Restraints on Alienation

Retroactive restraints on leasing in homeowners associations

/ Condominiums and Homeowners Associations, Estates and Future Interests, Leaseholds, Real Estate Transactions, Restraints on Alienation, Servitudes

The courts continue to divide over the question of whether it is fair to allow homeowners associations to impose retroactive restraints on leasing on existing owners who purchased with no notice of the restriction. While most states allow this, a few do not, and the Restatement (Third) of Property (Servitudes) §6.10(2), §6.10 cmt. g, takes the position that such major changes in property rights can only be accomplished prospectively unless there is a unanimous vote to alter those rights. The Idaho Supreme Court recently adopted what appears to be the majority approach, authorizing a homeowners association to retroactively prohibit existing owners from agreeing to short term rentals of less than six months. Adams v. Kimberley One Townhouse Owner’s Ass’n, 352 P.3d 492 (Idaho 2015). In contrast, the Supreme Court of Washington refused to allow retroactive restraints on short term rentals in Wilkinson v. Chiwawa Commties. Ass’n, 327 P.3d 614 (Wash. 2014), requiring unanimous approval for such …

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Distinguishing between a right of first refusal and a restraint on alienation

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation, Servitudes

The Massachusetts Land Court decided an interesting case interpreting a conveyance that reads like a right of first refusal but can be interpreted as a broader restraint on alienation giving discretion to a nonprofit entity to refuse absolutely to any transfer of the land. Gottlieb v. Girl Scouts of E. Mass., 2016 WL 3523859 (Mass. Land Ct. 2016). The conveyance stated that “before [charitable organization A] shall sell, transfer, or otherwise dispose of the [land, it] shall first offer said land to [charitable organization B] as an unencumbered gift, sale or otherwise to be used by [charitable organization B] for any charitable or civic purpose…” The court found that the clause was not a use restriction but a limit on transfer and thus a restraint on alienation. It also found that it was not a right of first refusal because it did not require purchasing the property at fair market value or matching a bona fide third party …

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Anticompetitive covenant in shopping center lease broadly construed

/ Leaseholds, Real Estate Transactions, Restraints on Alienation, Servitudes

Following Florida law, the Eleventh Circuit construed the terms of restrictive covenants in shopping center leases broadly. Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F.3d 1008 (11th Cir. 2014). The covenants were part of the leases granted to Winn-Dixie supermarkets and protected it from competition by limiting the ability of other stores to sell “staple or fancy groceries” to a discrete “sales area.” Traditionally, ambiguities in covenants were construed to limit the covenant, freeing the servient estate owner to a broader use of its property and Florida precedents have adopted that  position. Moore v. Stevens, 106 So. 901, 903 (Fla. 1925) (ambiguous “covenants are strictly construed in favor of the free and unrestricted use of real property”). However, applying a recent holding from a Florida state court, see Winn-Dixie Stores, Inc. v. 99 Cent Stuff-Trail Plaza, LLC, 811 So.2d 719 (Fla. Dist. Ct. App. 2002),  the Eleventh Circuit held that the term “groceries” applied not …

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Retroactive restraint on short term leasing by homeowners association upheld by Idaho Supreme Court

/ Condominiums and Homeowners Associations, Consumer Protection, Leaseholds, Real Estate Transactions, Restraints on Alienation, Servitudes

When a homeowner’s association voted to amend the declaration of covenants, conditions, and restrictions to prohibit short term leasing of units (rentals for less than six months), one of the townhouse owners sued to declare the retroactive restraint on alienation invalid. However, the Idaho Supreme Court found the retroactive restraint to be valid; it neither constituted an unreasonable restraint on alienation or exceeded the scope of the powers of the association to amend the declaration retroactively. Adams v. Kimberley One Townhouse Owner’s Ass’n, 352 P.3d 492 (Idaho 2015). The court held that the amendment to the declaration was merely an interpretation of what it meant to devote the property to single-family residential purposes and thus could not be unduly surprising to the owner. Moreover, the association had the power to amend the covenants and that amendment power subjected the individual owner to retroactive changes in ownership rights. While some courts would …

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Colorado Supreme Court holds that an option that can be canceled any time before its exercise does not violate the traditional rule against perpetuities

/ Real Estate Transactions, Restraints on Alienation, Title Issues

The Colorado Supreme Court has held that the traditional rule against perpetuities does not invalid an option, even if it has no time limit, if it can be canceled at any time before its exercise, at least where the price for the option is set at the market value of the property and it was agreed to by sophisticated parties. Atlantic Richfield Co. v. Whiting Oil & Gas Corp., 320 P.3d 1179 (Colo. 2014). The court reasoned that what mattered was not the lack of time limitation but whether the option imposed an unreasonable restraint on alienation and concluded that it did not under these circumstances.

Local sex offender law violates state regulatory provisions

/ Homelessness, Restraints on Alienation, Zoning

Like other cities, the City of Lynn in Massachusetts sought to regulate where sex offenders live. It prohibited certain sex offenders from living within 1,000 feet of a school or park and defined “school” to include all public, private, and church schools. The effect of the ordinance was to prevent sex offenders from spending a night in ninety-five percent of the city, including in a shelter or half-way house designated for sex offenders. The Supreme Judicial Court struck down the local ordinance as exceeding the scope of local government powers because it was inconsistent with state legislation establishing a sex offender registry and regulating sex offenders. Doe v. City of Lynn, 36 N.E.3d 18 (Mass. 2015). The local law effectively would make sex offenders homeless and would make it impossible for state authorities to track them to protect the public. In addition, the state statutes had a much narrower set of rules …

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District of Columbia prohibits noncompetition clause in sale of grocery store

/ Real Estate Transactions, Restraints on Alienation, Servitudes

The District of Columbia  passed legislation designed to prevent a grocery store owner from selling the property with a covenant that would have prevented the property from being used for grocery store purposes because this would deny residents in the neighborhood easy access to a grocery store. read article  The legislation is similar to the ruling of the New Jersey court in Davidson Bros, Inc. v. D. Katz & Sons, Inc., 643 A.2d 642 (N.J. Super. Ct. App. Div. 1994).

New York high court exempts options to renew leases from the rule against perpetuities

/ Estates and Future Interests, Restraints on Alienation

The New York Court of Appeals joined the majority of states in holding that the rule against perpetuities does not apply to options to renew leases. Bleecker St. Tenants Corp. v. Bleeker Jones LLC,  945 N.E.2d 484 (N.Y. 2011). It should be noted that only a minority of states have the traditional rule against perpetuities and New York’s rule is codified by statute. “No estate in property shall be valid unless it must vest, if at all, not later than twenty-one years after one or more lives in being at the creation of the estate and any period of gestation involved.” N.Y. Est. Powers & Trusts §9-1.1(b).

Automatic reverter creates fee simple determinable

/ Estates and Future Interests, Real Estate Transactions, Restraints on Alienation

In a straightforward application of traditional doctrine, a Tennessee court ruled that a deed condition that stated that a lot “shall automatically revert to Seller in fee simple” if the buyer does not comply with stated conditions (to install a waterline within a year) creates a fee simple determinable that transfers title automatically. Lasater v. Hawkins, 2011 WL 4790971 (Tenn. Ct. App. 2011)

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