California Partition Law Blog
Real estate law has many nuances and subtleties. One of the lesser known aspects to real estate law is something known as a “restraint on alienation.” At its most basic, a restraint on alienation limits the sale or transfer of interests in real property.
Civil Code Section 711 states that “[c]onditions restraining alienation, when repugnant to the interest created, are void.” These conditions may be found in a will that conveys property but provides that the property may not be sold for a certain period of time. (Wharton v. Mollinet (1951) 103 Cal.App.2d 710, 713.) A restriction on the sale of the property will be deemed void and not apply to the recipient’s property interest. Similarly, if property is transferred by a deed, such a restriction will be deemed invalid. The purpose underlying Section 711 is to “clarify[] and protect[] titles for the benefit of the public at large, as well as of the grantees.” (Id.)
What restraints, if any, are permissible?
Not all restraints on alienation are void, however, despite Section 711’s broad language. Indeed, many properties are sold subject to certain restrictions included in a deed or other ownership agreement. This is typical in transfers of properties created through subdivision development or those designated for low or moderate-income housing.
Only restraints considered to be unreasonable will be voided. A restraint is unreasonable if it is “not necessary to protect a security or prevent it from being impaired.” (Superior Motels, Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1059.) In determining whether a restraint is unreasonable, courts weigh the reasons for the restraint against the practical effects of enforcing the restraint. If the effect of a restraint is substantial, the justification for it must be strong.
For example, a restraint limiting the resale price of houses in an inclusionary housing development to ensure they remained affordable to low-income buyers was not unreasonable. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1363, 1379.) The court in Alfaro reasoned that the state’s policy of furthering affordable housing and the original purpose of the housing development justified the restraint on the resale prices of the homes.
How are restraints on fee simple estates unique?
The consent restriction in Darger would not be reasonable in a deed instrument conveying a property “in fee simple,” which means that the purchaser obtains title to the property for a period of “indeterminate duration.” (Auerbach v. Assessment Appeals Bd. No. 1 (2006) 39 Cal.4th 153, 162.) Compare this to the “occupancy” agreement in Darger where the condo owner was granted full occupancy of his condo for a period of 99 years and shared interest in the entire condo property with the other unit owners.
For example, a deed for a property in fee simple conveyed to a couple restricting the couple’s ability to resell the property without the seller’s consent was an unreasonable restraint on alienation. (Bonnell v. McLaughlin (1916) 173 Cal. 213, 214-216.) The court in Bonnell noted that the right to sell one’s property is essential to ownership “where a fee simple is conveyed.” (Id. at 216.)
Another example of an unreasonable restraint on alienation is a limitation on when the grantee may sell property granted to them in fee simple by a will. In Wharton, a man left title to a tract of land to his three nieces in his will. The will stated that the nieces could not sell the property for a period of 20 years after the man’s death. In probate proceedings, the property was distributed to the nieces subject to the 20-year restriction. One niece then filed a partition action, where the court found the restriction to be in violation of Section 711 and held that the nieces “took the property free from that restriction.” (Wharton, 103 Cal.App.2d at 712.)
One of the nieces appealed to have the restriction upheld. The appellate court struck down the 20-year limitation, finding it to be an unreasonable restraint on alienation of the property. The court held that such a restraint is void whether it is included in a deed or a will, stating that “[t]he right to own property in fee simple, but with a restricted right to sell it, cannot be created either by deed or by agreement.” (Id. at 713.)
What is an example?
“Shawn” and “Julie” are in a relationship and decide to buy a house together with the idea that they will get married later, but that never happens. After years of owning the property together, they break up and Julie moves back to her mom’s house. After moving on with her life, Julie wants to sell the property but Shawn refuses because his new girlfriend likes living there. Unfortunately, Shawn also refuses to buy Julie out because it will raise the mortgage. Shawn is unconcerned, however, that he is unfairly holding hundreds of thousands of dollars in Julie’s equity hostage.
As such, Julie is left with no choice other than to file a partition action. During that action, Shawn makes up the story that Julie agreed to let him live there for the rest of his life. Shawn argues that based on this agreement, the partition should be denied. Julie objects to Shawn’s argument, however, that he is attempting to enforce an unreasonable restraint on alienation. Ultimately, the Court rejects Shawn’s argument and the property is sold through a partition so Julie can receive her equity interest and move on with her life.
How can the attorneys at Underwood Law Firm, P.C. help?
Restraints on alienation, whether in a deed, will, or other ownership agreement, are invalid if they are unreasonable. It is important to understand that in some situations, like in condominium or low-income housing developments, certain restraints are given more leeway because of the nature of the property interests and public policies involved. In situations where property is conveyed in fee simple, restraints on how the grantee may later sell the property are more likely to be invalidated.
If a property you own is subject to restraints on alienation, it is crucial to understand how they may impact your ability to sell in the future. The experienced and dedicated attorneys at Underwood Law Firm, P.C. can help you understand your options and ensure that your property rights are protected. Contact us today.