Final answer:
Restrictive covenants in bond indenture agreements are rules that protect the lender by restricting certain actions of the borrowing company, like taking on more debt. Similarly, in real estate, restrictive covenants manage property use within developments.
Step-by-step explanation:
Restrictions placed on a company in their bond indenture agreement are known as restrictive covenants. These are conditions or rules included in a debt agreement by the lender to limit what the borrower can do in the future, to protect the lender's interests. For instance, a bond indenture might include a covenant that prevents the issuing company from taking on additional debt until the bonds are repaid, or restrictions that maintain a minimum level of liquidity for the company.
Similarly, restrictive covenants can also refer to provisions laid out by land developers when selling property. These covenants are put in place to regulate the use of property and keep the development of a neighborhood consistent and appealing. For example, a restrictive covenant may impose conditions on the construction of buildings or ban the sale of property to certain groups of people, although discriminatory restrictions based on ethnicity or religion are now illegal under U.S. law.