Drafting a Covenant Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Definitions (feel free to skip)

Parties: Individuals or organizations involved in a legal agreement.
Roles and Responsibilities: The tasks and duties assigned to each party in a legal agreement.
Terms and Conditions: The rules and regulations that parties must follow in a legal agreement.
Rights: The privileges and legal entitlements that parties have in a legal agreement.
Obligations: The duties and responsibilities that the parties have to fulfill in a legal agreement.
Consideration: Payment or exchange given in return for a legal agreement.
Dispute Resolution Procedures: Processes and steps taken to resolve disagreements between parties to a legal agreement.
Termination Clause: Conditions in a legal agreement that outline when and how the agreement can be terminated.

Contents

• Defining the Parties
• Creating a list of parties
• Assigning roles and responsibilities to each party
• Listing the Terms and Conditions
• Outlining the rights of each party
• Specifying the obligations of each party
• Defining the responsibilities of each party
• Establishing the Duration of the Agreement
• Setting a start date
• Setting an end date
• Defining the Consideration
• Outlining the consideration to be provided by each party
• Specifying the type of consideration (e.g. money, goods or services)
• Identifying Dispute Resolution Procedures
• Setting out dispute resolution procedures
• Defining the process for resolving disputes
• Agreeing on a Termination Clause
• Drafting the Agreement
• Reviewing the Agreement
• Signing and Executing the Agreement
• Signing the agreement
• Notarizing the agreement (if required)
• Storing the Agreement

Get started

Defining the Parties

• Identify the parties who are involved in the covenant agreement.
• List the full legal names and addresses of each party.
• You can check this step off your list when you have the full names and addresses of all the parties.

Creating a list of parties

• Identify all participating parties
• List each party in the covenant agreement
• Include the full legal name, contact information and place of business of each party
• Include any other relevant information such as a description of each party’s role or other relevant information
• Check off this step when all parties have been listed in the covenant agreement.

Assigning roles and responsibilities to each party

• Review the list of parties included in the covenant agreement and identify the roles and responsibilities of each party.
• For example, one party may manage the funds, one may provide the services, and another may monitor the progress of the agreement.
• Assign specific roles and responsibilities to each party in the agreement.
• Once all roles and responsibilities are assigned, review the agreement to ensure that all parties agree to their roles and responsibilities.
• When all roles and responsibilities are assigned and agreed upon, you can check this off your list and move on to the next step.

Listing the Terms and Conditions

• Create a list of the specific terms and conditions that need to be included in the agreement
• Research applicable laws and regulations that may need to be considered when drafting the agreement
• Brainstorm with the other parties involved to ensure that all conditions are agreed upon before moving forward
• Create a document that outlines the agreed-upon conditions in writing
• Review the document with all parties involved to ensure accuracy and agreement

When you can check this off your list:

• Once the list of terms and conditions have been documented in writing and all parties involved have reviewed it and agreed to its contents.

Outlining the rights of each party

• List any and all expectations of each party involved in the agreement
• Include any and all rights that each party may have in the agreement
• Review the listed rights and make sure all parties are in agreement
• Once all parties are in agreement on the rights, the step is complete and you may move on to the next step.

Specifying the obligations of each party

• Identify the obligations of each party that are essential to fulfilling the terms of the covenant
• Specify the actions each party must take to meet those obligations
• Outline any additional obligations that the parties have agreed upon
• Ensure that any time limits or deadlines are clearly specified
• Document any conditions that must be met in order for the other party to fulfil its obligations
• Confirm that the obligations are consistent with applicable laws
• Confirm that all parties understand and agree to the obligations before signing the covenant agreement
• When all obligations have been specified and parties agree, the covenant agreement is ready for signing.

Defining the responsibilities of each party

• Identify the roles and responsibilities of each party to the agreement
• Consider what each party is expected to provide or do in order to fulfill the agreement
• Make sure that the roles and responsibilities are clearly defined and that there is an understanding between the parties on how they will collaborate to fulfill the agreement
• Document the roles and responsibilities in the agreement in a clear and concise manner
• Have all parties involved in the agreement review the document and provide their written approval
• Once all parties have approved the agreement, you can check this off your list and move on to the next step.

Establishing the Duration of the Agreement

• Define the duration of the agreement. Depending on the situation, this could be a fixed term or an indefinite period.
• Specify whether the agreement will automatically renew or terminate at the end of the duration.
• Set an end date, if applicable. This will help both parties plan accordingly.
• Once you’ve established the duration of the agreement, you can move on to setting a start date.

