No Limit on Option Periods after 6th April

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12 January 2010

It has recently been announced that the Perpetuities and Accumulations Act 2009 will come into force on 6th April 2010.

The present rule against perpetuities is a legal device which sets a time limit, or perpetuity period, within which future dealings with property must take place. The perpetuity period varies depending on the dealing in question and breaching the rule may mean a gift or a right is invalid. 

The present rule applies to many commercial dealings with land which have nothing to do with the family settlements that the rule was designed to control. As a result it sometimes thwarts freely negotiated property transactions which fall foul of it or forces parties to enter more complex arrangements, simply to avoid it. In particular, an option to acquire an interest in land must be exercisable within 21 years, unless it is an option to acquire the reversion contained in a lease.

The Perpetuities and Accumulations Act 2009 will abolish all existing perpetuity rules in respect of documents executed on or after 6th April. It imposes a single, mandatory perpetuity period of 125 years which only applies to future estates and interests in property held on trust. So from 6th April the rule will no longer apply to commercial interests such as future easements (to be granted only if development takes place), options to purchase or lease land and rights of pre-emption or first refusal.

In particular it will be possible to grant options over land lasting for more than 21 years which will permit more flexible longer term contractual arrangements concerning land with the potential for development.

For more information please contact Richard Owen or David Gidney.

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