Lead Opinion
The Court of Appeals held that options to purchase contained within two timber leases were void ab initio as violations of the rule against perpetuities. St. Regis Paper Co. v. Brown,
The rule against perpetuities in Georgia is statutory. Code Ann. § 85-707 (a) provides: “Limitations of estates may extend through any number of lives in being at the time when the limitations commence, and 21 years, and the usual period of gestation added thereafter. A limitation beyond that period the law terms a perpetuity and forbids its creation.”
The rule did not originate in this state and has a long history. Following the enactment of the Statute of Uses in England in 1536, there were many instances in which executory interests became legal interests entitled to protection of the courts. When a series of decisions in the 17th century made these future interests indestructible, the rule against perpetuities evolved from a judicial attempt to curtail the resulting threat to alienability of property. A classic statement of the rule is as follows: “No interest is good unless it must vest, if at all, not later than twenty-one years after some life
The rule has from its inception constituted a trap for the unwary and scholars are critical of extensions of the rule. See Leach, Perpetuities: New Absurdity, Judicial and Statutory Correctives, 73 Harv. L. Rev. 1318 (1960) (hereinafter “Leach”). Nevertheless, the purposes which it serves, even in a modern setting, are numerous. Among these are the utilization of wealth, the development of land by its current beneficial owners, and the assuránce that society will be controlled by the living rather than from the grave. Chaffin, Real Property, 17 Mer. L. Rev. 208 (1965); 4 Restatement of Property, Introduction to Part I, pp. 2132-33 (1944).
The wisdom and legal logic, however, for extending the rule’s applicability to a commercial setting is at best questionable. In today’s world of complex and sophisticated real estate dealings, it is important that we do not broaden the rule against perpetuities to the point that its effect will be the opposite of its intended purpose. The rule came into being in order to control family property transfers which limited the rights of certain generations to alienate the property. Therefore, the thrust of the rule is to encourage the right of free dealings in real estate interest. To apply the rule to options contained in leases could very well have a reverse effect. Neither lives in being nor twenty-one years has any relevance to the commercial situation. This is particularly true when the holder of the beneficial interest in the property is able to utilize and develop his interest to its fullest, as is the case of a lessee who holds an option to purchase a leasehold. Leach, supra.
The majority rule in this country and the rule in England have followed a parallel course mandating that an option to purchase beyond the period of the rule of perpetuities is void if the holder of the option has no interest in the property. Simes & Smith, The Law of Future Interests, § 1244 (2d ed. 1956) (hereinafter “Simes & Smith”). The underlying rationale for this proposition is that the existence of such an option serves as a substantial deterrent to the free marketability of the real estate and to the possibility of its development. The majority of American jurisdictions part company with the English rule when the option is found in a lease. Under these circumstances, a distinction is made between an option in gross and an option appendant. When the option is a part of the lease and exercisable beyond the period of the rule against perpetuities, most American jurisdictions have found it to be valid. 4 Restatement of
Although the question of the applicability of the rule to options to purchase when they are part of a lease has been settled in England and most American jurisdictions, it has not been squarely addressed in Georgia. It is clear that in Georgia a perpetual lease or a perpetual right to renew a lease does not violate the rule against perpetuities. Smith v. Aggregate Supply Co.,
In establishing a rule for Georgia, we take into consideration the fact that a lease may create an interest in real estate. Such an interest was created here. It is logical that one interest which vests at an early time may be tied to certain conditions which cause it to ripen into a larger interest at a later time. Such a transition from one interest to another occurs when the holder of a security deed exercises the power of sale contained in the security deed after default by the grantor. No one questions that the power of sale in a security deed may be exercised ■ beyond the period established in the rule against perpetuities. In the case before us now, we have a leasehold interest which may ripen into a fee simple interest upon the exercise of an option. Indeed, the holder of a leasehold interest is in a stronger position than the holder of a security deed because he is in possession. The combination of early vesting of an interest in the realty and the
Having considered the circumstances in this case in the light of commercial realities, as well as in the light of the basic policy behind the rule against perpetuities, we hold that an option to purchase written into a lease and exercisable within the period of the lease does not violate the rule against perpetuities even though the period within which it may be exercised extends beyond the period specified in the rule.
Judgment reversed.
Dissenting Opinion
dissenting.
I am somewhat astounded by the majority’s suggestion that we are, for the first time, “establishing a rule for Georgia” with respect to whether an option to purchase real estate contained in a lease is violative of the rule against perpetuities. Although the majority of the cases before this court concerned with the validity of options to purchase realty have involved options which are not contained in a lease, the rule of law upon which these cases rest is as follows: “An option to purchase realty or an interest therein which [fails to meet the requirements of Code § 85-707] as to the time within which the option may be exercised constitutes a perpetuity and is prohibited under the statute.” Smith v. Aggregate Supply Co.,
In McKown v. Heery,
We must bear in mind that the rule against perpetuities is not merely a rule of judicial origin, but a statutory command. “It is true that ‘stare decisis’ is a matter of judicial policy rather than judicial power. In this regard the common law is not immutable, but flexible, and upon its own principles adapts itself to varying conditions. However, even those who regard ‘stare decisis’ with something less than enthusiasm recognize that the principle has even greater weight
The General Assembly has had many opportunities to limit the applicability of Code § 85-707. Indeed, on one occasion, it has done so. Ga. L. 1953, p. 42 was enacted “to amend Section 85-707 of the Code of Georgia of 1933 so as to exempt from the rule against perpetuities pension, profit-sharing, stock bonus, death benefit and disability benefit trusts created by an employer for the benefit of his employees or their beneficiaries, and to permit accumulation of trust income from the same...” See Code Ann. § 85-707 (b). The legislature has not seen fit to modify the rulings of this court as to the applicability of the rule against perpetuities to options to purchase. “We must assume that its failure to do so is a matter of considered choice.” Williams v. Ray, supra at 334.
The policy arguments advanced by appellants and accepted by the majority are, in my view, meritorious.
Notes
See also Thomas v. Murrow,
Prior to Turner, the Maryland Court of Appeals had rendered opinions on the applicability of the rule to both options to renew and options to purchase contained in a lease. See Hollander v. Central Metal &c. Co.,
This is not to say, however, that the views expressed in Turner and subsequent Georgia cases are without support. See First Huntington Nat. Bank v. Gideon-Broh Realty Co., (