Also known as: unreasonable restraints on alienation · unreasonable restraint against alienation · restraint on alienation · unreasonable restraint on transfer
Written by attorneys — see sources below.
A direct restraint on the transfer of property that is invalid when its utility is outweighed by the injurious consequences of limiting alienability. Reasonableness turns on the purpose, scope, and duration of the restraint in light of the policy favoring free transferability of interests in land.
Ulysses Maritime leased warehouse space to Uma Underwood under a lease requiring Uma's consent before the landlord could assign its interest. When Ulysses Maritime sought to sell the building to a new owner, Uma withheld consent without any stated reason tied to the character of the buyer. The court held the withholding unreasonable and permitted the transfer because the lease contained no freely negotiated absolute right to refuse consent.
Ugo Ucelli conveyed a parcel subject to a recorded servitude limiting all future transfers to buyers who would continue agricultural use. When Ugo later attempted to sell to a residential developer, the servitude holder objected. The court invalidated the servitude after weighing its limited utility against the substantial reduction in market value and buyer pool it created.
Ulrike Ulrich devised her family farm to her daughter with language requiring the land to remain in agricultural production. The daughter later wished to sell to a commercial buyer. The court treated the language as a use restriction rather than an alienation restraint and upheld the devise.
Urban Utley leased retail space from United Bank under a lease requiring the bank's consent to any assignment by the tenant. When Urban sought to assign to a comparable tenant, the bank refused without explanation. The court found the refusal unreasonable because the lease lacked a freely negotiated absolute consent right.
Umeko Uchida devised her commercial building to her niece with a right of first refusal granted to a longtime supplier at book value. When the niece received a higher third-party offer, the supplier attempted to exercise the right. The court held the right unenforceable because the fixed price and unlimited exercise period rendered it an unreasonable restraint.
Una Unger leased commercial space from a landlord whose lease required consent to assignment. When Una located a financially sound assignee, the landlord refused consent solely to extract a higher rent from a different party. The court held the refusal created an unreasonable restraint on alienation and permitted the assignment.
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 consent requirement becomes an unreasonable restraint when the landlord or tenant withholds consent arbitrarily or without a legitimate interest tied to the character of the proposed transferee, unless the lease expressly grants an absolute right to withhold consent.
Supporting sources
Courts weigh the utility served by the restraint against the harm it causes to marketability and the ability of owners to transfer the burdened estate.
Supporting sources
A right of first refusal is not treated as a restraint on alienation if its price and exercise-period terms are commercially reasonable. Otherwise it is evaluated under the rules governing disabling, forfeiture, or promissory restraints.
Supporting sources
A restriction that merely limits the use to which transferred property may be put is not classified as a restraint on alienation.
Supporting sources
…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…