## Facts

- Laguna Royale was a 78-unit condominium project on oceanfront land held under a 99-year ground lease.
- Purchasers received interests through a “Subassignment and Occupancy Agreement” granting an undivided 1/78 leasehold interest, exclusive unit/garage use, common-area rights, and restrictions.
- Paragraph 7 of the agreement required the lessee’s consent before any assignment, transfer, or subletting.
- The developer later assigned to the owners association all developer rights under the agreements, including paragraph 7 approval authority.
- The association’s bylaws contemplated multiple unit ownership and permitted unit leasing with a minimum 90-day term, while emphasizing single-family residential use.
- The Dargers bought Unit 41 and became subject to the bylaws and the paragraph 7 consent requirement.
- The Dargers attempted to assign three one-quarter undivided interests in Unit 41 to three couples, creating a four-share co-ownership arrangement.
- The association refused to approve, citing burdens on other residents and inconsistency with the project’s single-family character.
- The Dargers completed the assignments without association approval.
- The trial court entered judgment for the association, declaring the assignments invalid; the Dargers and assignees appealed.

## Issues

1. Whether an association’s contractual power to approve or disapprove unit assignments is subject to an implied reasonableness limitation to avoid an unreasonable restraint on alienation.
2. Whether, under that standard, the association acted reasonably in refusing to approve the Dargers’ proposed assignments of undivided interests.

## Decision

- The Court of Appeal reversed the judgment.
- The court held the association’s approval power was not absolute; it was limited by an implied requirement of reasonableness.
- The court concluded the association’s refusal was unreasonable as a matter of law and therefore could not support invalidating the assignments.

## Legal Principles

- In common-interest communities, restraints on alienation may be permitted, but only if they are reasonable.
- Even when a governing instrument appears to grant broad discretion, an association may not approve or deny transfers arbitrarily, capriciously, or in a manner that unreasonably restrains alienation.
- A transfer restriction is valid only when exercised in a fair, non-arbitrary, non-discriminatory manner and rationally related to protecting, preserving, or properly operating the project.
- An association’s asserted justifications may be rejected when they conflict with the community’s governing documents and tolerated practices (e.g., allowing leasing that produces similar occupancy patterns).
- Generalized concerns and speculation about increased use or loss of “single-family” character, without concrete evidence of distinct harm, are insufficient to justify denying a transfer.

## Conclusion

The court required condominium associations to exercise transfer-approval authority reasonably and held that denying consent based on speculative and internally inconsistent concerns—especially where similar uses were permitted by the bylaws—constituted an invalid restraint on alienation, requiring reversal of the judgment invalidating the assignments.


Laguna Royale Owners Ass’n v. Darger, 174 Cal. Rptr. 136 (Cal. Ct. App. 1981)