Legal Definitions - collateral covenant

A collateral covenant is a type of covenant that is entered into in connection with the grant of something, but does not relate immediately to the thing granted. It is usually found in a deed or other sealed instrument and does not pertain to the conveyed property. This type of covenant is different from an inherent covenant, which relates directly to the land.

For example, a collateral covenant may be a promise made by a borrower to a lender to maintain a certain credit score or to provide additional collateral if the borrower's financial situation deteriorates. These promises do not relate directly to the property being financed, but are instead additional obligations that the borrower agrees to in order to secure the loan.