The Rule Against Perpetuities
CHAPTER 8 Historically, the rule against perpetuities evolved in order to protect the fundamental premise that land must be freely alienable. All freehold estates in land carry with them the basic right of inheritance, and any devise or other transaction obstructing this right must be struck down. Public policy issues concerning the need to ensure that land is freely marketable and not tied up in the same family for generations—and that the right to alienate is not unduly impeded in any way—are important justifications for the evolution of the rule against perpetuities. Keeping land freely alienable is important because it ensures that the land is accessible and commercially marketable, and it guards against a disproportionate concentration of wealth and land monopolies. Furthermore, restraints upon alienation often result in basic land development and improvements being obstructed, because people are reluctant to spend money improving land where a capital gain is unlikely to be realised. The rule against perpetuities is simply one way in which the courts have attempted to avoid, or at least reduce, restraints against alienation. The rule codifies the ongoing struggle between landowners attempting to ensure that land is kept within the family or within a prescribed body of persons and the courts in implementing public policy considerations opposed to the interference with fundamental rights of alienation. In application, the rule renders void contingent remainder interests which do not vest within a prescribed period of time.1 Whilst the right of a grantor to deal with his land as he likes is universally respected and upheld, the rule against perpetuities aims to prevent this right from being abused. It prevents grantors from dictating ‘from the grave’ how land which they once owned should be dealt with in successive generations. In Australia, the rule against perpetuities is a combination of both common law and statutory principles.2 The implementation of specific statutory principles has tended to eradicate some rather technical and unusual common law principles in this area, although, as the statutory provisions do not completely replace the common law, the ‘hobgoblins, leprechauns, and gremlins that have infested the rule in the nearly 300 years of its existence’ still exist and have been the reason for its continued recognition as an outdated and, in many cases, ludicrous anachronism.3 The older rule against perpetuities is quite different from its modern counterpart. Under the older rule, where an interest in land was conveyed to an unborn person, any remainder to the issue of that person, and any subsequent limitation, was void (Whitby v Mitchell (1890) 44 Ch D 85). In effect, under this rule, only those persons who were in existence at the date when the remainder interest took effect could take an interest: any children not yet born would not hold any enforceable right even if the disposition expressly referred to them. For example, A makes a gift to X for life, remainder to X’s eldest child, remainder in fee simple to the children of the eldest child. If X had a child at the time of the gift, the rule was not infringed. If, however, the eldest child had, at that time, not produced any children, the gift to the eldest child would be valid, but the remainder to the children of that eldest child would be void. The aim of this rule was to circumvent transactions which attempted to confer a series of contingent remainder interests to successive generations— often to a particular lineage. Hence, a disposition to A for life, remainder to A’s son for life, remainder to A’s grandson for life, remainder to A’s great grandson for life, etc, would, under the old rule against perpetuities, have been effective to transfer a life estate to A and any child or grandchild of A in existence at the date of the disposition, but it would not be effective to pass the land on to successive generations. The old rule has now been abolished in all states except South Australia.4 The modern rule against perpetuities takes a different approach. The essence of the modern rule against perpetuities is the imposition of a limit on the amount of time which may elapse between the creation of a future interest and the ultimate vesting of that interest; if the interest does not vest in title within the prescribed time set out under the modern rule, the interest will be invalid. The final owner must be identified and must take title to the interest (but need not be vested in possession) within the time frame prescribed by the common law. The rule will only apply to interests which are contingent and are to vest at some future date. Most commonly, the rule applies to contingent remainder interests, because the successive nature of these interests has meant that they are often the primary offenders. The modern rule against perpetuities was first considered in Australia in Cooper v Stuart (1889) 14 App Cas 286, where the court noted that the policy underlying this rule was appropriate for all modern and complete systems of jurisprudence. The definition of the modern rule against perpetuities was described by Creswell J in Dungannon (Lord) v Smith (1845) 12 Cl & Fin 546; 8 ER 1523, p 1530: It is a general rule, too firmly established to be controverted, that an executory devise to be valid must be so framed that the estate devised must vest, if at all, within a life or lives in being and 21 years after; it is not sufficient that it may vest within that period; it must be good in its creation; and unless it is created in such terms that it cannot vest after the expiration of a life or lives in being, and 21 years, and the period allowed for gestation, it is not valid, and subsequent events cannot make it so. There are three essential requirements for an interest to vest within the meaning of the modern common law rule against perpetuities: (a) the person receiving the interest must be ascertainable; (b) any condition precedent attached to the interest must be satisfied, subject only to the termination of the estate; and (c) where the interest is taken by a number of persons, the exact amount or fraction to be taken by each person must be properly determined. The vesting requirement refers only to vesting of title, not vesting of possession. Hence, provided title to the interest vests during or prior to the expiration of the perpetuity period, the rule will be satisfied. There is no requirement that the interest holder also be vested in possession during the perpetuity period. Twenty one years is the amount of time, beyond the initial life interest, within which the contingent interest must vest. The figure is historically based upon the old age of majority, so that parents were able to leave gifts to their children which could validly take effect once they reached majority but which would be invalid beyond this date. The life in being which is relevant to the common law rule is that life upon which the vesting of the gift has been made to depend. The ‘life in being’ will always be the life of either the person who created the gift—provided he or she is still alive—or the first life in being either expressly or impliedly mentioned in the disposition, which is not capable of increasing in number. The life in being will be the person who created the disposition where there is an express or implied reference to that person in the instrument creating the disposition or, where there is no such reference, the first life in being set out in the instrument creating the disposition, provided it satisfies the following requirements: (a) the life in being must be a human life—not that of an animal, plant or corporation; (b) the life in being must be in existence at the date when the instrument creating the disposition comes into effect; and (c) the life in being must be capable of being ascertained at the date when the instrument creating the disposition comes into effect and cannot be capable of increasing in number. It is not necessary for a life in being to receive any property from the disposition; the life in being only serves as a measure of time in order to determine whether or not an interest has vested within the common law perpetuity period.
THE RULE AGAINST PERPETUITIES
8.1 Introduction
8.2 The old rule against perpetuities
8.3 The modern rule against perpetuities
8.3.1 Vesting
8.3.2 Twenty one years
8.3.3 Life in being