Future interests and their control
The law on future interests was one of the most difficult and complex areas of property law. The rules defined the extent to which estates and interest could be created to take effect at a future date. In effect, they defined the extent to which an owner might tie up land indefinitely. The principal aim of both common law and equity was to limit the extent to which rights could be created, to arise in the distant future.
The principal rule against perpetuities required in broad terms, that future interests must be ascertained or vested within the lifetime of persons in being at the time of the relevant deed or in the case of the will when it took effect, plus 21 years. By this means a minimum degree of certainty was defined.
A settlement exists where there are successive owners, with present and future interests. The existence of future interests would require that the owners of all present and future interest would be otherwise necessary to effect a sale of the full interest. Where the holder of such interest was unborn or unascertained, the land could not be sold. The Settled Land Act remedied this position, effectively freeing land for sale.
The Settled Land Acts, effectively allowed for the sale of land which is subject to a “settlement”. Where land is sold under the Settled Land Acts, the same interests and right
s apply to the capital money received and to any substituted land purchased as applied under the settlement to the land concerned.
Future interests in land are those which take effect and commence in the future. The interest may be vested in the sense that its extent and holder are ascertained, and will become enjoyed inpossession inn the future. Therefore, a person entitled to the freehold after the death of the existing life tenant, has a vested and ascertained interest in the freehold.
An interest may not be vested, but may be contingent. Where, for example, an interest is granted to a child contingent on reaching 21 years of age, then until he reaches that age the future interest is contingent or conditional upon his reaching that stage. Once he reaches that age it becomes vested in the sense that it is then unconditional. This does not necessarily mean that he will ever become entitled to enjoy it in possession, as it will not come into possession until the life estate owner dies.
A vested future interest may be a valuable proprietary interest. Although it is not to take effect into the future, it has a financial value discounted by reference to the probabilities and when it is to take effect. As such, it is potentially saleable.
An interest that is contingent may terminate. It has a probability value while contingent, but it may never come into possession / come to fruition. Where the holder of a contingent interest dies, the interest simply evaporates. On contrast where the holder of a vested (non-contingent) interest dies before the interest comes into possession, that future interest passes to his successor.
Although a contingent interest is unvested, the contingent beneficiary has rights, express or implied under the trust or at common law. He may prevent the trustees from wasting the assets. He would generally be entitled to require the trustees to account for their dealing with the trust assets.
Future interest can themselves be transferred by will. This includes vested and contingent interest.
2009 Act Reforms
After the recent land law reforms the only freehold legal interest that can exist, is a fee simple in interest in possession. In this context possession, refers to the interest being vested. All other rights must exist under a trust, express of implied by law, as equitable interests. Where they exist or are created, there is deemed to be trust. In many cases, the rights are expressly constituted under a trust.
The advantage of the interest subsisting under a trust, rather than as a legal interest, is that there isa trustee / legal owner who has power to deal with land. including powers of sale. The 2009 legislation seeks to facilitate and simplify the process of the sale of a property.
Common Law Rules Complex and Arbitrary
The former pre-2009 rules on future interests were complex and arbitrary. They had developed over several hundred years. There were two layers of rules, so-called common law rules dealing with legal interests and the broader perpetuity rules, which applied to both legal and equitable interest.
The common law rules were particularly arbitrary. Matters of form could predominate over matters of substance. Any future interest, arising after a fee simple was not permissible. The fee simple was and remains the largest estate most extensive estate known.
A common law future interest had to be preceded by a prior freehold estate created by the same deed. A future freehold interest could not simply, “spring up” in future. The future interest had to follow from the natural termination of an earlier freehold. It could not pop into existence prematurely. If the prior estate was determinable in accordance with its terms, then it could end naturally, at which event a future interest at common law could thereupon commence.
A remainder after a fee simple is void. This rule reflected the fundamental notion that a fee simple is the “largest estate known to the law”. Once a grantor has assigned his fee simple, his powers are exhausted, and he can create no further estate.
A remainder must not cut short a prior freehold estate. The common law insisted that any prior freehold estate must be permitted to continue to its natural end, rather than being prematurely cut short by the operation of a remainder. It would not permit an arbitrary shifting of seisin from the holder of one freehold estate to another. A remainder had to be immediately expectant on the determination of
There had to be a prior “supporting” freehold interest. A future interest was required at law, to come into existence immediately after the end of the prior estate. There could be no gap in the ownership of freehold interest or “seisin”. It could not be arbitrarily shifted from one person to another.
The harshness of the above rules was avoided by the rules developed by the courts of equity. The fundamental objection of there being no freehold ownership, was satisfied where lands were vested in a trustee or its equivalent. By creating a trust, or more correctly its precursor a use, an future interest could spring up into existence under the terms of the use or trust. Wills were interpreted as taking effect in equity so that an interest could spring into existence or shift could be created, without a formal trust.
Legal Executory Interests
The Statute of Use was enacted in the 16th century (later in Ireland) in order to avoid the avoidance of feudal dues, effectively taxes to the Crown. It executed the interest under the use / trust, thereby converting the equitable interest above into a legal interest. The interests under a use or trust in this context, were accordingly referred to as legal executory interests.
A legal executory interest was capable of taking effect immediately on the termination of the prior estate. It was, however, necessary to wait and see if it did in fact take effect. The notorious rule in Purefoy v. Rogers, provided that no limitation could take effect as a legal executory interest, if it was capable of taking effect as a common law remainder.
