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Restraint on Alienation

DEFINITION

A Restraint on Alienation is described as an effort in a deed or will to limit or stop the sale or transfer of real property ownership either forever or a very long time. Alienation itself refers to a voluntary act of a property owner of selling his or her property. A restraint on alienation is an attempt to prevent this from happening. For example, a homeowner may want to keep his house in the family for generations and will attempt to create a binding contract not to sell outside the family in perpetuity. Usually this is perceived to be void, or voidable because it’s unlawful. It is also considered to be generally unenforceable, although there are conditions under which the original owner of the property may have certain rights to take reasonable measure to access the property. In the past, the definitive restraint on alienation was a type of ownership called a fee tail, which mandated property be passed down through one family generation after generation. The fee tail has since been abolished.

EXPLANATION

Restraint on Alienation is generally seen as unenforceable, and the maximum time for limiting property transfer is usually ‘lives in being, plus 21 years.’ However, there are certain reasonable restraints available in most jurisdictions. They include the following:

–       Prohibition against partition for a limited time. This means that the estate cannot be divided and sold in parts. Partition is also known as forced sale.

–       The right of first refusal. This means that if a property owner sells property to a buyer, she can require that he offer her the opportunity to buy it back before putting it up for sale publicly.

–       The establishment of publicly used spaces like parks and gardens open to the general public may warrant respecting a restraint on alienation.

A restraint may be deemed reasonable after consideration of the following six factors:

1.    Type of price – not fixed or fixed? (Most courts will prefer a non-fixed price.)

2.    The time limit or duration, in respect to the restraint is favored.

3.    Equal power to bargain for both parties.

4.    Purpose: Is the purpose for the restraint legitimate or no?

5.    The limit of people to which the transfer is prohibited.

6.    If the restraint increased the property value, it is seen as more reasonable.

Five conditions are necessary for there to be equitable servitude and a genuinely effectual contract.

1.    The covenant must be enforceable, which means that it cannot be vague. It cannot violate either the constitution or public policy. The agreement also has to be put in writing, because it’s required to meet the standards of the Statue of Frauds.

2.    There must be privity, or relation between the successive occupants, whether it’s established through a lease, service or blood relation.

3.    It must concern and touch the land in question.

4.    It must be entered into with the intention of being carried out.

5.    The existence of a fair contractual bond must be put in writing.

In the United States, there are specific restraints on alienation which include:

–       Disabling Restraints. In order to enact this clause, the granter needs to sue to safeguard implementation. The outcome of the lawsuit can prevent the transfer, but in the case that the restraint is found to be unlawful, then it won’t be found effective.

–       Promissory Restraints. The grantor can sue for damages if the grantee breaches the promissory note. If a promissory note is breached, the effectiveness of the lawsuit won’t prevent a transfer of property ownership from being made.

–       Forfeiture Restraints. In case there’s a breach of contract terms, the property will automatically go back to the original grantor or his or her heirs. Because the return goes through automatically, the argument can be made that the state takes no action. However, just the fact that the state accepts the legitimacy of the automatic transfer means it’s inherently a state action.

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