Setting a start date

• Establish a date that marks when the covenant agreement starts.
• This should be the date that the agreement is signed and/or when the covenant agreement becomes legally binding.
• This date should be clearly written in the agreement.
• Make sure that the date is clear and unambiguous.
• Once the start date is set and written in the agreement, you can move onto the next step.

Setting an end date

• Establish the end date of the agreement.
• This should be set to the date that the agreement should expire.
• Consider the length of the agreement and how long the obligations should last.
• Consult with the other party to determine the end date that works best for both parties.
• Once the end date has been agreed upon, record it in the agreement.

How you’ll know when you can check this off your list and move on to the next step:

• Once the end date has been set and recorded in the agreement, this step is complete and you can move on to the next step.

Defining the Consideration

• Establish the consideration for each party: Determine what each party is offering the other in exchange for the agreement.
• Describe the consideration of each party in detail.
• Consider whether the consideration is legally enforceable under applicable law.
• Make sure that the consideration is stated in monetary value, whenever possible.
• When ready, check off this step and move on to the next step of outlining the consideration to be provided by each party.

Outlining the consideration to be provided by each party

• Identify the consideration to be provided by each party to the other.
• Consideration can be either money, goods, or services.
• Describe the consideration in detail, including the value of the consideration.
• Keep a record of the consideration given and received.
• When the consideration has been outlined for both parties, the step is complete.

Specifying the type of consideration (e.g. money, goods or services)

• Identify the type of consideration to be provided by each party in the covenant agreement. This could include money, goods, or services.
• Specify the amount of consideration for each party in the agreement.
• Ensure that the type and amount of consideration is clearly stated in the covenant agreement and that both parties understand and agree to the terms.
• When both parties have agreed on the type and amount of consideration to be provided, you can check this step off your list and move on to identifying dispute resolution procedures.

Identifying Dispute Resolution Procedures

• Research different dispute resolution procedures (e.g. arbitration, mediation and court proceedings)
• Decide on the dispute resolution procedures that will be used in the covenant agreement (e.g. arbitration, mediation or court proceedings)
• Draft the clause in the covenant agreement that sets out the dispute resolution procedures to be used
• Check that the clause is consistent with the general terms of the agreement
• When you have a satisfactory clause in the agreement, you can move on to the next step of setting out dispute resolution procedures.

Setting out dispute resolution procedures

• Draft a dispute resolution clause that outlines the procedures that will be followed for the resolution of any disputes that may arise between the parties.
• Consider the specific dispute resolution methods that will be used (e.g. mediation, arbitration, etc).
• Specify the process to be used in the event that the parties do not agree on a resolution.
• Clarify who will be responsible for the costs associated with the dispute resolution process.
• When complete, review the clause to ensure that it is clear and comprehensive.

Once you have drafted the dispute resolution clause and reviewed it to ensure that it is clear and comprehensive, you can check off this step and move on to the next step.

Defining the process for resolving disputes

• Outline the process for resolving disputes that could arise from the agreement
• Consider the dispute resolution methods that are most suitable and practical for the parties involved
• List the dispute resolution methods that will be used and how each will be implemented
• Set out the details of the dispute resolution process, including a timeline for each step
• Describe the procedures to be followed during the resolution process, such as the need to provide notice of the dispute to the other party
• Define the criteria for the resolution process and how the outcome will be determined
• Specify the consequences of not following the dispute resolution process
• Once you have outlined the dispute resolution process and defined the criteria for resolution, you can move on to agreeing on a Termination Clause.

Agreeing on a Termination Clause

• Agree on the length of the covenant and how it can be terminated:
• Decide on the length of the agreement, the conditions for extension, and the grounds for termination.
• Discuss the ramifications of agreement termination, such as the return of any monies or services provided, the return of any property or materials, and the assignment of any rights or obligations.
• Ensure the termination clause is reasonable and enforceable:
• Make sure the terms of the termination clause are reasonable and enforceable by both parties.
• Review the termination clause with a lawyer to ensure it is fair and reasonable to all parties involved.

Once you have agreed on the length of the covenant and the conditions for termination, and have reviewed the termination clause with a lawyer, you will have completed this step and can move on to drafting the agreement.

