Real property – Alienability – Restraint

Listen to this article

Where plaintiffs who were signatories to a 1987 transfer restrictions agreement (TRA) have brought suit to undo another signatory’s transfer of his interests in properties in Wellesley to the defendant limited liability companies shortly before his death in 2009, the LLCs must be awarded summary judgment because the agreement is an unreasonable restraint on the alienability of land and therefore is unenforceable.

“In connection with tenancies in common, Massachusetts courts have ‘upheld and enforced testamentary provisions prohibiting or postponing partition for a reasonable period of time‘ and recognized that ‘a tenant in common may bind himself by agreement from asserting any right to partition, and that such an agreement if extending for only a reasonable time is not contrary to public policy and operates by way of waiver or estoppel to prevent the maintenance of partition proceedings.’ Roberts v. Jones, 307 Mass. 504, 506 (1940) (emphasis added, citations omitted). …

“In this case, the TRA purports to impose a restraint in perpetuity. Under the TRA, the restraint on alienation is of unlimited duration, not unlike the one at issue in Roberts; applying even after an interest in the Properties is transferred to a stranger to the TRA. … The TRA’s buyout mechanism is supposedly triggered when ‘any change in the ownership of any interest in’ any of the Properties is ‘made or proposed.’ … It is therefore not simply triggered by an owner receiving a bona fide offer to purchase the owner’s interest in the Properties. The TRA also imposes a cumbersome mechanism for determining the ‘fair value’ for an interest in the Properties, which may not necessarily equal or exceed any offered price for the interest (if any offer was received). While the notion of ‘fair value’ referenced in ¶2 of the TRA may take into account an offered price, depending on the circumstances, the owner seeking to divest his/her interest in the Properties is not assured of receiving the amount offered as the ‘fair value’ under the mechanism established in the TRA. Such restraint on alienation is unreasonable, and the TRA is therefore void and unenforceable under the rationale of Roberts.

“Plaintiffs rely principally on Bortolotti v. Hayden, 449 Mass. 193 (2007), which addressed the enforceability of a right of first refusal of indefinite duration. The facts of that case are quite different from the situation the parties face here. …

“In contrast to Bortolotti, the right of first refusal (if it can be called that) at issue here is not at an offer price, but at a ‘fair value’ price to be set (assuming the parties do not agree) through an arbitration of uncertain duration; and thereafter must be exercised by a holder of an interest in the Properties within 90 days, or if no holder of an interest in the Properties decides to purchase the interest, then the TRA still imposes time constraints and purchase price conditions on the transfer of the interest to a third party. These conditions constitute far more significant restrictions on alienation than at issue in Bortolotti.

“More importantly, and although not specifically addressed in Bortolotti, the right of first refusal in Bortolotti was a ‘one-off,’ a single right of first refusal burdening only a single owner. The grantor’s descendants had a single right to purchase the parcel from the grantee or his descendants when and if they decided to sell. If the right was not exercised, it expired. Here, in contrast, the TRA purports to continue in perpetuity and burdens alienation by quite a number of separate owners. If an owner of an interest in the Properties transferred his/her interest to a third-party, the third-party would take the interest subject to the restrictions in the TRA and would still have to give the relevant DiSchino family members notice if the third-party made or proposed a transfer of the third-party’s interest in the Properties. Such a restraint is unreasonable in duration and unenforceable.”

DiSchino, et al. v. Delanson Circle Holding LLC, et al. (Lawyers Weekly No. 09-055-18) (10 pages) (Krupp, J.) (Norfolk Superior Court) (Civil No. 15-1432) (April 17, 2018).