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Real Property β’ Restraints on Alienation
PROP#046
Legal Definition
The most common, valid restraints on alienation are: (1) reasonable restrictions in commercial transactions; (2) rights of first refusal; and (3) restrictions on assignment and sublease of leaseholds.
Plain English Explanation
The most commonly tested restraints on transferring an interest in land are:
(1) Reasonable restrictions in commercial transactions, which means the restrictions are more about a contractual bargain than simply to lock up a piece of land. For example, if Oz gets a loan from Amy and gives her a mortgage on Blackacre, the mortgage can include contractual restrictions on transferring the land, such as an acceleration clause ("If you transfer the land without my explicit consent, then your loan shall be immediately due"). This is a restraint on alienation, but it is one that is appropriately bargained for within a commercial transaction between Oz and Amy.
(2) Rights of First Refusal, which are option contracts that give the holder first-dibs on the right to purchase a piece of property when and if it goes on the market. For example, Oz may contract with Amy to give her the first chance to buy Blackacre if it is ever on the market.
(3) Restrictions on assignment and sublease of leaseholds, which are extremely common clauses in a lease that prohibit a tenant's ability to assign or sublet their lease to someone else without the consent of the landlord.
(1) Reasonable restrictions in commercial transactions, which means the restrictions are more about a contractual bargain than simply to lock up a piece of land. For example, if Oz gets a loan from Amy and gives her a mortgage on Blackacre, the mortgage can include contractual restrictions on transferring the land, such as an acceleration clause ("If you transfer the land without my explicit consent, then your loan shall be immediately due"). This is a restraint on alienation, but it is one that is appropriately bargained for within a commercial transaction between Oz and Amy.
(2) Rights of First Refusal, which are option contracts that give the holder first-dibs on the right to purchase a piece of property when and if it goes on the market. For example, Oz may contract with Amy to give her the first chance to buy Blackacre if it is ever on the market.
(3) Restrictions on assignment and sublease of leaseholds, which are extremely common clauses in a lease that prohibit a tenant's ability to assign or sublet their lease to someone else without the consent of the landlord.
Related Concepts
How are restraints on alienation generally dealt with by courts?
What is the result of a disabling restraint?
What is the result of a discriminatory restraint?
What is the result of a forfeiture restraint?
What is the result of an absolute restraint on a fee simple estate?
What is the result of a promissory restraint?
What is the result of restraints on alienation on Life Estates and Future Interests?