Drafting the Agreement

• Identify the parties involved in the agreement and the purpose of the covenant
• Draft each clause of the agreement, ensuring that each clause is clear and consistent
• Include clauses outlining the terms of the covenant, such as its duration, the enforcement of the agreement, and the remedies for breach
• Add any other clauses necessary for the agreement, such as confidentiality or non-compete clauses
• Ensure that the final draft of the agreement is consistent with the original intention of the parties
• Once all of the clauses have been drafted and reviewed, the agreement is ready to be reviewed and signed by the parties

How you’ll know when you can check this off your list and move on to the next step:
Once the agreement has been drafted and reviewed by all parties involved, it is ready to be moved on to the next step in the process.

Reviewing the Agreement

• Read through the agreement, ensuring all the information is accurate
• Make sure all parties are in agreement with the terms, and that any changes have been documented
• Check that all parties have signed off on the agreement
• Confirm that all required revisions have been completed
• Verify that all necessary signatures have been obtained
• Once all of the above has been completed, you can check this off your list and move on to the next step!

Signing and Executing the Agreement

• Have all parties involved in the agreement sign the document
• Have the witnesses sign the document
• Ensure that all signatures are properly witnessed
• Have the agreement notarized, if necessary
• Make sure that all copies of the agreement are properly dated
• Ensure that all parties have a copy of the agreement
• You know you have completed this step when all signatures, witnesses, and notarization requirements have been completed.

Signing the agreement

• Have all parties involved sign the agreement
• Ensure all signatories are legally recognized and authorized to sign the agreement on behalf of the parties they represent
• Ensure all parties have read and understood the agreement
• Attach a copy of the agreement to the main document
• When all parties have signed the agreement, it is considered legally binding
• You can check this off your list and move on to notarizing the agreement (if required)

Notarizing the agreement (if required)

• Determine if the covenant agreement requires notarization.
• If yes, contact a notary and make arrangements for the agreement to be notarized.
• Have all parties to the covenant agreement sign the document.
• Present the document to the notary and have it notarized.
• Obtain a copy of the notarized document for each party.

Once the document has been properly notarized and each party has obtained a copy of the notarized document, this step can be checked off your list and you can move on to the next step.

Storing the Agreement

• Store the agreement in a secure place, such as a bank vault, fireproof safe, or other secure location.
• Maintain a physical copy of the agreement in the secure location.
• Make sure that all parties involved in the agreement have a copy of the agreement.
• Once the agreement has been securely stored, you can check this step off your list and move on to the next.

FAQ:

Q: What is the primary purpose of drafting a covenant agreement?

Asked by Justin on 8th April 2022.
A: The primary purpose of drafting a covenant agreement is to protect the rights of both parties involved in the agreement. A covenant agreement outlines the rights and obligations of each party, and can also provide a framework for dispute resolution. The agreement should be tailored to the specific needs and objectives of the parties, as well as taking into account any relevant laws or regulations that may apply.

Q: What are the differences between a covenant agreement and other contractual documents?

Asked by Emily on 15th December 2022.
A: There are several key differences between a covenant agreement and other contractual documents. A covenant agreement is typically used when two parties are entering into a long-term contract, whereas other types of contracts may be used for more short-term engagements. Additionally, a covenant agreement is typically more flexible than other types of agreements, allowing for greater customization to meet the specific needs of each party. Finally, a covenant agreement may contain more specific clauses regarding breach of contract than other types of agreements.

Q: What should be included in a covenant agreement?

Asked by Noah on 31st March 2022.
A: A well-drafted covenant agreement should include all relevant information related to the agreement, including the scope of services, payment terms, dispute resolution provisions, and any applicable warranties. Additionally, it should also include any legal requirements that may apply to the contract, such as those related to privacy or intellectual property rights. It is important to ensure that all relevant information is included in the agreement in order to ensure that both parties understand their respective rights and obligations under the contract.

Q: How does jurisdiction affect a covenant agreement?

Asked by Olivia on 15th January 2022.
A: Jurisdiction plays an important role in any legal document, and this is especially true for covenant agreements. Depending on where the contract will be enforced or if there is a dispute between the parties, different laws may apply to the contract. It is important to ensure that all applicable laws are taken into account when drafting a covenant agreement in order to protect both parties’ rights and interests.

Q: How can I ensure my covenant agreement is enforceable?

Asked by Logan on 14th October 2022.
A: To ensure that your covenant agreement is enforceable, it is important to ensure that it meets all legal requirements related to its formation and execution. This includes making sure that all necessary signatures have been obtained from both parties, as well as ensuring that there are no ambiguities or discrepancies in its language that could lead to disputes or misunderstandings down the line. Additionally, it is important to make sure that all applicable laws are taken into account when drafting the agreement in order to protect both parties’ rights and interests.

