Cambridge Co. v. East Slope Investment Corp

Brief Fact Summary. A condominium declaration created a right of preemption (a right to purchase) in unit owners.

Synopsis of Rule of Law. When preemptive rights do not threaten the free alienability of land, the rights will not be invalid under the rule against perpetuities.

Facts. A condominium declaration creates a right of preemption in unit owners, which is defined as having the first right to purchase a unit. This right states that when a unit owner decides to sell and receives a bona fide offer, the unit will first be offered to the remaining owners for the same terms and conditions as the bona fide offer. The unit owners have five days from the date of receiving notice of the offer to accept, otherwise the third party may buy the property.

Issue. When a condominium declaration allows unit owners to hold preemptive rights, will those rights violate the rule against perpetuities?

Held. No.
The rule against perpetuities states that no interest in real property is valid unless it must vest, if at all, no later than 21 years after some life in being at the creation of the interest. The purpose of the rule is to prevent the remote vesting of contingent interests in real property.
Technically, the rule applies to preemptive rights because a right of preemption creates a specifically enforceable right to purchase real property whenever, in the future, the owner desires to sell, which could be beyond 21 years.
The rule against perpetuities, however, is not a technical rule to be mechanically applied. The rule was created to prevent indirect restraints on alienation from continuing indefinitely and to enhance the alienability and beneficial use of property.
Courts do not apply the rule when its purpose will not be served. The rule against perpetuities will be applied to preemptive rights only when the purpose of the rule, such as preventing a practical restraint upon alienation or encouraging improvement of the property, is served.
Here, the unit owner will receive market value for his property and potential buyers will not be deterred from buying the property because they know the market value of the property will remain intact. The preemption cannot be exercised until the owner decides to sell, at which time the only effect of the preemption is to change the identity of the buyer because the price remains the same. The title to the unit is freely alienable at full market price, and does not violate the rule against perpetuities.

Discussion. A preemptive right that allows for purchase of a unit at market price is not subject to the rule against perpetuities because it does not impede the free alienability of the land. The purpose of the rule would not be served by applying the rule to this type of situation, so it is not applied