Thursday, September 5, 2013

Boyack on Freedom of Contract and the Endangered Right to Transfer

BoyackAndrea Boyack (Washburn) has posted Freedom of Contract and the Endangered Right to Transfer on SSRN.  Here's the abstract:

Private community restrictions on property transfer deserve closer scrutiny by the courts because they often conflict with public policy objectives and unjustifiably compromise owners’ property rights. Covenants that run with the land are a strange legal hybrid, neither completely contract nor solely property. As servitudes, they are specifically enforceable and bind subsequent owners of the property in perpetuity. In common interest communities, these covenants further diverge from traditional contracts in being adhesive and non-negotiable conditions bundled into home acquisition. Their terms are prescribed by developers and lenders, not by community members themselves. Yet courts typically uphold transfer restraints in covenants based on freedom of contract principles without fully vetting implications for property rights and market efficiency.

Common interest community restrictions on transfer are poor cases for reflexive enforcement based on principles of contractual freedom. Relying upon the common law prohibition of undue restraints on alienation would enable courts to better balance actual costs and benefits. Free alienability preserves owner autonomy, stimulates market efficiency and avoids adverse disparate impacts on minority groups and other collateral societal harms. Legitimate neighborhood concerns regarding maintenance and behavior are better directly controlled through community use regulations than through alienation restraints. Analyzing community covenant alienation restrictions through the lens of property, not contract, is the superior approach to balancing community interests.

Steve Clowney

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