The Covenant of a tenant is a general term that refers to the credit worthiness of the company. A tenant with good or strong Covenant is considered unlikely to default on its lease payment obligations because it is evaluated as a stable business, potentially based upon the ratings of a credit agency.
Covenant may also refer to specific obligations of a party to a contract, for example a loan agreement, where the borrower “covenants” to observe certain parameters, for example that the Loan to Value will not exceed a specified percentage. If the value of the property falls and LTV exceeds the required percentage, then the borrower is considered to be in “breach of covenant” and must repair the breach, by for example repaying some of the principle on the loan. Breach of covenant, if not repaired, may give the holder of the loan the right to take ownership of the property.