Also known as: promissory restraint on alienation · promissory restraints against alienation · restraint on alienation
Written by attorneys — see sources below.
A type of restraint on alienation that imposes contractual liability on a party who conveys property in breach of an agreement not to convey. The restraint binds the promisor personally without rendering the conveyance void or causing automatic forfeiture of the interest.
Perry Pratt leased a warehouse to Prime Logistics under a lease requiring tenant consent before the landlord could sell the building. When Perry Pratt found a buyer, Prime Logistics refused consent to block the sale and protect its own operations. The tenant's refusal triggered review under the lease consent clause, and the court examined whether the refusal was commercially reasonable.
Pamela Phillips conveyed land subject to a recorded servitude restricting sale to only nonprofit arts organizations. When Pamela Phillips later sought to sell to a commercial developer, the servitude blocked the transfer. A court weighed the servitude's utility in preserving neighborhood character against the harm of narrowing the buyer pool and depressing value.
Philip Powell devised a downtown building to his daughter with a clause requiring the property to remain residential. The daughter later wished to convert the building to office space and sell it. Because the clause regulated only permitted uses rather than forbidding any conveyance, it did not operate as a restraint on alienation.
Pierce Patterson leased retail space to Pulse Media under a lease requiring landlord consent for any sublease. When Pulse Media found a suitable subtenant, Pierce Patterson withheld consent to extract higher rent from a new direct tenant. The court evaluated whether the landlord's refusal satisfied the commercial reasonableness standard.
Piper Patel devised shares in a family business to her son with a clause granting a supplier a right of first refusal at book value. The son received an outside offer well above book value and sought to accept it. Because the price and timing terms were commercially unreasonable, the clause functioned as an invalid restraint on alienation.
Preston Pratt subleased warehouse space from Patriot Insurance under a lease requiring consent for assignment. When Preston Pratt located a financially sound assignee, Patriot Insurance refused consent to renegotiate a higher rent directly. The refusal was tested against the reasonableness standard applicable to commercial lease consent clauses.
In 1970, the Perlitches entered into a 25-year sublease with Robert Bixler for 14,400 square feet of hangar space at the San Jose Municipal Airport to conduct an airplane maintenance business. The sublease covered an original five-year term plus four five-year options to renew. The rental rate was to be increased every ten years in the same proportion as rents increased on the master lease from the City of San Jose. The premises were to be used by Bixler for the purpose of conducting an airplane maintenance business. The lease provided that written consent of the lessor was required before the lessee could assign his interest, and that failure to obtain such consent rendered the lease voidable at the option of the lessor. Subsequently, the Perlitches assigned their interest to Ernest Pestana, Inc. In 1981, Bixler agreed to sell the business, equipment, inventory, improvements, and the existing lease to Jack Kendall, Grady O'Hara, and Vicki O'Hara. The proposed assignees had a stronger financial statement and greater net worth than Bixler and were willing to be bound by the lease terms. Bixler requested consent from Ernest Pestana, Inc., but the lessor refused, claiming an absolute right to withhold consent arbitrarily and demanding increased rent and other more onerous terms as a condition of consent. The proposed assignees filed suit for declaratory and injunctive relief and damages, alleging that the refusal was unreasonable. The trial court sustained the demurrer without leave to amend. The Court of Appeal affirmed.
View caseA promissory restraint creates only personal contractual liability for breach of a promise not to convey. A disabling restraint attempts to render any later conveyance void from the outset.
A promissory restraint requiring landlord or tenant consent to alienation is valid, but consent may not be withheld unreasonably unless the lease expressly grants an absolute right to withhold consent.
A restriction limiting only the uses to which property may be put is not treated as a restraint on alienation under the Restatement formulation.
A right of first refusal is not a restraint on alienation if its price and timing terms are commercially reasonable. Unreasonable terms convert it into a disabling, forfeiture, or promissory restraint subject to invalidation.
A servitude imposing a direct restraint on alienation is invalid if unreasonable, determined by weighing the restraint's utility against the injurious consequences of enforcement.
…v. Darger, supra, 119 Cal. App.3d at p. 682.) Reasonableness is determined by comparing the justification for a particular restraint on alienation with the quantum of restraint actually imposed by it. "[T]he greater the quantum of restraint that results from enforcement of a given clause, the greater must be the justification for that…