Also known as: rules against direct restraints on alienation · direct restraint on alienation · direct restraints on alienation · restraint on alienation · rule against restraints on alienation
Written by attorneys — see sources below.
A doctrine that invalidates attempts in conveyances or contracts to prevent or penalize the transfer of property interests. It renders disabling restraints void and subjects promissory or forfeiture restraints to reasonableness review based on utility versus harm to alienability.
Ricardo Rojas leased commercial space to Ronald Reed under a lease requiring Ricardo's consent for any assignment by Ronald. When Ronald sought to assign to a qualified tenant, Ricardo withheld consent to extract a higher rent from a new direct tenant. The court applied the rule and held that Ricardo could not unreasonably withhold consent absent an absolute negotiated right to do so.
Rosalind Reed conveyed land subject to a servitude barring sale to any buyer outside a designated family line. When she later attempted to sell to an outsider, the burdened estate owner invoked the servitude. The court weighed the restraint's limited utility against its severe impact on marketability and invalidated it as unreasonable.
Ryan Roberts devised property to Rita Russell with a clause limiting its use to residential purposes only. Rita sought to sell the land for commercial development. The court held that the use restriction did not qualify as a restraint on alienation under the doctrine.
Regina Robinson leased property from Riverstone Manufacturing with a clause requiring Riverstone's consent for any assignment by Regina. When Regina proposed a solvent assignee, Riverstone withheld consent to renegotiate a higher rent. The court ruled that Riverstone could not unreasonably withhold consent unless the lease granted an absolute right.
Ronald Reed devised property to Regina Robinson subject to a right of first refusal held by a named family member at a price tied to fair market value and exercisable within thirty days. When Regina received a third-party offer, the family member timely matched it. The court held that the reasonable right of first refusal did not constitute a restraint on alienation.
Rising Sun Electronics leased space from Rocky Mountain Mining under a clause requiring landlord consent for subleases. When Rising Sun proposed a creditworthy subtenant, Rocky Mountain Mining withheld consent hoping to lease directly at higher rent. The court applied the reasonableness standard and required consent to be granted.
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 lease clause requiring consent for assignment or sublease is valid, but consent cannot be withheld unreasonably unless the lease grants an absolute right to withhold. Courts apply a commercial reasonableness standard to prevent landlords from using the clause for financial gain unrelated to the tenant's suitability.
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A servitude imposing a direct restraint on alienation is invalid if unreasonable. Reasonableness turns on balancing the restraint's utility against the harm it causes to marketability and the owner's ability to transfer the estate.
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No. A restraint on the use that may be made of transferred property is not treated as a restraint on alienation under the doctrine.
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A right of first refusal is not a restraint on alienation if its price and exercise period are reasonable. If the terms are unreasonable, the provision is judged under the rules applicable to disabling, forfeiture, or promissory restraints.
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…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…