Perpetuities and Accumulations Act 2009

The rule against perpetuities restricts the time period within which future interests in property must vest.

Currently, the rule means that future land interests must vest within a maximum of 80 years. Often a lesser period applies. Option agreements, for example, currently have to be exercised within a period of 21 years. The rule against perpetuities was intended to prevent real estate and other property being tied up in trust for several generations. At some stage the trust property must "vest" in a beneficiary.

The new Act abolishes the rule against perpetuities for most kinds of land interest, including options. The rule will remain for interests under a trust (including those created under a will). However, the perpetuity period for these interests will be extended from 80 to 125 years.

The Act also amends the rule against excessive accumulations. This restricts the period during which trustees may accumulate income within a trust (currently a period of 21 years from either the death of the testator or 21 years from the date of the settlement). The rule is designed to prevent wealth from being locked away for an indefinite period. Currently, once the accumulation period expires, income subsequently received by the trustees must be distributed to the beneficiaries.

The Bill simplifies matters by providing for the removal of the restriction on accumulations except for charities, which will be subject to a 21- year limit. The changes will not affect pre-existing trusts or wills.

Further legislation will be required to bring the Act into force. It is anticipated that this will be around the middle of next year. Property interests - such as options - created before the Act comes into force will remain subject to the existing perpetuity rules. However, options created after the date on which the Act comes into force will not be subject to the rule against perpetuities. A further update will follow once the relevant date is known.

Things to consider

For the property industry, the key focus is the amendment to the rule against perpetuities. The changes will facilitate the creation of longer term contractual arrangements. This will be particularly useful for option and hybrid promotion agreements which often need to remain in place for a long time. The changes may also better incentivise landowner and developer co-operation in achieving a planning consent and then land sales under an option and promotion agreements. Such agreements can now potentially have a much longer life span, while at the same time giving the landowner the ongoing ability to farm or otherwise use the land, while providing sufficient leeway for any tax suspension provisions required by the landowner.