Saturday, February 11, 2012

Restraints on Alienation

Questions come up on the MBE involving restraints on alienation. These questions require you to know the different types of restraints, as well as whether these restraints are automatically void.

The first type of restraint are disabling restraints which attempt to make any transfer of interest ineffective. Next, there are forfeiture restraints. These restraints state that any attempted transfer of an interest will forfeit that interest. Finally, there are promissory restraints under which an attempted trasfer breaches a covenant.

The important points to remember for the purposes of these questions is that all disabling restraints on any legal interest (for example, a life estate, or fee simple) are void. In other words, the interest can be transferred regardless of the attempt to make the transfer ineffective.

On the other hand, forfeiture restraints and promissory restraints on life estates are valid. Also valid are forfeiture restrants on transferability of future interests (for example, if the holder of an executory interest attempts to transfer that interest, the interest can be forfeited). Rights of first refusal, often seen on the MBE, (and sometimes implicating the rule against perpetuities), are valid restraints on alienation. Questions sometimes involve landlords placing restrictions on assignment and subleases by the tenant, and this, too, is a valid restraint on alienation.

In general, the best way to approach these questions is to first determine whether the grantor has placed a restraint on alienation of the interest granted. Then determine the type of restraint. Remember that some restraints are valid, and some are invalid, and apply the rules above.

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