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Interest determinable in insolvency or attempted alienation

Updated: May 4

Insolvency and attempted alienation under TPA

Sec. 12. Condition making interest determinable on insolvency or attempted alienation

Section 12 of the Transfer of Property Act addresses conditions or limitations attached to property transfers that make an interest in the property cease upon certain events, such as the grantee's insolvency or attempted alienation.

According to this section, any condition that restricts a person's interest in the property based on their insolvency or attempts to transfer the property is considered void.

However, there is an exception provided for lessors in the case of leases. A lessor is permitted to include a condition in the lease agreement that terminates the lease if the lessee becomes insolvent or attempts to sublet or assign the lease to another party.

The rationale behind the exceptions outlined in this section is grounded in principles of fairness and equity. It is deemed unjust for a grantee to possess all the rights of ownership over a property but be deprived of the inherent right to transfer or dispose of it.

Similarly, it would be unfair to creditors who may have extended credit based on the property if they are prevented from accessing it to satisfy their debts due to a clause in the transfer that they may not have been aware of.

The attachment of the estate by creditors in the event of bankruptcy or legal judgment is considered an inherent aspect of property ownership that should not be unduly restricted by transfer conditions.

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