This article has been written by Abhishek Kumar Singh, pursuing Certificate Course in Real Estate Laws at Lawsikho, and has been edited and published by Oishika Banerji (Team Lawsikho).
Perpetuity is derived from the Latin word “perpetuus” meaning continuing throughout or lasting forever i.e. indefinite period and in Hindi it means “अनन्त काल”. The main purpose of this rule is to restrict the concentration of any wealth or any precious thing or any important thing in the hands of very few. This rule was made to help distribution of wealth from a few people which they might have amassed by any method whether legal or illegal. This article discusses the rule against perpetuity in detail highlighting the detriments it walks with and the possible way of positively visualizing them.
The concept of rule against perpetuity
As we have an idea about the concept of ‘perpetuity’, it is ideal to note that an alternative name that can be assigned to the rule against perpetuity is the rule against remoteness of vesting. This is because the perpetuity role limits a transfer of property that renders such property as inalienable (not subject to being taken away from or given away by the possessor) for an indefinite period of time or forever. Perpetuity arises in two ways in every disposition case of a property, namely,
- By taking away the power to alienate, belonging to the transferee, or
- By means of creating future remote interest.
Section 14 of the Transfer of Property Act, 1882 embraces the rule against perpetuity. According to this provision, transfer of property cannot be said to operate for generating an interest that will be taking effect after the lifetime of one or more persons living at the time of such transfer. Put simply, Section 14 states that vesting of interest cannot be delayed beyond the life of the last preceding interest in the living person(s) and the minority of the ultimate beneficiary in a transfer of property. Section 14 therefore provides that postponement or delay in grant of interest can be allowed for a certain period only. This is because, if vesting of interest is made to be carried out beyond a certain period, such a transfer of property will be deemed void.
The primary objective behind the rule against perpetuity is that no property should be left to be alienated for an indefinite period, for that will render the property to be destroyed or damaged. Free and active circulation of property for the purpose of effective trade and commerce and proper maintenance of the property, is another necessary objection of the rule against perpetuity that needs to be noted.
Arguments in favour of the rule against perpetuity
- Encourages the efficient use of property: By preventing property interests from being tied up in perpetuity, the rule allows property to be used and enjoyed in a reasonable manner, thereby promoting efficient use and development of the property.
- Promotes flexibility: The rule against perpetuity provides a means for property interests to be redefined over time, thereby promoting flexibility and the ability of property owners to respond to changing circumstances.
- Protects the rights of future generations: The rule against perpetuity ensures that property interests cannot be locked up indefinitely, thereby protecting the rights of future generations to use and enjoy property in a reasonable manner.
- Supports the free market: The rule against perpetuity helps to ensure that property is available for transfer and that the market remains active and fluid. This, in turn, supports the free market and the efficient allocation of resources.
- Prevents abuses of power: The rule against perpetuity helps to prevent abuses of power by those who hold property interests, by ensuring that interests cannot be held indefinitely or for an unreasonable length of time.
Generally speaking, the rule against perpetuity is considered to be one of the relevant principles of property law that while on one hand promotes fair and effective use of the concerne property, on the other it looks after the welfare of the property and prevents alienation of such property, thereby protecting the rights of both present and future generations.
Arguments against rule against perpetuity
The relevance of rule against perpetuity has been subjected to critical analysis over the years by several scholars when put in context of the present times. Such criticism has been laid down hereunder:
- Inflexibility: Argument stating that the rule against perpetuity comes with a rigid outfit thereby failing to adapt to changing needs of the society stands as an addition to the contention that the rule should be modified or replaced with a more flexible system that better reflects modern realities.
- Limited applicability: The rule against perpetuity only applies to certain types of property interests, such as trusts and estates, and does not apply to other forms of property ownership, such as corporations and limited liability companies. This point reflects the lack of consistency that the rule of perpetuity comes in with when placed in application with codified laws of the country.
- Economic impact: Critics argue that the rule against perpetuity can have a negative impact on the economy by restricting the use of property and hindering the efficient allocation of resources. This argument favours flexibility when it comes to the application of this rule.
- Unclear and inconsistent application: Critics argue that the rule against perpetuity is applied inconsistently and that its application can be difficult to predict. This can create uncertainty and confusion for property owners and users, and can lead to disputes and legal challenges.
- Unnatural perpetuities: The rule against perpetuity is often criticised for its narrow definition of what constitutes an “unnatural” perpetuity. Some argue that the rule should be updated to reflect modern realities and changing societal needs, and to prevent the creation of perpetual interests that are deemed “unnatural.”
- Lack of clarity: Critics argue that the rule against perpetuity is not always clear and easy to understand, which can lead to confusion and disputes. This can make it difficult for property owners and users to determine what types of interests are permitted under the rule and what types are not.
- Unintended consequences: Critics argue that the rule against perpetuity can have unintended consequences, such as the loss of property rights and the restriction of property use. In some cases, the rule can prevent the transfer of property to future generations or limit the ability of property owners to use their property as they see fit.
- Inefficient use of resources: Critics argue that the rule against perpetuity can restrict the efficient use of resources and hinder economic growth. By limiting the transfer of property interests, the rule can prevent the development of new businesses and limit investment in real estate and other assets.
- Conflicts with other legal principles: Critics argue that the rule against perpetuity can sometimes conflict with other legal principles, such as the right to property, the right to transfer property, the right to freely use and dispose of property. This can create legal uncertainty and lead to disputes between property owners and users.
Rule against perpetuity in India
In India Section 14 of The Transfer of Property Act,1882 says about the Rule against Perpetuity. This section reads as :- No transfer of property can operate to create an interest which is to take effect after the life-time 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.
