Aquarian Foundation, Inc. v. Sholom House, Inc

Brief Fact Summary.

The Sholom House condominiums required the written consent of the condominium association’s board of directors to any sale, lease, assignment or transfer of a unit owner’s interest. Bertha Albares, a member of the board of directors, sold her condominium to Defendant Aquarian Foundation, without obtaining the required written consent.

Synopsis of Rule of Law.

Despite the law’s recognition of the particular desirability of restrictions on the right of transfer in the context of condominium living, such restrictions will be invalidated when found to violate some external public policy of constitutional right of the individual.

Facts.

The Sholom House condominiums required the written consent of the condominium association’s board of directors to any sale, lease, assignment or transfer of a unit owner’s interest. Bertha Albares, a member of the board of directors, sold her condominium to Defendant Aquarian Foundation, without obtaining the required written consent. The board of directors was expressly empowered by the declaration of condominium to “arbitrarily, capriciously, or unreasonably” withhold its consent to any proposed sale, sued to set aside Albares’ sale of the condominium to Defendant Aquarian Foundation, to dispossess Defendant and to recover damages under the following clause, “In the event of a violation . . . by the unit owner of any of the covenant, restrictions and limitations, contained in this declaration, then in that event the fee simple title to the condominium parcel shall immediately revert to the association, subject to the association paying to said former unit owner, the fair app
raised value thereof, at the time of reversion. . .” The trial court found that Albares’ sale without the required consent triggered the reversion clause and that judgment should be entered for the association, declaring the conveyance to Defendant Aquarian Foundation null and void, ejecting Aquarian, and retaining jurisdiction to award damages, attorneys’ fees and costs after a determination of the fair appraised value of the property. Defendant appealed.

Issue.

Does the clause in the condominium declaration constitute an unreasonable restraint on alienation such that enforcement of the clause is barred as against public policy?

Held.

Yes. Judgment reversed.
The Court recognizes that restrictions on a unit owner’s right to transfer his property are generally found to be a valid method of insuring the association’s ability to control the composition of the condominium as a whole. That these restrictions have been enforced even though they are a bit unreasonable in certain cases.
However, when the restriction is a restraint on alienation, the condominium associations are not immune from the requirement that the restraint be reasonable. The Court notes that the public policy of free alienability fosters economic growth and commercial development. A restraint on alienation is conditioned upon the restrainer’s obligation to purchase the property at the then market value. The restraint is required to be reasonable.
The declaration clause in the present case is an absolute restraint on alienation and can only be saved if the association has a corresponding obligation to purchase or procure a purchaser for the property from the unit owner at its fair market value. This is accountability to the unit owner, here Albares, for provision of a substitute buyer of the unit after Aquarian Foundation would be dispossessed.
The reverter clause in the declaration contains no provision creating an obligation of the condominium association to compensate the unit owner within a reasonable time after the association withholds its consent to transfer, and the clause is not, therefore, the functional equivalent of a pre-emptive right. The Court finds that the clause and the association’s obligation do not come into effect until a violation of the restriction on an unapproved transfer occurs.
Therefore, the accountability to the unit owner is illusory and the power of the association to arbitrarily withhold its consent to transfer prevents the activation of the reverter clause, which is invalid as an unreasonable restraint on alienation.

Discussion.

Cases involving restraints on alienation must be carefully decided so as to avoid judicial sanction of discrimination in housing. The Court in this case did not discuss the implications of allowing the association’s clause to stand, but it would be wise to consider such implicatio