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Aquarian Foundation, Inc. v. Sholom House, Inc

    Brief Fact Summary. A condominium owner sold her unit without obtaining the consent of the board of directors, which violated a provision of the condominium rules.

    Synopsis of Rule of Law. A condominium associate cannot arbitrarily, capriciously, and unreasonably withhold its consent to transfer because that would be an unreasonable restraint on alienation.

    Facts. Bertha Albares sold her condominium unit to Aquarian Foundation, Inc (Plaintiff), which was in violation of a provision of the declaration of condominium requiring the written consent of the Sholom House condominium association’s board of directors (Defendant) to any sale, lease, assignment or transfer of a unit owner’s interest. The declaration gave the association the power to arbitrarily, capriciously, or unreasonably withhold its consent to any sale. The declaration also had a reverter clause which mandates that the association compensate the unit owner if a transfer is done in violation of the consent requirement. Defendant sued to set aside the conveyance.

    Issue. When a condominium association has the power to arbitrarily, capriciously, or unreasonably withhold its consent to transfer, does that constitute an unreasonable restraint on alienation even when a reverter clause exists?

    Held. Yes.
    Restrictions on a condominium unit owner’s right to transfer his property is a valid means of insuring the association’s ability to control the composition of the condominium as a whole. The restrictions may even be somewhat unreasonable and still be held valid.
    But, when restrictions violate some external public policy or constitutional right of an individual, the restrictions will be invalidated. While a condominium association’s board of directors has considerable latitude in withholding its consent to a unit owner’s transfer, the resulting restraint on alienation must be reasonable. A balance must be found between the rights of the association to maintain its homogeneity and the right of the individual to alienate his property.
    When a restraint on alienation, no matter how absolute or encompassing, is conditioned upon the restrainer’s obligation to purchase the property at the then fair market value, the restraint is valid. When the restraint does not impede the improvement of the property or its marketability, it is not illegal.
    The declaration in this case permits the association to reject for whatever duration perpetually a unit owner’s prospective purchaser for any or no reason. Even though this is an absolute restraint in alienation, it can be saved from invalidity if the association has an obligation to purchase or procure a purchaser for the property at its fair market value. This accountability makes the restraint lawful.
    The reverter clause does not oblige the association to compensate the unit owner within a reasonable time after the association withholds its consent to transfer, and the clause therefore is not the functional equivalent of a preemptive right. There is no accountability to the unit holder.
    The power of the association to arbitrarily, capriciously, and unreasonably withhold its consent to transfer is not saved by the reverter clause from being declared an invalid and unenforceable restraint on alienation.

    Discussion. Apparently, a condominium association has the right to prevent a sale of a unit if it pays the unit owner the fair market value of the property.


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