17.42 Restraints On Alienation And Use (Illegal Or Unreasonable)

17.42 Restraints On Alienation And Use (Illegal Or Unreasonable)





In General

The general rule is that one of the incidents of ownership of real property is the right to convey it, and that the law will not permit the rights of ownership to be limited or fettered by the imposition of restraints by grantors or testators who may seek to convey or dispose of their property and at the same time maintain control over its alienation or use. Thus, whether imposed by deed or will, a general restraint on alienation is ordinarily void. The law frowns upon such restraints since they hinder the free use and development of real property, and consequently, are not in the best interest of society, commerce and trade.

Although the rule against perpetuities (See Sec. 17.78) and the rule against restraints on alienation have the same fundamental purpose of keeping property freely alienable, they are different. The rule against perpetuities invalidates interests which vest too remotely, while the rule against restraints on alienation relates to unreasonable or illegal restraints.

Statutory and constitutional prohibitions against unreasonable restraints or alienation or use are designed to prevent undesirable limitations on the transfer of real estate. Any direct prohibitions against the sale of real estate which is not fully justified runs a risk of constituting an unreasonable restraint.

In many cases in which there is an invalid restraint on alienation, the validity of the estate is not destroyed, but instead, the court adjudge the limitation as nullity and permit the estate to vest free from the condition or limitation attempted to be imposed.

Generally, the main factors taken into consideration by the courts when deciding the validity of restraint, are the following:

·   The reasonableness of the restraint.

·   The construction of the instrument.

·   The possible violation of public policy.

·   The possible restrain of trade.

Any restraint on alienation or use, as shown by the public records, and affecting the title of the land to be insured, must be made a matter of an appropriate title exception (racial restrictions are excluded form the above) in Schedule B of the title commitment and policy.

Regardless of the circumstances, no attempt should be made to delete or waive this kind of title exception, on the basis of its illegality or unreasonableness, unless the deletion or waiver is supported by a proper judicial determination.

In 2007, legislation was passed relating to prohibiting fees for future transfers of real property. (Sometimes called the 99-year restriction scam bill.). The law amends Chapter 5 of the Property Code to prohibit certain fees or assessments on future transfers of property payable for 99 years back to an original landowner. Exceptions are property owner's associations and 501c(3) non profits.

Changes/actions required: If your search and examination of title shows any restrictive covenants filed after January 1, 2005 that purport to require payment of a portion of the sales proceeds to the owner or the owner and a third party business entity for a period in excess of the owner's ownership of the property, you may disregard such restrictions. The exceptions apply to transfer fees charged by home owner association and to fees charged by non-profit corporation set up to provide funds to schools in the area of the subdivision. These must be collected and properly paid.