Clarity On Rule Against Perpetuities

Published date21 January 2022
Subject MatterReal Estate and Construction, Real Estate, Landlord & Tenant - Leases
Law FirmRobins Appleby LLP
AuthorIsmail Ibrahim and Amelia Briggs-Morris

For many lawyers, the rule against perpetuities brings back nightmares about trying to understand (or ignore at our peril) the tenet in law school. We then prayed that we never have to encounter this reminiscence of English feudal law ever again.

The rule against perpetuities applies to contingent interests in property that vest too remotely. More specifically, it applies to extinguish an interest in property if the interest does not vest within 21 years.

As recent cases have shown, the rule is still alive and kicking, and the courts are going to pay careful attention to the wording of interests to determine the true intent of the parties.

Loyalist (Township) v. Fairfield-Gutzeit Society

In 2019, the Superior Court, in Loyalist (Township) v. Fairfield-Gutzeit Society 2019 ONSC 2203, looked at whether certain terms arising from a transfer of properties between the Village of Bath in Lennox & Addington County and the Fairfield-Gutzeit Society contravened the rule against perpetuities.

In 1997, the Village of Bath was concerned that two of its historic buildings would not be adequately protected following an impending amalgamation with two other local authorities, so it transferred the ownership of the properties to the society. The transfer/deed contained a provision that, if the society wished to dispose of its interest in the properties to an organization that had different objects than the society, then the society would first have to offer the properties back to the township, where the township had an option to purchase them for $2. When the properties were converted to the land titles system, the covenant carried over on the parcel registry.

By 2015, the lease had ended and the society was trying to sell the properties as it could not find a new tenant. The township attempted to prevent the sale by relying on the option, while the society advanced, amongst other arguments, that the rule against perpetuities negated the option.

It has long been established (see 2123201 Ontario Inc. v. Israel Estate 2016 ONCA 409, at para. 24) that an option to purchase creates an immediate interest in land, thus is subject to the rule against perpetuities, while a right of first refusal does not create an interest, thus is not subject to the rule against perpetuities.

In reviewing the transaction, the court determined that the circumstances here did not create an immediate interest in land as the society was always able to transfer the properties to entities that had the...

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