Also known as: rule against restraint on alienation · restraints on alienation rule · restraint on alienation
Written by attorneys — see sources below.
A common-law doctrine that voids attempts by conveyance or contract to render a subsequent transfer of property void, to impose liability for making the transfer, or to cause forfeiture or termination of the interest upon transfer. The doctrine distinguishes disabling, promissory, and forfeiture restraints and invalidates those that unreasonably impair alienability. Use limitations and reasonable rights of first refusal fall outside the doctrine's prohibition.
Riverside Healthcare owns a commercial building leased to Rina Rahman. Riverside contracts to sell its reversionary interest to a third party. Rahman withholds consent without any commercial justification even though the buyer is financially sound and the lease terms remain unchanged. The attempted restraint on the landlord's alienation is enforceable only if Rahman's refusal meets a reasonableness standard.
Rosa Ruiz conveys land subject to a recorded servitude that bars any sale to a buyer outside a designated family line. Roger Ramirez later receives an offer from a qualified purchaser outside that line. The servitude directly restrains alienation of the fee and is invalid because its utility in preserving family ownership is outweighed by the harm to marketability.
Rowan Russell's will devises Blackacre to Renee Rogers "so long as the property remains residential." Rogers later receives an offer from a commercial developer. The use restriction does not constitute a restraint on alienation because it limits only the character of permitted use rather than the power to transfer title.
Regal Apparel leases space from Regina Robinson. Regal seeks to assign the lease to a solvent retailer with an identical use. Robinson refuses consent solely to extract a higher rent from a new tenant. The restraint on the tenant's interest is valid only if Robinson's refusal satisfies a reasonableness test under the lease terms.
Rhapsody Entertainment receives a devise of property subject to a right of first refusal held by Rising Sun Electronics at seventy-five percent of any bona fide third-party offer, exercisable within thirty days. Rhapsody obtains a market offer and Rising Sun timely matches the price formula. The preemptive right does not qualify as a restraint on alienation because its price and timing terms are commercially reasonable.
Renee Rogers leases warehouse space from Rosa Ruiz under a clause requiring landlord consent to any assignment. Rogers proposes an assignment to a financially comparable tenant engaged in the same business. Ruiz withholds consent to renegotiate a higher rent. The consent requirement is enforceable only when the landlord's decision meets a standard of commercial reasonableness.
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.
A landlord's refusal is unreasonable when it lacks a legitimate commercial justification such as the proposed assignee's financial instability or incompatible use. Courts weigh the restraint's purpose against its impact on alienability of the leasehold. A freely negotiated absolute consent right may override the reasonableness requirement.
…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…
…a life estate in the home to Mrs. White, leaving the remainder interest to descend by operation of law, or a fee interest with a restraint on alienation. Moreover, the will might even be read as conveying a fee interest subject to a condition subsequent (Mrs. White’s failure to live in the home). In such ambiguous cases it is obvious that…
Footnotes : We make no suggestion about the rule we might adopt in other contexts.
…that Thomas, Jr., would have a child bom after the testator’s death was sufficient to cause the violation of the rule against
…upon the occurrence of an outright sale unless the lender can demonstrate that enforcement is reasonably necessary to protect against impairment to its security or the risk of default.” ( Id. , at p. 953; fns. omitted.) Since Wellankamp did not involve a leasehold interest, it is distinguishable from the instant case.
No. A use restriction regulates only the character of permitted activities on the land. It does not prevent the owner from transferring title to any buyer who will comply with the use limit. The doctrine therefore does not apply.
A servitude restraint is invalid if it is unreasonable after balancing the restraint's utility against the harm to alienability. Factors include the restraint's duration, scope, and effect on market value. Purely arbitrary or perpetual exclusions are typically struck down.
A right of first refusal is not a restraint if its price and exercise period are commercially reasonable. An unreasonable formula or indefinite window converts the provision into a disabling or promissory restraint subject to invalidation. Reasonableness is measured against objective market standards.
A disabling restraint renders any attempted transfer void. A promissory restraint imposes contractual liability on the transferor. A forfeiture restraint causes automatic loss of the interest upon transfer. All three are subject to the rule when they unreasonably impair alienability.