By: Jennifer Ramge

Senior Real Estate Manager

Here is how the Kenton Historic Courthouse District can take back control of the District to be used for proper uses one sale at a time.

I have introduced these into sale documents many times in commercial deals I have managed through the years.

Deed restrictions can be powerful tools in real estate transactions, but only if they’re handled correctly before the deal closes. Whether you’re a seller protecting a property’s future use, a municipality shaping redevelopment, or a buyer who needs clarity on limitations, understanding how deed restrictions are added to a Purchase & Sale Agreement (PSA) is critical.

This guide walks through what deed restrictions are, why they matter, and how to properly incorporate them into a PSA, so there are no surprises at closing, or worse, after.

What Is a Deed Restriction?

A deed restriction (also called a restrictive covenant) is a legally binding limitation placed on a property’s use. Once recorded, it typically runs with the land, meaning it binds future owners- not just the buyer in the current transaction. 

Disclosure: these must adhere to zoning laws = commercial zone is still commercial zone- but if I don’t want a casino in this building ever- that is a deed restriction I can add. 

Common examples include:

• Prohibiting certain business types 

• Requiring specific uses 

• Design or architectural standards

• Prohibiting subdivision

• Reversion clauses if conditions aren’t met

Because deed restrictions affect long-term property rights, courts can scrutinize them closely - clarity and proper documentation matter.

Why Deed Restrictions Must Appear in the Purchase & Sale Agreement:

A PSA is where the parties agree to the terms of the transfer, including any limitations on ownership. If a restriction is introduced after the PSA is signed, it can:

• Delay or derail closing

• Trigger buyer objections

• Create title defects

• Lead to post-closing disputes or litigation

In short: If it’s not disclosed and agreed to in the PSA, it’s a problem.

Step 1: Clearly Disclose the Intent to Impose a Deed Restriction

The PSA should explicitly state that the conveyance of the property will be subject to one or more deed restrictions.

Best practice language includes:

• Acknowledgment that restrictions will be recorded at closing

• A statement that the buyer has reviewed and accepted them

• Confirmation that restrictions will survive closing

This avoids claims of surprise or misrepresentation later.

Step 2: Attach the Restriction as an Exhibit to the PSA

Never rely on a vague reference like “subject to deed restrictions to be determined.”

Instead:

• Draft the full restriction language in advance

• Attach it as an Exhibit to the PSA

• Reference the exhibit clearly in the agreement

This ensures:

• Mutual understanding

• Enforceability

• Clean title underwriting

If the restriction isn’t finalized yet, include a firm deadline and buyer approval rights, but final language should always be resolved before closing.

Step 3: Specify Who Drafts and Records the Restriction

Your PSA should answer:

• Who prepares the restriction document?

• Who pays for drafting and recording?

• When will it be recorded?

Typically:

• The seller drafts the restriction

• The restriction is recorded simultaneously with the deed

• The buyer agrees not to object to the restriction if it matches the approved exhibit

Clarity here prevents last-minute disputes at the title table.

Step 4: Confirm Title and Lender Compatibility

Deed restrictions must be acceptable to:

• The buyer’s lender

• The title company

• Any applicable zoning or municipal authority

The PSA should allow time for:

• Title review

• Lender approval

• Buyer due diligence

If financing is involved, the PSA should condition closing on lender acceptance of the restriction to avoid default or loan denial.

Step 5: Ensure the Restriction Is Properly Recorded

At closing:

• The restriction is either embedded in the deed or

• Recorded as a separate instrument referenced by the deed

Either approach is acceptable, but recording is essential. An unrecorded restriction is often unenforceable against future owners.

The PSA should require proof of recording as part of closing deliverables.

Fun Fact- Use Restrictions can be in a commercial lease too as an Exhibit. 

As always, parties should work closely with qualified real estate counsel to ensure compliance with state law and local recording requirements.