Key points:

  • The perpetuity period is a defined period of time within which future interests in assets must vest if they are to be valid
  • Real estate transactions entered into on or after 6 April 2010 are unaffected by the perpetuities rules
  • Rights (e.g. rights of access or to lay services) granted prior to that date may not be valid if they do not comply with the rule against perpetuities

Facts of Magrath v Parkside Hotels Ltd

A deed of grant of mutual rights of fire escape had been entered into in 1947 in relation to two neighbouring mews properties in London.

The right granted by the deed included a right to alter existing staircases and erect new staircases. At some point over the years this right had been exercised, and the original staircases which had been in place in 1947 no longer existed. Both properties had been redeveloped so that it would not be possible to re-install staircases in the 1947 locations.

The owner of one of the properties claimed that the right to install and use new staircases was void because it was not limited to take effect within the perpetuity period. The perpetuity period, under the rule against perpetuities, is a defined period of time within which future interests in assets (including real estate) must vest if they are to be valid.

As the fire escape deed was entered into in 1947, the common law perpetuities rules applied to it. The effect of these rules was that if it was either inevitable or possible that an interest would vest after the perpetuity period had expired, the interest would be void from the outset.

Since it was possible that new fire escapes might be constructed outside the perpetuity period, the right to erect new staircases was void.

Things to consider

The rule against perpetuities has been abolished for transactions entered into on or after 6 April 2010. However, it must still be considered when carrying out due diligence on property acquisitions as part of an analysis of whether the property has all the easements it needs. Particular care must be taken when reviewing rights of access over future roadways, or rights to use services which may be laid at some point in the future.

For documents entered into between 16 July 1964 and 5 April 2010 inclusive, the "wait and see" rule applies. This rule provides that, if a right could in theory take effect outside the applicable perpetuity period, it will not be void immediately. The parties are allowed to "wait and see" whether the right vests within the appropriate time. If it does, the right as so vested is valid. However, if it does not, then the right is void.

The deed in this case was entered into before the Perpetuities and Accumulations Act 1964 which meant that unfortunately the "wait and see" rule did not apply to it.