A covenant in general terms means a promise. It is an agreement that binds the two individuals agreeing on it through a legal contract. There are two types of covenants to a contract, namely, express covenants and implied covenants.
Implied covenants, even though subjective, are legally enforceable promises under the law. They refer to the rights and duties of the abiding parties to which they are entitled and bound in the essence of the contract, even if it is not expressly mentioned in it.
The rule of the implied covenant to good faith and fair dealings ensures that the parties to the contract enter into it in good faith and with an intention to fairly execute their respective duties. Or in simple words, they act upon their part as it was intended in the agreement. It prevents them from using any underhanded means to violate the essence of the contract, resulting in the loss of rights or any undue advantage to any of the other parties.
The buyer and the seller of a property are bound to certain rights and duties that they must perform and exercise after agreeing to close a deal. Unless mentioned anything to the contrary in the contract, they must perform their duties in good faith to the other party.
Some key implied covenants in real estate are:
Covenant of Title: The seller of the property must transfer a good title to the buyer. He must be the owner of the property and should have the legal rights to sell it.
Covenant of peaceful enjoyment of title: The buyer has the right to peacefully enjoy the ownership of the property once the title is transferred. It means once the transfer is made, the seller cannot use or enter the property anymore without the buyer’s consent, as before the transfer.
Covenant of the right to hold free from encumbrances: It is the responsibility of the seller to settle any encumbrances or mortgages on the property before selling it. It is to ensure that the buyer is not bothered by any creditors for the rights of the property in the future. If it so happens, the seller shall take full responsibility to settle it and compensate the buyer for any damages that they suffered.
These and any other covenants in the scope of a contract, need not necessarily be mentioned in the contract but would still be legally enforceable.
