction can end through release by the benefited party, a recorded term expiring, merger of the burdened and benefited parcels, government action, or a court finding the neighborhood has changed enough to defeat its purpose, per Attorneys' Title Guaranty Fund. None of that happens automatically, and it cannot be removed by the burdened owner alone.
Conclusion
A deed restriction is a decision recorded against the land, and the land carries it forward long after the person who made it has sold and moved on. Use restrictions, no-compete covenants, building limits, and conditions subsequent run with the land and transfer at close with the same finality as the deed. The buyer who reads every recorded instrument and prices each limit against the business plan underwrites the parcel it is actually buying. The buyer who assumes the restrictions died with the last seller underwrites a parcel that does not exist, and pays the difference for as long as the covenant runs.