Covenant

A covenant is a contractual requirement that one party to a contract either specifically complete a task or to refrain from doing something. The term is frequently used in lending agreements, where a borrower is not allowed to do certain things, such as pay dividends, while the loan is still unpaid. If a covenant is breached, the lender has the right to call the associated loan. Covenants are designed to protect the interests of the lender.

A covenant is positive when it requires a party to take action, and is negative when it restricts a party from taking action.