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.
38.Section 2 provides for certain general exceptions to the application of the rule against perpetuities (subsection (1)).
39.Subsections (2) and (3) replicate pre-Act exceptions to the rule against perpetuities. The subsections apply in certain circumstances where provision has been made for property to pass from one charity to another. Subsection (2) applies where a charity is granted an estate or interest in property with a gift over to another charity on the occurrence of a specified determining event. A “charity” is defined by section 1(1) of the Charities Act 2006 as “an institution which is established for charitable purposes only and falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities”. In the 2006 Act, “institution” means “an institution whether incorporated or not, and includes a trust or undertaking” (section 78(5)). For example, land is given to be held on trust for charity A but, if charity A ceases to require the land for its charitable purposes, the land is to pass to charity B. The rule against perpetuities does not apply to charity B’s estate or interest. The same result follows if the gift over is for charitable purposes rather than to a named charity.
40.Subsection (3) applies where property is given to one charity subject to a condition subsequent, with a provision that, if the condition is broken, the property shall pass to another charity. For example, a painting is granted on trust to charity A on condition that it is displayed to the public, but to charity B if charity A breaks the condition. Charity B’s right to claim possession of the painting is not subject to the rule.
41.Subsections (4) and (5) together define the exception from the rule against perpetuities for interests and rights arising under relevant pension schemes as defined in sections 1 and 181 of the Pension Schemes Act 1993 (section 20(4) and (5)). The basic exception is described in subsection (4) as covering interests and rights arising under such pension schemes.
42.Subsection (5) removes from the ambit of subsection (4) interests and rights arising under two types of private trust created in respect of property subject to a pension scheme. These are defined as interests and rights arising under an instrument (a) nominating benefits under the pension scheme or (b) made in the exercise of a power of advancement arising under the scheme. By way of example of the first, a member may make a nomination binding on the pension scheme trustees for a trust to be created with certain pension benefits in favour of a nominated person (typically death in service benefits). The interests under the trust are subject to the rule. An example of the second is that pension scheme trustees may exercise a power of advancement to make capital payments to trustees in favour of relatives of a member before any entitlement to a pension arises. This capital sum may be settled in such a way that it creates successive interests. These interests are also subject to the rule against perpetuities.
43.Section 3 gives the Lord Chancellor power to make an order specifying further exceptions to the rule against perpetuities. The power is exercisable by statutory instrument, subject to affirmative resolution by each House.
44.The power avoids the need for further primary legislation to deal with unforeseen arrangements that might arise in the future. For example, a new form of financial instrument might be devised which has considerable advantages over existing trust instrument vehicles, but which would be unworkable if the rule against perpetuities were to apply.
45.Section 4 provides that certain pre-Act exceptions to the rule against perpetuities cease to have effect. These exceptions are unnecessary in light of sections 1 and 2. However, they continue to be relevant to instruments which took effect before commencement, to wills that were executed before commencement, and to post-commencement instruments made in the exercise of a special power of appointment created by an instrument which took effect before commencement (section 15).