This wait and see principle applied both to legal executory interests and to interests under wills. It compelled “wait and see” in relation to whether future interest might be capable of taking effect immediately after a prior interest. A further effect was that where there was an interest in favour of a class, the class could close arbitrarily early, leaving some class member arbitrarily excluded.
In this case, the use / trust device did not automatically validate the future interest. This created the absurdity that the more flexible rule was not available, if the interest was capable of taking effect immediately on termination of a prior common law interest. The common law wait and see principle could be avoided by providing for a gap, so that it could not take effect, in which case the more flexible rules were available once more
The Contingent Remainder Act abolished the above rule in Purefoy v Rogers but did so in an awkward and unclear manner.
The 2009 land law reforms has abolished all the common law future interests rules retrospectively.
All rights under wills take effect as equitable interests since 1959. Prior to that, freehold unregistered estates could vest directly in the heir / beneficiary. Therefore the legal estate is initially held by the personal representative in trust for the persons entitled.
Where assets are given in a will to a person on attaining a certain age, and the gift over is made if he does not attain the age, the primary gift is interpreted as being vested and not contingent. It is liable to being divested if the person dies before the relevant age.
Gifts which arise after determinable and conditional fee interests, were permissible at common law, notwithstanding the rule against perpetuities.
Common Law Rules Abolished
The 2009 act abolished both common law rules in relation to future interests and the rules against perpetuities, which applied to executory interests (equitable interests converted under the Statute of Uses). The rules were abolished retrospectively. The abolition did not apply, if before commencement of the legislation, in reliance on the interest being invalid by virtue of any of the abolished rules, property has been distributed or otherwise dealt with, or a person has done anything or omitted to do something which materially altered that person’s position to his detriment after the legislation commenced.
The retrospective abolition of the requirements may be problematical in certain, albeit more unlikely and remote circumstances. The retrospective ablotion of the rules might have some arbitrary and surprising effects. The new legislation gives effect to settlements and interests, even if they would have been void under the older rules.
A further common law rule provided that if a future legal interest was the given to an unborn person, any further grants to his issue, however, described were void. This was the so-called old rule against perpetuity. The rule was abolished by the 2009 reform.
The rule against perpetuities was the second and more prominent rule that applied to and limited future interests, prior to the 2009 Act. This rules applied to equitable interests and interest which were saved from the common law rules, by the Statute of Uses, legal executory interests.
The principal rule against perpetuities provided that a contingent interest in property was valid only if it vested, if at all, within the period of lives in being plus 21 years after the date of the instrument or, in the case of a will , after it takes effect (on death). The life in being had to be mentioned in the instrument or will expressly or by implication. If there are no reference to a life or person, then the period would simply be 21 years.
Unlike the above common law wait and see rules, a gift was either valid at inception or not at all. If there was the slightest theoretical possibility, that it would not vest within the perpetuity period, it would be void from the outset. Vesting in the sense, means the vesting of the interest, with the condition or contingency ceasing. It does not require that the interest vested in possession within the perpetuity period.
The lives in question had to be human lives. The lives may be parties mentioned in the instrument, but this need not be so. It was possible to designate a person or category of persons who were not relevant to the gift concerned. Commonly reference was made to made to royal lives, typically the descendants at the relevant date of a deceased monarch. This had the advantage that were typically , by that later date, a reasonably numerous category of parsons, who could be ascertained by peerage record. This was commonly referred to as a royal lives clause.
An aspect of the rule which was criticised severely was that it implied the theoretical possibility that a person might have a child at any age. The Irish courts departed from this absurdity and allowed for the possibility of evidence being given that a person could not give birth to a child.
The interests arising after a determinable fee simple or fee simple subject to a condition, were not separate to the rule against perpetuity. The rule do not apply to gift over to charities on the failure of an initial gift.
The rules against perpetuities have been reformed in many jurisdictions. In the United States, England, Wales and Northern Ireland similar, relatively modest reforms took place. In most cases, provision was made for an alternative period, 80 years in the United Kingdom.
The Irish law reforms abolished the rule entirely. Contingent interests may not be created to vest at remote times in the future. They may only take effect under a trust. There is provision for application to the court to vary the trust. This is the alternative protection against unreasonable tying up of land, which the rule was intended to avoid.
Formerly a rule existed, that limited accumulation of income under a trust, for a period of life from being plus 21 years. This did not apply to charities. It was unclear if the rules ever applied to Ireland. They were intended to extend to Ireland in the late 19th century. The 2009 land law reform revoked this rule.
The modern rules maintain the long-standing principles that land should be capable of being transferred. Rule which purport to make the legal estate non-transferable are void, subject to the provisions of the legislation .
A trust fund is subject to the rules on inalienability A trust which tied up funds for more than the perpetuity period is invalid in so far as such an obligation purports to exist. In this context, the rules applied to vested interest. They prevent accumulation of income without distribution for undue periods of time.
Trustees of harities are not subject to the rules. .
Trust for the permanent upkeep of buildings are likely to be invalid where the interest is not charitable. The courts attempt to interpret such gifts or instrument in a manner that saves them. They may interpret them as gifts to the members of the institution, at the date of the gift so as to avoid and he interpretation that suggest that it is perpetual.
There is a special provision in the Charities Act regarding gifts for the upkeep of tombs. Gifts may be created for more than 21 years but are limited to £60 per year or £1,000 pounds capital sum.
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