Perpetuities and Accumulations Act 2009 coming into force (developers/landowners – don’t stop reading here, it is explained!)

The Perpetuities and Accumulations Act 2009 (PAA 2009) received Royal Assent on 12 November 2009 and will come into force on 6 April 2010.

From 6 April 2010, the rule against perpetuities will only apply to those interests set out in the PAA 2009. These are generally trust interests (except pension schemes and inter-charity dispositions). Interests such as easements (legal rights), restrictive covenants (restrictions on use of property), options and pre-emption rights will no longer be subject to the rule against perpetuities.

From my many years of experience, I know that the majority of people we have dealt with do not know what a perpetuity period is (and why should they?) Our property and trust lawyers here often have to explain, and buyers regularly confuse it with a leasehold term of years.

The original rule was intended to prevent certain rights in property being tied up indefinitely and therefore the previous legislation set the maximum period at 80 years, although often the period was less, for example 21 years.

The fact that the perpetuity period is abolished for options could particularly be of use for option agreements, as they will have a longer life span. This could be of assistance to landowners and developers.

For developers doing plot sales, as interests such as easements and restrictive covenants will no longer be subject to the rule against perpetuities, their legal documentation will need amending from April and obviously we at Matthew Arnold & Baldwin LLP will be preparing for this.

For information on how this will affect trusts and accumulations, I will leave this to my expert colleagues!