Lesson 3: Exceptions and Contingent Interests

In this lesson, we delve into the complexities of Rule Against Perpetuities (RAP) by focusing on exceptions and contingent interests. Understanding these nuances is crucial for navigating advanced real property law.

Exceptions to the Rule Against Perpetuities

The Rule Against Perpetuities is designed to prevent the indefinite tying up of property interests. However, there are several notable exceptions to this rule:

  • Charitable Trusts: If both the donor and the beneficiary are charitable organizations, the interest is typically exempt from RAP.
  • Options and Rights of First Refusal: These are often exempt, especially in commercial transactions.
  • Wait and See Doctrine: Some jurisdictions apply a "wait and see" approach, verifying if the interest vests within the permissible period.

Example of Charitable Trust Exception:

A charitable trust is established to benefit a non-profit hospital. The interest in the property is exempt from the Rule Against Perpetuities.

Note: Always verify if your jurisdiction has adopted the Uniform Statutory Rule Against Perpetuities (USRAP), which includes a 90-year vesting period.

Contingent Interests and Their Complexities

Contingent interests are property interests that depend on the occurrence of an uncertain event. These interests can be particularly challenging under RAP because they may not vest within the required time frame.

Types of Contingent Interests:

  • Executory Interests: These are future interests created in a transferee that will cut short, or divest, an earlier interest.
  • Conditional Remainders: Future interests that will only become possessory if a certain condition is met.

Example of an Executory Interest:

O conveys "to A, but if A marries, then to B." B has an executory interest that may divest A's interest upon marriage.

Diagram of Executory Interest:

graph TD; O["O"] --> A["A"]; A -- Conditional --> B["B"];

Example of Conditional Remainder:

O conveys "to A for life, then to B if B graduates from law school." B has a conditional remainder dependent on graduating from law school.

Diagram of Conditional Remainder:

graph TD; O["O"] --> A["A"] --> B["B"]; B -- Condition --> LawSchool["Graduates Law School"];
Warning: Contingent interests must be carefully drafted to avoid invalidation under RAP.

Special Rules and Doctrines

When dealing with contingent interests, several special rules and doctrines can impact their validity under the Rule Against Perpetuities:

  • The Doctrine of Infectious Invalidity: If a portion of a conveyance is invalid under RAP, the entire conveyance may become invalid.
  • The Doctrine of Worthier Title: This common law doctrine can transform a contingent remainder into a vested remainder, thereby avoiding RAP issues.
  • Cy Pres Doctrine: Some jurisdictions allow courts to reform invalid interests to approximate the grantor's intent while complying with RAP.

Example of The Doctrine of Infectious Invalidity:

O conveys Blackacre to A for life, then to B's first child to reach 25. B's first child to reach 25 might violate RAP, rendering the entire interest invalid.

Example of The Doctrine of Worthier Title:

O conveys to A for life, then to O's heirs. Under the Doctrine of Worthier Title, the interest to O's heirs may instead vest in O, avoiding RAP concerns.

Diagram of Doctrine of Worthier Title:

graph TD; O[O] --> A[A]; A -- Life Estate --> OHeirs[O's Heirs]; OHeirs -- Doctrine of Worthier Title --> O;

Cy Pres Doctrine Application:

If a trust provision violates RAP, a court may use the Cy Pres Doctrine to amend the provision while approximating the grantor's intent.

Tip: When drafting contingent interests, be aware of these doctrines to minimize the risk of invalidation under RAP.

Race Conditions in Real Property

Race conditions in real property law refer to scenarios where the timing of events affects the validity and priority of property interests. These are particularly relevant in the context of recording statutes:

  • Pure Race Statutes: The first party to record a deed has priority, regardless of notice.
  • Race-Notice Statutes: The first party to record who also takes without notice of prior unrecorded interests has priority.
  • Notice Statutes: A subsequent purchaser has priority if they take without notice of prior unrecorded interests, regardless of recording time.

Example of Pure Race Statute:

O conveys to A who does not record. O then conveys to B who records. Under a pure race statute, B has priority over A.

Diagram of Pure Race Statute:

graph TD; O[O] --> A[A]; O --> B[B]; B -- Records First --> Priority;

Example of Race-Notice Statute:

O conveys to A who does not record. O then conveys to B who records without notice of A's deed. B has priority over A under a race-notice statute.

Diagram of Race-Notice Statute:

graph TD; O[O] --> A[A]; O --> B[B]; B -- Records Without Notice --> Priority;

Example of Notice Statute:

O conveys to A who does not record. O then conveys to B who does not have notice of A's deed. B has priority over A under a notice statute.

Diagram of Notice Statute:

graph TD; O[O] --> A[A]; O --> B[B]; B -- Without Notice --> Priority;
Note: Different jurisdictions may follow different recording statutes. Always check local laws to determine the applicable rule.

Advanced Real Property Issues

Beyond RAP and race conditions, advanced real property law involves numerous other complex issues:

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