Glossary · Real estate finance
Loan Covenants: Definition and Examples
Covenants are the rules of the game between borrower and lenders – who knows and negotiates them, secures room for manoeuvre over the entire term.
Last updated: 18 July 2026 · Reviewed by Jürgen Kronawitter
Which covenants are common in real estate finance?
Lenders hedges with covenants against a deterioration of the risk profile. Three groups must be distinguished:
- Financial covenants: Limits like a maximum LTV (e.g.) 70 %, a minimal DSCR (e.g.) 1.10) or a minimum rental rate.
- Non-financial covenants: Duties and prohibitions to act, such as maintenance, insurance, no further burdens in the Land register without consent.
- Information covenants: Regular reporting – tenant lists, financial statements, construction progress, valuations.
What Happens in a Covenant Break?
A breach (covenant breach) triggers the contractually agreed legal consequences – graduated from healing periods (cure periods) via re-collateralization and margin surcharges up to the right of termination. Professional borrowers therefore already negotiate in Term sheet Sufficient headroom: The agreed limit should be well away from the actual value, so that normal market fluctuations do not immediately lead to a breach of the contract.
Negotiating Covenants correctly – the practice
Whether a Covenant package is wearable is decided by the interaction of leverage, repayment, market cycle and business plan. We review Covenant catalogues as part of our Debt advisory, compare offers of several lenders and negotiate in addition to margin and expiration expressly also key figure limits, healing periods and reporting obligations – because the cheapest interest rate is of little use if the requirements restrict the room for manoeuvre. This applies to: Senior loans as well as for Whole loans and mezzanine tranches.
Frequently asked questions
Covenants – briefly answered
What is a covenant break and what consequences does it have?
A covenant break exists if an agreed key figure or edition is not adhered to. Typical consequences are – depending on the contract – healing periods, obligation to re-secure or special repayment, margin increase and, as a last step, the termination of the loan.
Which key figures are most often agreed as a covenant?
In real estate finance, the maximum loan-to-value (LTV), the minimum debt service coverage ratio (DSCR) and interest coverage ratios dominate; in project developments, additional completion and pre-sale rates.
Is it possible to negotiate covenants?
Yes – limits, measurement times, healing periods and legal consequences are negotiable, especially if several lenders are in competition. It is precisely this competition that we establish as intermediaries.
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About the author
Jürgen Kronawitter
Jürgen Kronawitter specialises in structured real estate finance. He helps property investors, developers and portfolio owners implement complex financing solutions. His work focuses on structuring and arranging senior loans, whole loans, mezzanine capital and bridge loans, as well as tailored financing for acquisitions, investment properties, developments and refinancing.