Restraint on alienation
Encyclopedia
A restraint on alienation
, in the law
of real property
, is a clause used in the conveyance of real property that seeks to prohibit the recipient from selling or otherwise transferring his interest in the property. Under the common law
such restraints are void as against the public policy of allowing landowners to freely dispose of their property. Perhaps the ultimate restraint on alienation was the fee tail
, a form of ownership which required that property be passed down in the same family from generation to generation, which has also been widely abolished.
However, certain reasonable restraints will be given effect in most jurisdictions. These traditionally include:
Some specific restraints on alienation in the United States include:
Disabling restraints : To be effective the grantor must sue the grantee for enforcement. The effectiveness of the lawsuit could prevent the transfer from being made. In addition, if the disabling restraint is found to be unconstitutional the restraint will not be effective.
Promissory restraints : If the promissory note
is breached by the grantee, the grantor may sue for damages. Unlike disabling restraints, the effectiveness of the lawsuit does not prevent the transfer from being made. However, the Supreme Court says promissory restraints are not permissible. The promissory note discourages the person getting ready to sell the property which is the same effect as the disabling restraint.
Forefeiture restraints : In the event of a breach the property returns to the grantor or the grantor's heirs. The return happens automatically, hence the argument can be made that there is no state actions. However according to a constitutional argument the mere fact that the state recognizes the validity of an automatic transfer makes it a state action.
To be effective the restraint must be reasonable and the restraint must be the same as a real covenant or equitable servitude.
There are six factors to determine if a restraint on alienation is reasonable:
There are five basic conditions that must be met in order for there to be an effective real covenant and equitable servitude:
, Te Ture Whenua Maori Act 1993/Maori Land Act 1993 puts restrictions on alienation of land owned by a Māori person, or by a group which is predominantly Māori. Sections 146 and 147 of the Act force an owner of Māori land who wishes to alienate their interest in the land to give right of first refusal to people belonging to "preferred classes of alienees". These preferred classes include whanaunga (blood relations) of the owner, other current owners, and members of the owner's hapu
.
Alienation (property law)
Alienation, in property law, is the capacity for a piece of property or a property right to be sold or otherwise transferred from one party to another. Although property is generally deemed to be alienable, it may be subject to restraints on alienation....
, in the law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
of real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
, is a clause used in the conveyance of real property that seeks to prohibit the recipient from selling or otherwise transferring his interest in the property. Under the common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
such restraints are void as against the public policy of allowing landowners to freely dispose of their property. Perhaps the ultimate restraint on alienation was the fee tail
Fee tail
At common law, fee tail or entail is an estate of inheritance in real property which cannot be sold, devised by will, or otherwise alienated by the owner, but which passes by operation of law to the owner's heirs upon his death...
, a form of ownership which required that property be passed down in the same family from generation to generation, which has also been widely abolished.
However, certain reasonable restraints will be given effect in most jurisdictions. These traditionally include:
- A prohibition against partitionPartition (law)A partition is a term used in the law of real property to describe an act, by a court order or otherwise, to divide up a concurrent estate into separate portions representing the proportionate interests of the tenants. Under the common law, any tenant who owns an undivided concurrent interest in...
of property for a limited time. - The right of first refusalRight of first refusalRight of first refusal is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party...
- for example, if Joey sells property to Rachel, he may require that if Rachel later decides to sell the property, she must first give Joey the opportunity to buy it back. - The establishment of public parks and gardens, as was the case for The Royal Parks of LondonRoyal Parks of LondonThe Royal Parks of London are lands originally owned by the monarchy of the United Kingdom for the recreation of the royal family...
in the UK. These public spaces were created under such terms by the Crown EstateCrown EstateIn the United Kingdom, the Crown Estate is a property portfolio owned by the Crown. Although still belonging to the monarch and inherent with the accession of the throne, it is no longer the private property of the reigning monarch and cannot be sold by him/her, nor do the revenues from it belong...
; which meant that these parks were held in perpetuityPerpetuityA perpetuity is an annuity that has no end, or a stream of cash payments that continues forever. There are few actual perpetuities in existence...
for the public to use.
Some specific restraints on alienation in the United States include:
Disabling restraints : To be effective the grantor must sue the grantee for enforcement. The effectiveness of the lawsuit could prevent the transfer from being made. In addition, if the disabling restraint is found to be unconstitutional the restraint will not be effective.
Promissory restraints : If the promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
is breached by the grantee, the grantor may sue for damages. Unlike disabling restraints, the effectiveness of the lawsuit does not prevent the transfer from being made. However, the Supreme Court says promissory restraints are not permissible. The promissory note discourages the person getting ready to sell the property which is the same effect as the disabling restraint.
Forefeiture restraints : In the event of a breach the property returns to the grantor or the grantor's heirs. The return happens automatically, hence the argument can be made that there is no state actions. However according to a constitutional argument the mere fact that the state recognizes the validity of an automatic transfer makes it a state action.
To be effective the restraint must be reasonable and the restraint must be the same as a real covenant or equitable servitude.
There are six factors to determine if a restraint on alienation is reasonable:
- Type of price (fixed or not fixed; courts prefer non-fixed)
- Purpose: Is it a legitimate purpose, or not? (courts prefer legitimate)
- Equal bargaining power of the parties
- Duration (a time limit to the restraint is preferred)
- Limit to the number of persons to which transfer is prohibited
- A restraint that increases the value of property is more reasonable.
There are five basic conditions that must be met in order for there to be an effective real covenant and equitable servitude:
- It must be enforceableUnenforceableAn unenforceable contract or transaction is one that is valid, but which the court will not enforce. Unenforceable is usually used in contradistinction to void and voidable...
. To be enforceable it must not be too vague, it must not violate a statuteStatuteA statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
or the constitutionConstitutionA constitution is a set of fundamental principles or established precedents according to which a state or other organization is governed. These rules together make up, i.e. constitute, what the entity is...
, it must not violate public policy, and it must meet the requirements under the statute of fraudsStatute of fraudsThe statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract....
. - It must touch and concern the land.
- It must be intended to run.
- There must be privity between the successive occupants.
- There must be notice of the existence of a real covenant/equitable servitude.
New Zealand law
In New ZealandNew Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
, Te Ture Whenua Maori Act 1993/Maori Land Act 1993 puts restrictions on alienation of land owned by a Māori person, or by a group which is predominantly Māori. Sections 146 and 147 of the Act force an owner of Māori land who wishes to alienate their interest in the land to give right of first refusal to people belonging to "preferred classes of alienees". These preferred classes include whanaunga (blood relations) of the owner, other current owners, and members of the owner's hapu
Hapu
A hapū is sometimes described as "the basic political unit within Maori society".A named division of a Māori iwi , membership is determined by genealogical descent; a hapū is made up of a number of whānau groups. Generally hapū range in size from 150-200 although there is no upper limit...
.
See also
- Moynihan, Cornelius J. Introduction to the Law of Real Property: An Historical Background of The Common Law of Real Property and its Modern Application, 4th ed. (St. Paul, Mn: Thompson West), 42.