Also known as: unreasonable restraints of alienation · restraint on alienation · unreasonable restraint on alienation
Written by attorneys · grounded in primary & secondary sources — see below
A restriction imposed on the transfer of an interest in property that courts will not enforce when the benefits of the restriction are outweighed by its interference with the free transferability of the property. Reasonableness turns on weighing the utility of the restraint against the injurious consequences of enforcing it. Use limitations and reasonable rights of first refusal do not qualify as restraints on alienation.
Usha Upton owns a commercial building leased to Ulysses Usher. The lease requires Usha's consent before she may sell her interest. Ulysses refuses consent when Usha contracts to sell to a national REIT, citing only a preference to negotiate future rent directly. A court declares the refusal unreasonable and permits the sale to proceed.
Global Arts receives a warehouse subject to a recorded covenant permitting sale only to arts organizations. When Global Arts contracts to sell to an office developer, neighboring owners invoke the covenant to block the transfer. A court weighs the covenant's utility in preserving district character against its narrowing of the buyer pool and invalidates the restriction as unreasonable.
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Sophie devises Blackacre to her daughter with language limiting the property to residential use. The daughter later seeks to sell to a commercial buyer. Because the language restricts only the use that may be made of the land and does not prevent transfer of title, the court treats the clause as outside the doctrine of restraints on alienation.
Riverline Telecom leases space from MetroHub Communications under a lease requiring written consent for assignment. Riverline proposes assignment to ApexTel, a stronger tenant planning identical use. MetroHub refuses solely to avoid dealing with a national carrier. A court holds the refusal unreasonable and permits the assignment.
Bernice's will grants her supplier a right of first refusal on factory property at book value. Wesley receives the property and receives a third-party offer at market value. Because the price term deviates materially from fair market value and creates excessive uncertainty, the court treats the provision as an unreasonable restraint on alienation.
A tenant seeks to assign its lease to a financially stronger assignee planning the same use. The landlord withholds consent citing only management preferences and future rent leverage. The court applies a reasonableness standard to the consent clause and orders the assignment to proceed.
A landlord may refuse consent only for reasons tied to legitimate property interests such as use, risk, or rent security. Strategic preferences about dealing with a particular assignee are insufficient. When the lease lacks an express absolute right to withhold consent, the landlord's refusal must satisfy a reasonableness standard.
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Yes when the utility of preserving a particular character is outweighed by the narrowing of the buyer pool and resulting reduction in market value. Courts balance the restraint's purpose against its injurious effect on alienability before enforcing the covenant.
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No. A restraint on the use that may be made of transferred property is distinct from a restraint on alienation and is not subject to the same invalidity analysis.
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A right of first refusal is not a restraint on alienation when its price and timing terms are commercially reasonable. If the terms deviate materially from fair market value or impose excessive uncertainty, the provision is treated as a disabling or promissory restraint subject to invalidity analysis.
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…in such a manner that its underlying purpose is perverted by the arbitrary or unreasonable withholding of consent, an unreasonable restraint on alienation is established. " ( Id., 147 Cal. App.3d at p. 329, italics added.) One commentator explains as follows: "The common-law hostility to restraints on alienation had a large exception with…