Rule Against Perpetuity

The "Rule Against Perpetuity" as incorporated in the Transfer of Property Act, 1882 (hereinafter referred to as “the Act”), is a legal doctrine designed to prohibit undue restraint on the transferability of property. It lays out a defined boundary within which the future property interests should vest. The rule against perpetuity is an important aspect of property law in India which has been codified under Section 14 of the Act. This rule ensures that no property is kept tied up for an indefinite period by curtailing future contingent interests to vest within a specific period of time. 

The Purpose Of Section 14

Section 14 ensures that the ownership over a property must transfer within a reasonable period, which can be within the lifetime of someone living at the time of the transfer or up to 18 years after his death. This ensures that property is kept available for use, sale, or inheritance without long delays or cumbersome legal. In the absence of this rule, landowners can restrict the use of their property far beyond their lifetime, which will, ultimately, create market stagnation causing hindrance in development. 

Legal Provision: Section 14- Rule Against Perpetuity

The rule against perpetuity is codified in Section 14 of the Act, which states:

“Section 14- Rule against perpetuity—

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.”

Simplified Explanation Of Section 14

The words of the provisions might seem a bit difficult to understand. Here is the explanation of the Section in simple words:

• It prevents the creation of interest in a property that is too far in the future. This means that no one can create an interest in a property that will not take place after the death of one or more people who are currently alive and the time that will elapse before a minor at the time of their death attains adulthood.

• It aims at preventing property from being tied up indefinitely in legal arrangements. This would keep clear ownership of property and allow a transfer of rights over property to take place within a reasonable time frame.

• This clause limits the time in which future interests must vest to the lifetime of the living persons and their minority.

Essential Elements Of Section 14

1. Transfer of Property: Section 14 applies to any transfer of property which involves a contingent interest or future interest. In simpler words, the first transfer is made in favour of a person (the life tenant), and upon their death or subject to fulfilment of certain conditions, it will pass to another person (the beneficiary). The beneficiary will take advantage of it when the former dies or certain situations occur.

Examples: A grants property to B, for life, and then to B's first child upon attaining 18 years of age.

2. Creation of Future or Contingent Interest: The rule covers creation of future or contingent interest in property. A contingent interest arises when the ownership or right to the property is dependent on the happening of an uncertain event.

Example: Transfer done to a person on a condition that he will attain a certain age or get married.

3. The Rule applies only to Non-Vested Interests: Section 14 applies to contingent or future interests. It does not affect vested interests, which are instant and unconditional. An interest once vested is out of the reach of the perpetuity rule.

Examples: A transfers property to B for life, then to C. This becomes vested in C on transfer, and the perpetuity rule has no operation on it.

4. Life in Being: The perpetuity period is measured by a life in being at the time of the transfer. A “life in being” refers to a person who is alive at the time the transfer is made and whom the rule uses as a reference point for the time period.

Example: A transfers property to B for life, and after the death of B, to the child of B.

5. Longest Perpetuity Period: Life + 18 Years: The interest has to vest within the lifetime of a person living at the time of transfer, plus 18 years (the period of minority for a child). If the transfer of the property exceeds this period, it is void.

Example: A transfer of property to the child of B when he attains the age of 25. This is void because the vesting period exceeds 18 years beyond a life in being.

6. Condition Precedent: A future interest vests during the lifetime of a person who lives at the time of the transfer and within 18 years after the death of that person. If there is any condition precedent that must be fulfilled before the transfer takes effect, and the condition gets fulfilled beyond that period, the transfer becomes void. 

Example: A transfers a property to B for life and after the death of B to the child of B when he attains 25 years. It would be void because the period of vesting exceeds 18 years after the death of B.

7. No Perpetual Encumbrance over Property: Section 14 helps to avoid the continuous restraint over a property so that future generations have a free hold of the property. The rule ensures that the estate of a person is not held indefinitely without any actual transfer of ownership being made.

Illustrations

Some illustrations of the application of Section 14 of the Act are as follows :

• John transfers his property to his son (Mark). His son will get the property on the death of John. This transfer is valid and is not in violation of the rule against perpetuity. The interest in the property is vested in Mark within the permitted period, that being the lifetime of John.

• A transfers property to B for life and at B's death to B's first child who shall attain 17 years of age. B is alive at the time of transfer but has no child. This transfer is valid because the vesting of the property will occur when B's first child shall attain the age of 17 which is before the age of majority.

• A transfers property to B for life and then to B's first child when he or she attains the age of 30 years. At the date of making the transfer, B is alive but has no child. The Rule Against Perpetuity holds it to be void because the vesting is delayed beyond the limit of 18 years.

• A transfers property to B for life, then to B's first child when he or she shall have attained the age of 28 years. B is living at the time of the transfer, and B has one child. The Rule Against Perpetuity holds the transfer void since vesting takes place after the minority of that child- eighteen years.

• A transfers property to B for B's life and then to B's first grandchild, who shall be 25 years of age at the time of vesting. B has only one child and no grandchildren when the transfer is made. The transfer is void. Here, since the property is left to vest after the minority period of 18 years, the period exceeds the permissible limit during which the vesting of property must take place and thereby violates the rule.

The rule against perpetuity prevents property from being tied up indefinitely by uncertain legal arrangements. This, therefore ensures that there is an easy buying and selling of property and an ease through which property can be inherited. This aids in maintaining fairness of the ownership of property.

