Rule Against Perpetuity

I. Introduction to Rule Against Perpetuity

The meaning of the term Perpetuity can be understood as an indefinitely long period. Here it means the interest is created in the present, but it is to take effect in future. The Rule against perpetuity signifies that a transfer that is to take effect after perpetuity is void.

This rule is based on the principle that the right of the owner to transfer or alienate his property according to his own will should not be exercised in a manner that would prove to be detrimental to the property itself. If the property is restricted to be alienated, it would be detrimental to the property.

Section 14 of the Transfer of Property Act, 1882 embodies the Rule against perpetuity. According to Section 14, when:

1. Transfer of property creates an interest
2. The interest created is to take effect :
3. After the lifetime of one or more persons living at the time of such transfer, and
4. At the expiration of the minority of some person who will be in existence and the interest created would belong to him if he attains full age i.e. after the attainment of 18 years of age of a person who is not born or not in existence at the time of the transfer.

Such a transfer would be void.

Generally, there is no specific time limit or specified no. of years to decide what would amount to perpetuity. But Section 14 provides with it. Under Section 14 it is:

1. A lifetime of one or more living persons, Plus
2. A minority of unborn person, who will take an absolute interest in the property.

II. Minority

Under Indian Law, the minority is understood as- till the attainment of 18 years of age or below 18 years of age.

Under Section 14, the term minority is to be understood as only till the attainment of 18 years. Because here the transfer deed is executed before the birth of the person in whom the property is to vest absolutely. Also, the validity of the creation of interest for the benefit of a person who is not in existence at the time of the creation of the interest is judged by the transfer deed.

Section 20 of TPA provides that unless a contrary intention appears, the benefit created in favour of an unborn person is acquired by him as his vested interest, the moment he’s born. ‘unless a contrary intention appears’ means that the transferor has control over the vesting of the property and he can provide for a specific time of the vesting of property in favour of the beneficiary.

However, as mentioned under Section 14, he (the transferor) cannot provide/decide for a time of vesting which goes beyond the period of perpetuity i.e. the lifetime of one or more persons living at the time of such transfer, and the attainment of 18 years of age of a person who is not born or not in existence at the time of the transfer and when the life estate comes to an end, the interest created would belong to him.

Example:

1. A transfers property to X for life and then to X’s unborn daughter when she attains the age of 25 years. The transfer is void as the vesting time period is extended beyond perpetuity, i.e. beyond the minority of X’s unborn daughter.
2. A transfers property to X for life and then to X’s unborn daughter when she attains the age of 18 years absolutely. This transfer is valid. Here the vesting would take place if the daughter is born and attains the age of 18 years. If she dies before attaining the age of 18 years, the property would revert back to the transferor.

III. The inalienability of the property:

The object behind the rule is to ensure the active circulation of the property for the betterment of the property and save it from detriment due to inalienability. The maximum period allowed under the law in respect to inalienability is: from the conferment of the life estate till the attainment of the majority of the ultimate beneficiary. The transferor cannot stipulate a period over and above this. If he does so, the transfer is void.

Example: A transfers his property to X for life, then Y for life, then Z for life and then to B (unborn) absolutely on attaining the age of 18 years. X dies in 1980, Y dies in 1992, Z dies in 2002 and B was born in 1980. The transfer is completely valid.

In 1980, the property would go to Y, in 1992, to Z. the property (ownership) will vest in B in 1998 but he’ll take the possession when the last life estate holder dies, i.e. 2002. Till 2002 Z had the property.

1. Transfer of property:

The property here can be movable or immovable. Hence, the rule against perpetuity applies to both movable as well as immovable property. The rule is applicable only where there is a transfer of property and the vesting of it is postponed beyond the period of perpetuity.

2. The language of the transfer deed is given regard and not the actual events.

While determining whether the transfer is violating the rule against perpetuity or not, the language of the transfer would be the determining factor and not what actually happened in real life.

Example:

1. A transfers property to X for life and then to X’s unborn daughter absolutely when she attains the age of 25 years. X’s daughter was born in 1950 and X died in 1967. The transfer is void.
2. A transfers property to X for life and then to X’s unborn daughter absolutely when she attains the age of 18 years. X’s daughter was born in 1950 and X died in 1982. The transfer is valid.

3. Ram Newaz v. Nankoo[1]

A executed a sale deed of his land, except for the two bighas of land, in favour of B. With respect to the remaining 2 Bighas of his land, he mentioned in the document that:

The remaining 2 Bighas of his land should remain in his (A’s) possession for life and after his death in the possession of his descendants. He further mentioned that neither he nor his lineal descendants should have any right to alienate the property. And if none of his lineal descendants is alive then the B would become the owner of the property.

A died a little later of the execution of the deed and his son died childlessly. So, according to the deed B took possession of the property. A’s heir filed a suit to recover the possession of the property on the ground that the deed was void. Here A had created a life estate in his favour as well as his unborn descendants. According to Section 13, only absolute interest can be created in favour of an unborn person. Also, the terms of the document show that the property was made inalienable for an unlimited number of generations.

Held: the condition of the document was repugnant to law. A’s heirs had the title over the property.

In this case, the question as to whether there is a violation of the rule against perpetuity was decided on the basis of the terms of the transfer and not on the basis of what happened in real life.

III. Exceptions to the Rule Against Perpetuity

1. Section 18 of TPA

It provides for the transfer for the benefit of the public. According to this section, the rule against perpetuity is not to apply in the cases of

a. transfer of property

b. For the benefit of the public

c. In advancement of:

1. 1. 1. Religion,
      2. Knowledge,
      3. Commerce,
      4. Health,
      5. Safety, or
      6. Any other object beneficial to mankind.

Mankind here means public in general and not specified individuals. It depicts the community as a whole with reasonable classification.

Example: A settlement where funds are to be accumulated in perpetuity for the advancement of physically and mentally challenged people would be valid.

2. Personal agreements

The rule doesn’t apply to personal agreements that do not create property rights. It is not concerned with contractual rights and obligations.

A contract which puts the obligation to pay money to a person and his legal heirs on the happening of a future event, which may take place beyond the period prescribed would be completely valid.

Lease: A lease is not just a contract. It transfers a right to enjoy and possess the property. A lease can be created for perpetuity. Example: A lease deed granting the lessee a perpetual option to renew the lessee from time to time is not hit by the rule against perpetuity.

3. Covenants running with the land

The rule doesn’t apply to charge, contract to sale, the exercise of equity of redemption by the mortgagor, etc.

4. Right of Pre-emption.

The right of pre-emption is a contractual right. It gives a person the right to be asked for / offered the property for transfer before anyone else.

In Ram Baran Prasad v. Ram Mohit Hazra[2], it was held that: The covenant of pre-emption is not hit by the rule against perpetuity.

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References

[1] Ram Newaz v. Nankoo, AIR 1926 All 283

[2] Ram Baran Prasad v. Ram Mohit Hazra, AIR 1967 SC 744

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