Application of the rule against perpetuities
Section 1: Application of the rule
30.Section 1 defines the circumstances in which the rule against perpetuities applies. Only the estates, interests, powers and rights mentioned in section 1 are subject to the rule against perpetuities. As a result the scope of the rule is narrowed where the Act applies (see section 15). Under the Act the rule does not apply, for example, to most future easements, options and rights of pre-emption, which will fall outside these categories. Most of the pre-Act exceptions to the rule do not need to be replicated, as they do not fall within section 1.
31.Subsection (2) applies the rule against perpetuities to each of the successive estates and interests created by an instrument which limits property in trust. This means that, where property is given to be held on trust for A, then for B, and thereafter goes to C absolutely, the rule has to be applied to the interests of A, B and C separately. Any of the successive estates or interests may be subject to a contingency. For example, a trust is created where the terms are that A will be entitled to the income for life from A’s 18th birthday; then, subject to A’s interest, the capital will pass to whichever of B and C survive A; or, if both survive, to B and C in equal shares; or, if neither survive, then to charity X. Here the interests of A, B, C and X are all subject to the rule under the Act. Subsection (7) provides that the following estates and interests are within the scope of subsection (2)—
an estate or interest arising under a right of reverter on the termination of a determinable freehold interest in land. For example, Y grants land to trustees to be held on trust for a youth football club until the land ceases to be used as a football pitch. If in fact the land ceases to be so used, it reverts to Y (or to Y’s estate, if Y is deceased). The effect of the Act is that Y’s interest under a right of reverter is treated as a successive interest arising on the determination of the determinable estate and is therefore subject to the rule against perpetuities;
an estate or interest arising under a resulting trust on the determination of a prior determinable interest. For example, Y gives a painting to trustees to be held on trust for a specified museum until the painting ceases to be on display at the museum. If the painting ceases to be displayed, the interest of the museum ceases and the painting will be held on automatic resulting trust for Y or (if Y is deceased) for Y’s estate. The Act subjects Y’s interest under the automatic resulting trust to the rule against perpetuities.
32.Subsection (3) applies the rule against perpetuities to an estate or interest in property held on trust which is subject to a condition precedent but which is not one of successive estates or interests, that is, where it is the sole estate or interest created by the trust instrument. The condition precedent might be a condition to be fulfilled by a particular person, for example, a gift “to X provided he becomes a train driver”. Or it might determine who should receive the property: for example, a gift “to the first person to land on Mars” or “to my first great-great-grandchild”.
33.Subsection (4) provides that, where an instrument creates an estate or interest subject to a condition subsequent, the rule against perpetuities applies to the rights of the persons who will become entitled to the property if the condition is broken. For example, A transfers a piano to trustees to hold on trust for A’s grandchildren in equal shares on condition that none of them becomes a solicitor by the age of 30. The trust instrument provides that if, in breach of the condition, one of A’s grandchildren does become a solicitor by the age of 30, the piano will pass to charity B. The effect of subsection (4) is that the rule against perpetuities applies to the right of charity B to take the piano on breach of the condition. If none of A’s grandchildren breaches the condition within the perpetuity period, charity B’s interest will fail to take effect, and each grandchild’s interest will become absolute.
34.Under the doctrine of executory bequests it is possible to create successive legal interests in personal property by will without using a trust. Subsection (5) applies the rule against perpetuities to each of the successive interests.
35.Subsection (6) applies the rule to powers of appointment, with the result that a power of appointment must become exercisable within the perpetuity period or it will be void (and, if it is a special power, may be exercised only within the perpetuity period – see section 7(3) to (6)). For example, C creates a trust with a special power of appointment exercisable by trustees once one or more of C’s grandchildren has attained the age of 40. The power of appointment will be void if none of the grandchildren reaches the age of 40 within the perpetuity period. Powers of appointment are defined in sections 11 and 20.
36.Subsection (8) provides that section 1 has effect subject to the exceptions made by sections 2 and 3.
37.Subsection (9) repeals the second limb of section 4(3) of the Law of Property Act 1925 which provides that rights of entry affecting a legal freehold estate are confined to the perpetuity period. The repeal is with reference to instruments taking effect on or after the commencement day for the Act (section 15) and is made because section 1 defines when the rule applies for such instruments.