Q: Are there any risks associated with creating a covenant agreement?

Asked by Ava on 5th August 2022.
A: As with any legal document, there are certain risks associated with creating a covenant agreement. These risks include disputes arising between the parties due to discrepancies or ambiguities in its language; potential liability if one party breaches their obligations under the contract; and potential losses if one party fails to meet their obligations under the contract. It is important to ensure that all applicable laws are taken into account when drafting a covenant agreement in order to reduce these risks as much as possible.

Q: How can I make sure my covenant agreement complies with UK law?

Asked by William on 15th June 2022.
A: To ensure your covenant agreement complies with UK law, it is important to consider all applicable statutes and regulations relevant to your business model and industry sector. Additionally, you should consult with an experienced legal professional who can advise you on any specific requirements or restrictions that may apply under UK law when creating your covenant agreement.

Q: How can I make sure my covenant agreement complies with US law?

Asked by Emma on 4th November 2022.
A: To ensure your covenant agreement complies with US law, it is important to consider all applicable statutes and regulations relevant to your business model and industry sector in each state where you operate or plan to operate your business. Additionally, you should consult with an experienced legal professional who can advise you on any specific requirements or restrictions that may apply under US law when creating your covenant agreement.

Q: How can I make sure my covenant agreement complies with EU law?

Asked by James on 9th July 2022.
A: To ensure your covenant agreement complies with EU law, it is important to consider all applicable statutes and regulations relevant to your business model and industry sector across all European Union countries where you plan to operate your business (or may have operations). Additionally, you should consult with an experienced legal professional who can advise you on any specific requirements or restrictions that may apply under EU law when creating your covenant Agreement.

Q: What happens if one party breaches their obligations under a covenant Agreement?

Asked by Abigail on 28th February 2022.
A: If one party breaches their obligations under a Covenant Agreement, then the other party may seek remedies such as damages or specific performance depending upon what is stated in the Agreement itself and what remedies may be available under applicable law . It is important when drafting a Covenant Agreement that provisions are included which address what will happen if one party breaches their obligations so that both parties know what remedies they may have available if such an event occurs .

Q: Is there a difference between drafting a Covenant Agreement for B2B vs SaaS vs Technology businesses?

Asked by Benjamin on 10th September 2022.
A: Yes - while many of the principles behind drafting a Covenant Agreement will remain consistent regardless of industry sector or business model (B2B vs SaaS vs Technology), there are certain considerations which need to be taken into account depending upon which sector or model applies . For example , different warranties or service levels may need to be included depending upon whether it relates specifically to SaaS services , technology products , or B2B relationships . It is therefore important when drafting Covenant Agreements for these different sectors/models that specific considerations are taken into account .

Q: How soon after signing does a Covenant Agreement become legally binding?

Asked by Mia on 26th October 2022.
A: Generally speaking , once signed , most Covenant Agreements become legally binding immediately . However , there may be certain provisions within an Agreement which stipulate either an effective date (i . e . when certain obligations come into effect ) or a termination date (i . e . when certain obligations end ) , so it’s important to check this before signing off . Additionally , some jurisdictions may require additional steps before an Agreement becomes fully enforceable , so it’s also advisable to consult with an experienced legal professional who can advise you further on this matter .

Q: What happens if I need changes made after signing off on my Covenant Agreement?

Asked by Elijah on 1st May 2022
A: If changes need to be made after signing off on your Covenant Agreement , then it’s best practice for both parties involved in the Agreement (i . e . signatories ) to agree upon those changes before they take effect . This usually involves both signatories agreeing upon new terms within their existing Agreement , either through verbal communication , email correspondence , or amending/updating their existing document accordingly . It’s important however , that any such changes are documented so they become legally binding , otherwise they will not be enforced in court if necessary .

Example dispute

Suing a Corporation for Breach of Covenant Agreement

• Plaintiff must prove that a valid covenant agreement exists between the parties, and that the defendant breached a term of the agreement.
• The court will consider the full scope of the agreement and the specific circumstances of the breach.
• Settlement may be reached outside of court, with the parties agreeing to a resolution that addresses the breach and any resulting damages.
• Damages may include compensatory damages, which are intended to put the plaintiff in the position they would have been in had the breach not occurred, as well as punitive damages, which are intended to punish the defendant for their actions.

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