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Rule against perpetuity under TPA

Updated: May 3


Rule against perpetuity
Rule against perpetuity

Content:-


Rule against Perpetuity (Sec. 14)


Sec. 14 of Transfer of Property Act (TPA) reads: No transfer of property can operate to create an interest which is to take effect after the lifetime of one or more persons living at the date of such transfer, and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attains full age, the interest created is to belong.”


Rule against perpetuity is applicable to both movable and immovable property. 


Section 14 serves as an extension of Section 13, elaborating on the rule against perpetuity. Perpetuity, also known as eternity or infinity, involves the creation of remote interests in the future, allowing individuals to exert control over their property beyond their lifetime.


It aims to prevent property from being indefinitely tied up and inaccessible for alienation. 


The rule against perpetuity addresses the practice of creating a series of partial future interests in favour of unborn individuals, thereby delaying the absolute vesting of property to a distant future.


It reflects the legal policy to safeguard the liberty of property alienation from being undermined.


The rule mandates that interests must vest within a certain period, preventing their non-vesting for an extended duration.


According to this law, property can only be tied up and its free alienation prevented for one generation. This limitation arises from the understanding that all living individuals will pass away within that time frame, akin to candles lit together, as described by Lord Nottingham.

  

Analysis of Sec. 14 


  1. The vesting of property absolutely cannot be postponed beyond the life-time of any one or more persons living at the date of the transfer, i.e., there must be no interval between the termination of the precedent interest of a living person and the vesting of the interest in the unborn person.


Thus, if an estate is given to A for life, then to B for life and then to the unborn son of B. Here, the son of B must be in existence “on or before” the date of expiry of life estate in favour of B (i.e. before B’s death).


If the transferees are living persons, any number of successive life interests can be created in their favour, but no life interest can be created for the benefit of a person not in existence on the date of the execution of the transfer.


For example, A transfers property to B, C, D and Ej3T alive, on the date of transfer successively, and then to the eldest son of E on his attaining the age of 18 years. The transfer is valid.4


  1. The unborn person takes a vested interest at birth, immediately on the termination of prior interest, however the vesting of interest in favour of him may be postponed until he attains full age, i.e., the age of majority (18 years). Sec. 14 allows the delaying of the vesting during the minority period of a person who is not born at the date of the transfer. 


  1. Perpetuity period refers to the maximum duration during which property may be made inalienable. It encompasses the life of any individual alive at the commencement of the deed that establishes the interest, plus an additional period of 18 years following the death of that designated person.


Here are some further examples:


  • A transfers property to B for life, and after B's death, to B's son who first reaches the age of 25 years. If B has no son at the time of the transfer, the interest created for B's son is void because it postpones vesting beyond the minority of an unborn person.


  • Property is conveyed to A for life, then to B for life, and finally to B's son who first attains the age of 17 years or 18 years. This transfer is valid.


  • Property is conveyed to A for life, then to B for life, and subsequently to B's son who first attains the age of 18 years and one day. In this case, the transfer is void because it extends beyond the permissible perpetuity period.


  • Property is transferred to B for life, with the provision that it passes to B's first child upon reaching the age of 10 years. This transfer is valid, and the property vests in the child upon reaching the specified age.


  • A transfer to a son who might be adopted by the life tenant in the future is considered void.


  • A bequest dictates that a house is to be possessed by the sons, then by the grandsons, without any power of alienation, and finally to the unborn great-grandsons absolutely. As long as the sons and grandsons are alive at the time of the bequest, the transfer is valid.


In scrutinising property transfers under Sec. 14, courts focus on potential outcomes as stipulated in the deed, rather than waiting for actual events at the time of transfer. This principle was upheld in the Ram Newaz v Nankoo case, as referenced in the Questions section.


For instance, if a grant is bestowed upon A for their lifetime with the remainder designated to the first son of B who reaches the age of 18, it's conceivable that upon A's demise, B might not yet have a son. Consequently, this limitation would be deemed void, contravening the rule against perpetuities.


Leading Case Law


  1. In the landmark case of R. KEMPRAJ v M/S BURTON SON & CO. [(1970) 2 SCR 140], the court shed light on the non-applicability of the rule against perpetuity to leases. The case involved a lease agreement spanning 10 years with an option for the lessee to renew for another 10 years on the same terms. When the lessee sought to exercise this option before the initial 10-year period expired, the lessor refused. Subsequently, the lessee initiated legal proceedings to enforce the covenant for renewal.


The pivotal legal question was whether a lease renewal clause could be construed as creating an interest in the property, thus falling under the rule against perpetuity and rendered void.


The court elucidated that the rule against perpetuity is grounded in the principle that the freedom of alienation should not lead to its own nullification.


A perpetuity, which entails the creation of distant future interests, essentially removes the property from the realm of alienation indefinitely.


Despite a lease being considered a transfer of the right to enjoy property for a specified time, an interest still remains with the lessor, known as the reversioner, as per Section 105 of the Transfer of Property Act.


Drawing from precedent, such as Ganesh Sonar v P. Narayan (AIR 1962 Pat 201), where an option granted by the lessee to the lessor was deemed a personal covenant rather than one creating a property interest, the court affirmed that the rule against perpetuity would not apply.


Applying the same rationale to the present case, the court asserted that even if the renewal clause could be construed as a covenant running with the land, it does not establish an interest in the property as outlined in Section 14 of the Transfer of Property Act.


The court emphasized that the rule against perpetuity only pertains to cases involving the transfer of property where the vesting is deferred beyond the perpetuity period.


Consequently, in the present case, the lease agreement, including its renewal provision, remained unaffected by the rule against perpetuity.

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