Iowa Supreme Court Says 20-Year Farmland Sale Restriction is Invalid

On April 30, 2021, the Iowa Supreme Court entered an opinion on the testate transfer of farmland. The testator devised farmland with a 20-year sale restriction provision. The Supreme Court affirmed that the restriction created an impermissible restraint on alienation and was void.

Background  

In this case, the testator passed away with a will naming her farm tenant, the farm tenant’s wife, and a friend as the executors of her estate. The will bequeathed 150 acres of farmland to her friends, the Coronellis, “subject to the restriction that they should not sell or transfer the property outside their immediate family within a period of twenty years after [the testator’s] death.” The will also gave the farm tenant the first option to purchase the farmland within that 20-year period and devised all farm equipment and livestock to him. The third executor received the residue and remainder of the estate.

The three executors requested that the court approve the farmland deed with language memorializing the 20-year sale restriction in the will. Objecting, the Coronellis requested that the court disallow the deed restriction claiming that it created a restraint on alienation and was void. The district court found that the restriction was an invalid restraint on alienation and the Court of Appeals affirmed. The executors appealed the determination and the Supreme Court granted further review.

Restriction on Alienation

In affirming the lower court’s ruling, the Court explained that generally, a restraint on alienation by either deed or will is unreasonable and void. The executors first claimed that the restriction did not create a restraint on alienation because the Coronellis did not inherit the farmland in absolute fee, but rather inherited the land with a limited right to sell the property for 20 years.

Rejecting the executors’ argument, the Court concluded that the testator intended to devise the property as fee simple absolute. Therefore, the restriction on the property transfer was an invalid restraint on alienation.

Does Iowa Allow Reasonable Restraint on Alienation?

Alternatively, the executors claimed that Iowa law allows certain permissible restraints on alienation. Iowa Code § 614.24 imposes a 21-year limit to bring reversion, reverted interests, or use restriction claims in order to establish or recover an interest in real estate. Here, the Court found that a land-use restriction differed from a transfer restriction and, therefore, none of the three claims listed in § 614.24 applied.

Additionally, the Court determined that its recent decision, In re Coe College, was inapplicable as well. See 935 N.W.2d 581 (Iowa 2019). In that case, the Court found that a donor of a charitable gift to a college may impose certain limitations, including a restraint on alienation. Because the farmland was for the Coronelli’s personal use, it did not qualify as a charitable gift.

Restatement (Third) of Property: Servitudes

Lastly, the executors urged the Court to adopt the Restatement (Third) of Property: Servitudes. Under the Restatement, a restraint on alienation may be permissible if the restriction can meet a reasonableness standard after a fact-intensive inquiry for the specific case. Restatement (Third) of Prop.: Servitudes § 3.4, .5, at 440, 461–62 (Am. L. Inst. 2000). In rejecting this argument, the Court noted that it had long ago rejected case-by-case balancing in favor of a bright-line rule prohibiting all restraints on alienation. The Court explained that it saw no reason to abandon this long-standing rule, especially when clear-cut rules are essential to establishing certainty of title. The Court thus held that the will provision limiting the sale of the farmland for a 20-year period was void as an invalid restraint on alienation.