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In the Spotlight: The Rule Against Perpetuities
The legendary Rule Against Perpetuities (“the Rule”) originated centuries ago. Today, it continues to generate strikingly complex legal problems worthy of judicial review. In the context of commercial leases, it is important to be aware of when and if the Rule applies. Specifically, variations in the law exist as to when and if the Rule applies to preemptive rights, options to purchase and lease renewal options, and the law continues to evolve. (Many states have some version of the Rule, so practitioners are cautioned to check the applicable statutes. This article uses New York as an example to discuss the complications that can arise when the Rule is applied to leases.) As recently as 2011, the New York Court of Appeals addressed the Rule's applicability when a series of lease renewal options extend many years into the future.
The judicially created common law Rule dates back to 17th-century England, and its purpose is to avoid the suspension of alienation or remote vesting for periods of time considered to be “socially undesirable.” Throughout history, this occurred when people gifted property to their heirs or beneficiaries with restrictions attached that limited whether, when or to whom that property could later be sold. Courts developed the Rule to prevent current owners from restricting (beyond the Rule's time limits) the rights of subsequent owners to sell their property in an effort to encourage investment in, and maintenance, development and use of, the property. As a result of its success, the Rule similarly became a creature of American common law, where it was eventually codified and later enacted as a statute in New York State.
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