The rule against perpetuities was developed in the 17th century to prevent property from being tied up for unacceptably long periods. It restricts the time within which future interests may be created; interests that vest too remotely are void.
The rule was intended to apply where a future estate or interest arose under a trust or settlement. However, the courts began to apply it o the creation of most future rights in property. Consequently, it affects easements or restrictive covenants that take effect at a future date, as well as options, and the Law Commission believes that it also affects rights of pre-emption. As a result, most instruments relating to property interests include provisions dealing with the rule against perpetuities.
The Perpetuities and Accumulations Act 2009 comes into force on 6 April and brings the law up to date. With effect from that date, the rule against perpetuities will cease to apply to options and rights of pre-emption, together with easements and restrictive covenants that take effect at a future date if these are created on or after 6 April 2010. However, the previous law will continue to apply to interests created before that date. Consequently, different rules will apply to different instruments and conveyancers will need to understand how such rules apply for many years to come.
The Act adopts an inclusionary approach; it defines the interests to which the rule against perpetuities applies. All other interests are excluded. The intention is to confine the rule to its original limited function and the approach will therefore liberate transactions involving options to buy or lease land from artificial rules and restraints that have caused difficulties for commercial property transactions.
Importantly for conveyancers, a number of restrictions on future dealings, which will affect leasehold interests in particular, will continue to apply:
? A reversionary lease, granted at a rent or in consideration of a premium, which takes effect in possession more than 21 years after the date of the grant of the lease is void (as is an agreement to create such a lease): section 149(3)of the Law of Property Act 1925.
? A perpetually renewable lease will take effect as a lease for a term of 2,000 years (subject to a right for the tenant to terminate on the date on which the lease would have ended and on any subsequent such dates during the 2,000-year term): Schedule 15 of the Law of Property Act 1922.
? A lease for life, granted at a rent or in consideration of a premium, will take effect as a 90-year lease (subject to a right for either party to terminate the lease after the death of the tenant on the giving of one month’s written notice expiring on a quarter day). Similar rules apply to leases granted until a tenant marries or enters into a civil partnership: section 149(6) of the Law of Property Act 1925.
? An option to renew a lease for a term of more than 60 years, calculated from the date of the termination of the previous lease, is void: paragraph 7 of Schedule 15 to the Law of Property Act 1922.
None the less, conveyancers will welcome the changes because they can potentially simplify the wording of instruments that create or transfer interests in land.
Allyson Colby is a property law consultant
