Auctions and equitable servitude

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treesAlbert has owned land comprised of 85 acres of trees and some pasture once owned by his father and before him, his grandfather.

Albert is coincidentally 85 years old and has always told himself that when he reached that age he would sell his property to the county school system to help satisfy their expansion plans.

He contacts the school to make the necessary arrangements. About a week passes when the school’s attorney contacts Albert to tell him of a title issue.

    “Albert, you do own that 85 acres, but it is encumbered by a deed restriction which states that the land cannot be sold but rather must only be transferred by descent and distribution which would require your demise. You could name the school in your will …”

Albert is confused. Can he own something and not possess the right to sell it? Indeed, property — particularly real property — is often transferred (granted) to a new owner [grantee] with some restrictions.

Such limitations or requirements include conditions and/or covenants which can restrict basic property rights including right to use, right to waste, right to transfer, etc.

The legal theory basically is that if (for example) a current owner acquired property without the right to develop then if the property is sold to a subsequent owner, he too has no right to develop.

However, we usually always see these types of restrictions involving real property. Could this same principle involve personal property? It can.

As reported July 22, 2015, Los Angeles Superior Court Judge Gail Ruderman Feuer ruled that Joseph Wright’s 1943 Oscar could not be sold at auction due to the Academy of Motion Picture Arts and Sciences’ rights over such transfer.

Just the other day I was asked about this same issue in a real estate pre-licensing class I was teaching at Hondros College of Business.

The question was can these conditions or covenants ever be reversed? The answer is that they can and these are typically the arguments made in courts around the country by the attorneys for encumbered estates; they will often hold the seller (grantor:)

  • Didn’t file suit or try to stop the action within a reasonable time (laches.)
  • Allowed for or agreed such restriction could be violated (acquiescence.)
  • Acted as if the restriction was abandoned (estoppel.)
  • Is not enforcing or obeying a similar restriction concerning his own or other property (unclean hands.)

Also, if the political wind or cultural environment sufficiently changes, the restriction could be considered no longer reasonable (changed conditions.)

Nevertheless, a lesson for auctioneers selling real or personal property. In some cases, such property cannot be sold due to a secured restriction via a covenant or condition — tracing back to English common law and the concept of equitable servitude.

Finally, it’s always best to consult an attorney concerning any “questionable property rights” circumstances.

Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.

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