Daily Development for Friday, December 17, 1999

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

RESTRAINTS ON ALIENATION; REPURCHASE AGREEMENTS: Deed restrictions in PUD requiring vendors to accept price determined at time of their purchase and permitting sale only to certain group of people do not constitute an unenforceable restriction on alienation of the property.

Indian River Colony Club v. Bagg, 727 So.2d 1143 (Fla.App. 5 Dist. 1999).

The issues involved the Indian River Club, an organization designed to "provide benefits to retired and current military officers similar to those enjoyed while in the military." There are 900 Club members, who apparently enjoy certain amenities in Club facilities. In addition, the has a planned unit development single family subdivision with approximately 700 residences. The Club requires that one be a member of the Club to acquire these residences.

The Club provides relatively extensive maintenance for the residences, including not only exterior maintenance, landscaping and repairs, but also appliances, air conditions and mechanical systems within the residences. The rub, however, comes upon resale. The Club will refurbish the residence for resale and handle all title transfer, but owners agree in their original purchase agreements to a set purchase price upon resale. (Apparently the formula for setting the price compensated the owners specially for improvements.) The owner must transfer the property to a Club member designated by the Club from a waiting list, and if there is no such person willing or able to purchase, the Club must purchase the property for the set price within 60 days of the owner's announced intention to sell.

Owners of a home in Indian River, who purchased subject to these resale restrictions, brought suit arguing that they unreasonably restrained the alienation of the property.

Established Florida authority has held that a fixed price right of first refusal for an indefinite term is unenforceable as an unreasonable restraint on alienation.

The court, however, on a split decision, differentiated that case because here the Club did not have an option to purchase it was *required* to purchase the property. The court noted that this obligation would obtain regardless of the value of the house, and that circumstances could arise where the Club would pay considerably more than the market value of the property.

The court saw the intent to restrict ownership of Indian River properties to present or retired military to be a valid and reasonable purpose which the repurchase restraint clearly furthered.

A dissenter argued that the situation was indistinguishable from prior authority, since, option or obligation, the repurchase right restrained the alienability of the owner's property.

Comment 1: It is true that from the standpoint of the property owner, the restraint is the same whether or not the holder of the repurchase option is required to purchase. But from the standpoint of whether the scheme is a justifiable means of carrying out a development purpose, the two situations are quite different. Here, in exchange for the right to control resale, the Club gives "price protection." Although this may not have been the motivating factor for the decision for these purchasers to buy, it clearly is a potentially valuable right and tends to support the overall objective of encouraging military people to buy in this development.

Comment 2: The editor is familiar with devices of this character appearing in university faculty housing schemes. Are DIRTers aware of other applications?

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