Landmark Case Laws On Rule Against Perpetuity

Nafar Chandra Chatterjee vs. Kailash Chandra Mondal (1920)

In this case, it was held that the rule against perpetuities did not bind those agreements that concerned religious office, especially when such agreements did not create a direct property interest for the office holder.

Ganesh Sonar vs. Purnendu Narayan Singha And Ors. (1961)

In this case, the Court examined a lease agreement that enabled the lessor to avail himself of the right to cancel the lease and repossess the leasehold land if he needed the property for a specific purpose. The Court held this lease agreement was a personal covenant as it provided for the right of reclaiming the land by the lessor. Therefore, it did not create any interest in the land for the purposes of Section 14 of the Act. The Court then held that the rule against perpetuities, as the expression is used in Section 14 of the Act, did not apply to this case.

Rambaran Prosad vs. Ram Mohit Hazra & Ors (1966)

The facts of the case involved a pre-emption clause in a partition agreement entered into by two brothers. Under this partition agreement, each brother had the right of first refusal to purchase the interest of the other brother in case he wanted to sell his share in the inherited property. So, the main question that came up for consideration before the Court in the instant case was if the said preemption clause (as this clause had no time limitation) violated the rule against perpetuity. The Court concluded that it did not. The Court observed that the distinctions are drawn quite clearly between personal contracts and those creating an interest in land. The Court also put emphasis on the requirement for interpretation of the relevant statutory provisions. The Court while reading Sections 14 and 54 of the Act in conjunction, held that a simple contract for the sale of an immovable property does not create any right in such property. This judgement goes on to deduce that the rule of perpetuity is not applicable to a covenant of preemption even if no time limitation to exercise the option has been specified.

R. Kempraj vs. M/S. Barton Son & Co (1969)

The Court, in this case held that Section 14 of the Act is inapplicable to clauses in a lease granting which grants the lessee the option to renew the lease. According to the Court, Section 14 applies only where there is transfer of property. Although forming a leasehold interest indeed transfers property rights, the original lease in question here was only for ten years. The Court ruled that the condition of lease renewal could not be held as a transfer of property and any rights associated with that process.

Exceptions To The Rule Against Perpetuity

Some notable exemptions to Section 14 are as follows:

• Vested Interests: The rule would apply only for contingent interest but not vested interest. A vested interest being once created cannot be affected by the perpetuity rule.

• Transfers for Charitable Purposes: Property transferred for the promotion of knowledge, health, religion, or any other public good is exempt from the rule against perpetuity.

• Covenants of Redemption: These covenants let a mortgagor regain his property after the mortgage debt is paid off, and cannot be interfered with by the rule

• Covenant of Pre-emption: This allows a person to have the right to acquire property before it passes to some other person and also cannot be interfered with by the rule

• Personal Agreements: Agreements between individuals that do not confer any future interest in the property will not be interfered with by the rule

• Leases for Perpetual Renewal: Leases that provide for perpetual renewal are exempted from the application of the rule against perpetuity. 

Drawbacks Of The Rule Against Perpetuity

The rule of perpetuity has several drawbacks. These are as follows:

• Complexity: This rule has often been described to be complex and tricky for the ordinary layman to understand. It is also a very technical term that requires knowledge to understand the technical concepts.

• Rigidity: The rule strictly applies to every situation which at times may result in situations being either unfair or unintended. Even minute deviations from the allowable time could make the entire transaction void altogether.

• Lack of Flexibility for Changing Social and Economic Conditions: The rule failed to consider present economic times and changing societal requirements. For example, it failed to factor in investment in long-term businesses and trusts, which have become common in contemporary times.

• Obsolete Origins: The rule has its origin in an erstwhile era and was mainly intended for the preservation of the family estates in England. Therefore, the application of this rule is not relevant in modern Indian property law.

Reforms Of The Rule Against Perpetuity

There are quite several reforms that have been suggested to rectify some of the constraints imposed by the rule:

• Extension in the period of perpetuity: Currently, the perpetuity period is limited to the “lifetime of a person plus 18 years. In order to accommodate the modern requirements, the period of perpetuity should be increased. 

• Simplification of Language: The language and requirements for the rule can be simplified so it does not pose a challenge during its application. 

• Exception for Commercial Transactions: One of the significant reforms would be to provide exceptions to specific commercial transactions and business trusts. These commercial transactions and business trusts occupy a lion's share in the modern period. Therefore, this should not be clouded by the rule against perpetuity.

• Judicial Discretion: Giving the Courts the discretion to allow injunctions on transfers technically in breach of the rule but with proper underlying objectives would serve this purpose.

• Uniformity across Legal Frameworks: Since Indian Courts draw references from English precedents, the introduction of uniform standard across the commonwealth nations would help in harmonising the rule against perpetuity.

Conclusion

In Indian context, the rule against perpetuity has been codified under Section 14 of the Transfer of Property Act, 1882. The rule provides that property cannot be kept tied up indefinitely by the future interests. The creation of contingent interests in property is further forbidden from vesting outside the lives of persons then living at or after the end of 18 years after their deaths. This rule is quite important in avoiding long-term legal restrictions on property. However, it is often considered to be too cumbersome and complicated regarding its applications in today’s time. Reforms such as extension of the perpetuity period and the capability to accommodate exceptions on commercial transactions may make the rule more applicable to the present economic realities.