The rule against perpetuity applies to both wills and deeds, but there are some differences in how it is applied to each.
- Wills: The rule against perpetuity applies to the transfer of property through a will. A will must be executed and take effect during the lifetime of the testator (the person making the will) or, if the testator is dead, within a specified period of time after their death. If the will creates a perpetuity that exceeds the maximum permissible period, it is considered void under the rule against perpetuity.
- Deeds: The rule against perpetuity applies to the transfer of property through a deed. A deed is a written instrument that conveys ownership of property from one person to another. The rule against perpetuity applies to the transfer of property through a deed in the same way as it applies to a will, but with some important differences. For example, a deed may be executed at any time, and the grantor (the person conveying the property) does not need to be alive at the time of execution.
Both wills and deeds are subject to the rule against perpetuity, but the manner in which the rule is applied to each can differ depending on the specific circumstances and the jurisdiction in which the property is located. In general, the rule against perpetuity serves to prevent the creation of interests in property that last for an indefinite or excessive period of time, and to ensure that property is used and transferred in an efficient and fair manner.
Important Indian judgments on rule against perpetuity
Some important judgments of Hon’ble Supreme Court of India for the rule against perpetuity have been discussed hereunder:
- Rambaran Prosad vs Ram Mohit Hazra & Ors (1967): In this case, there was a Pre-emption-Agreement between parties to give to each other the right of preemption. The issue in this case was whether such agreement binds successors-in-interest thereby offending the rule against perpetuity, or not. The Apex Court had opined that the rule against perpetuity does not apply to personal contracts which do not create interest in property.
- R. Kempraj vs. M/S Burton son & Co (1970): In this case the lease was created for 10 years with a clause of renewal on the same terms . When in 1961 the first period of ten years was about to expire the lessee asked for a renewal of the lease. On the lesser refusing to do so, the lessee filed a suit for specific performance. The suit came before the Supreme Court with issue as to “whether a clause for renewal of lease can be regarded as creating an interest in property, and thus hit by the rule against perpetuity and thus is void”. It was held that the rule against perpetuity contained in Section 14 of the Act of 1882 would not be applicable as no interest in property had been created of the nature contemplated in the provision. In simple words the rule of perpetuity does not apply to contracts for perpetual renewal of leases.
These cases demonstrate the application of the rule against perpetuity in India and highlight the important role that the rule plays in ensuring the efficient and fair use of property in the country.
India-specific criticisms of rule against perpetuity
- Economic impact: Critics argue that the rule against perpetuity can have a negative impact on the Indian economy by restricting the use of property and hindering the efficient allocation of resources. Some argue that the rule should be relaxed or modified to allow for greater flexibility in the use of property.
- Conflicts with other legal principles: Critics argue that the rule against perpetuity can sometimes conflict with other legal principles, such as the right to property, the right to transfer property, and the right to freely use and dispose of property in India.
Despite these criticisms, the rule against perpetuity remains an important legal principle in India and continues to play an important role in regulating the use and transfer of property interests in the country. While the rule may require modification or clarification in some cases, it remains an important means of promoting the efficient and fair use of property and protecting the rights of future generations in India.
Rule against perpetuity and the United States and the United Kingdom
In the United States, the rule against perpetuity is generally governed by state law, and the specifics of the rule can vary from state to state. However, the basic principle is that an interest in property cannot be tied up for an indefinite or unreasonable period of time. For example, in some states the rule against perpetuity may limit the length of time for which an interest in property can be granted to a life in being plus 21 years.
In the United Kingdom, the rule against perpetuities is enshrined in the Statute of Uses (1536) and the Perpetuities and Accumulations Act 1964. Under the rule, a property interest must vest within a specified time frame, known as the perpetuity period. In the UK, the perpetuity period is generally 21 years after the death of the last person mentioned in the will or trust instrument, although there are some exceptions to this. The purpose of the rule against perpetuities in the UK is to prevent property interests from being tied up in perpetuity, thus allowing them to be used and enjoyed in a reasonable manner.
Suggestions to overcome the defects in rule against perpetuity
Few possible solutions to the criticisms of the rule against perpetuity:
- Clarification and modernization of the rule: To address the lack of clarity and the inflexibility of the rule, some advocate for a clarification and modernization of the rule to better reflect changing societal needs and realities. This could involve updating the definition of what constitutes an “unnatural” perpetuity, and providing greater flexibility for the transfer of property interests in certain circumstances.
- Alternative approaches: Some advocate for alternative approaches to the rule against perpetuity, such as the creation of trusts or the use of other legal instruments that allow for the transfer of property interests over a longer period of time while still protecting the rights of future generations.
- Harmonisation of laws across jurisdictions: Critics argue that the rule against perpetuity can be inconsistent and vary between jurisdictions, leading to confusion and disputes. To address this issue, some advocate for the harmonisation of laws across jurisdictions to ensure a consistent and clear application of the rule.
- Better education and outreach: Critics argue that the rule against perpetuity is not well understood by property owners and users, leading to confusion and disputes. To address this issue, some advocate for better education and outreach efforts to increase awareness and understanding of the rule and its implications.
- Making online directory of each and every property and linking them to Aadhar and Pan card and also linking to death certificate portal and automatic transfer of property to the next person in will or deed. This will help the rule against perpetuity to get a steroid effect.
Despite these criticisms, the rule against perpetuity remains an important legal principle in India and the world and continues to play an important role in regulating the use and transfer of property interests in the country. While the rule may require modification or clarification in some cases, it remains an important means of promoting the efficient and fair use of property and protecting the rights of future generations in India and the world.
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