20-Year Sale Restriction on Inherited Farm Was Unreasonable Restraint on Alienation

On November 4, 2020, the Iowa Court of Appeals issued an opinion regarding the distribution of farm property in a will. The will created a sale restriction on the farmland and listed several requests regarding future treatment of the testator’s farm tenant. The court affirmed that the sale restriction created an unenforceable restraint on alienability. Additionally, the court ruled that the decedent’s requests for the beneficiary to lease the farmland to the current tenant and provide favorable  terms to that tenant were optional, not mandatory.

Background

The testator owned a 150-acre farm. She passed away without children, and named several friends, a second cousin, and her farm tenant as beneficiaries of her will. She named her farm tenant, his wife, and a friend as the executors.The testator willed her farm residence, including the “house and buildings close to the home,” to her second cousin. This was to be separated from the farm real estate which she willed to the Coronellis, who were her friends. The tenant received the testator’s farm machinery and livestock. The third executor, another friend, received the remainder of the estate.

The will created a restriction on the farm real estate prohibiting the Coronellis from selling or transferring the property outside their immediate family within 20 years after the testator’s death. The will also specified that the Coronellis continue to lease the farm to the tenant under favorable terms and granted the tenant the first option to purchase the farm during the 20-year period after the testator’s death.

The will directed the executors to determine the boundaries of the farm residence. After working with a surveyor, the executors submitted the proposed legal description of the farm residence to the district court. At that time, the executors also requested that the legal description of the farm property contain the language restricting the Coronellis ability to sell the property, as well as the tenant’s option to purchase. The Coronellis objected, claiming the restriction was unfair and unenforceable. The second cousin objected to the legal description of the residence.

After a hearing and the appointment of a temporary executor (appointed to avoid the appearance of self-dealing), the district court ordered the garage be included as part of the farm residence legal description. The district court also found that the restraint-on-alienation provision was not valid, but that the right of first refusal for the tenant was enforceable. The court ordered the Coronellis to give the tenant ninety days’ notice before listing the property for sale. The executors appealed the district court’s invalidation of the farm sale restriction.

Restriction on Alienation

On appeal, the court stated that, generally, the courts will not enforce a sale restriction on property inherited through a testamentary instrument. Guenther v. Roche, 29 N.W.2d 222, 223 (Iowa 1947). The executors claimed that Iowa Code § 614.24 changed the general rule on restraints of alienation. Section 614.24 imposes a 21-year limit on land-use restrictions. A land-use restriction is a “limitation or prohibition on the rights of a landowner to make use of the landowner’s real estate…” Iowa Code § 614.24(5).

The executors claimed that the sale restriction was a land-use restriction, subject to the 21-year limit. In support of its argument, the executors cited to Sisters of Mercy v. Lightner, where the Iowa Supreme Court ruled that a sale restriction on a charitable donation was valid. See 274 N.W. 86 (Iowa 1937). In responding to the executors’ claims, however, the court explained that the restraint on alienation law does not apply to charitable gifts. There was no support for the executors’ argument that a sale restriction was a land-use restriction. As such, the court affirmed that the restraint on alienation was not valid.

Testamentary Requests

On appeal, the executors also argued that the testator’s requests that the Coronellis continue leasing the farm ground to the tenant and give him favorable terms were mandatory. The court ruled, however, that unless there is language to the contrary, a testator’s request to a beneficiary is usually viewed as optional. By contrast, a request to an executor is generally mandatory. Because the testator directed these requests to the Coronellis as beneficiaries, the court determined the language to be a wish the Coronellis use the land a certain way rather than an enforceable command.

Conflict of Interest Regarding Farm Residence Boundary Lines

The executors also claimed on appeal that the court must accept that the legal description of the property did not include the garage. The will required the executors to determine the boundary of the farm residence. The court ruled that while the executors at one point did have the power to determine this dispute, the district court replaced them with a temporary executor after finding good cause. The court affirmed that the legal description of the farm residence should include the garage.