Pg 12

Question 1

Are options in gross to buy land/personal property subject to the rule against perpetuities?

Answer 1

Yes, and they are void if they can be exercised beyond the period of perpetuities.

But options to buy land appendant to a leasehold estate are not under RAP because alienability is not fettered and improvement of the land is promoted by the option to purchase. The options for lessees to buy in feesimple are valid even if they might be exercised beyond the perpetuity period

Question 2

If a class can increase or decrease for longer than the perpetuities period, what happens?

Answer 2

The entire gift is void

Question 3

If an entire gift to a class is subject to a condition precedent, that may not be satisfied within the perpetuities period, what happens?

Answer 3

The entire class gift is void

Question 4

What are the two major exceptions to class gifts being voided if they will go longer than perpetuities period?

Answer 4

- each member of the class is gifted a stated amount
– the initial gift is to a class whose membership will be determined within the perpetuities period

Question 5

How is it an exception to RAP for a class gift if each member of the class is gifted a stated amount?

Answer 5

If the gift is $1000 each to every kid of A that reaches 30, each gift is treated separately when the rule is applied, so the gift can be valid for one member and void for others

Question 6

If an initial gift is to a class whose membership will be determined within the perpetuities period with a giftover of the share of each class member to kids or heirs, how is that an exception to class gifts violating RAP?

Answer 6

This is treated separately when RAP applies, so the gift can be valid for some sub-classes and void for others.

IE: if you bequeath your personal estate in trust to pay income in equal shares to A’s kids for their lives, and then to your living issue in equal shares

Question 7

What are two types of partial restraints that you can put on property?

Answer 7

– Purchase option

– right of first refusal

Question 8

What is the difference between total restraint on alienation of property and partial restraint in regard to RAP?

Answer 8

– Total restraint: not allowed

– partial restraint: OK if it is reasonable

Question 9

Are purchase options assignable?

Answer 9

Yes unless the option itself prohibits or circumscribes assignments

Question 10

What is the difference between an option to purchase and the right of first refusal?

Answer 10

– Option to purchase: this grants the holder the power to compel the owner to sell, if he wants to or not
– preemptive right: requires the owner, when he does decide to sell, to offer the property first to the holder of the right to meet a third-party offer or buy at a set price. If the holder decides not to, the owner can sell to anyone

Question 11

What is the split about whether or not RAP applies to options to purchase?

Answer 11

– Some courts say RAP does not apply to this because the holder has a vested property interest, or the holder only has a contract right and not a property interest
– some courts say it does apply

Question 12

What is a right of first refusal?

Answer 12

An agreement to offer the sale of the property to a certain party first, and thus only vests when the right is exercised.

Question 13

Does the right of first refusal violate RAP?

Answer 13

Yes if it inhibits alienability by:
– having a fixed price that as time passes has no relationship to market value
– if any potential buyer could exceed market value but preemptioner is allowed to pay the lesser amount
– or even if the preemptioner can meet any bona fide offer, that would deter people from bidding, which would depress the value and discourage the owner from trying to sell

Question 14

Does RAP apply to options to renew leases?

Answer 14

No, and it doesn’t apply to the lessee’s option to purchase all or part of the leased premises, or options to extend the scope of an easement or profit. These are justified because their social benefit offsets the consequences of the violation

Question 15

What are factors that you should consider to decide if a restraint on alienation of property is void?

Answer 15

– The type of price that is set. If it is fixed and very disproportionate to market market value, it is unreasonable
– the intent of the parties when they contracted for it. If it is for the purpose of restraining alienability, it is invalid, but if it was freely entered by mutual consent in the normal bargaining relationship, it is reasonable
– if the person imposing this restraint has an interest in the land he’s trying to protect and the enforcement accomplishes it, it is likely reasonable
– if the restraint is limited in duration, and it allows a substantial variety of types of transfers, or is limited in the number of persons it can be transferred to
– if restraint increases the value of the property or makes it more marketable, it is probably reasonable

Question 16

What are the key points that need to be considered when trying to figure out if a partial restraint on alienability is OK?

Answer 16

– Is the price reasonable and does it really reflect market value? (In an inflation market almost all fixed price rights of first refusal quickly become unreasonable and not enforceable)
– Is the party holding the right limited to a reasonable time to exercise it after getting notice? (If the owner sells to a third-party without giving notice and the opportunity to exercise the right, the right usually survives the sale and is still exercisable against the third-party, but the person may be liable for breach or punitive damages)
- Exception: RAP does not apply to options to purchase held by a current lesser, charity charity exception, wait and see, statutory alternate vesting period, or Cy Pres doctrine

Question 17

When should you always consider RAP on an essay?

Answer 17

Anytime a question involves a future interest, keep RAP in the back of your mind

Question 18

What is the point in time when we consider RAP?

Answer 18

The moment the interest was created based on what could happen based on the facts as they appear at the moment of creation.

Question 19

What is the essay approach that should be used for RAP?

Answer 19

1. Is the interest subject to RAP? Classify the interests
2. is it vested?
3. What event triggers vesting? Isolate the event
4. Must a triggering event happen within the perpetuities period if it happens at all?

Question 20

The first step in the essay approach to RAP is to classify the interests. If an agreement is exercisable by someone that is not present at the time of creation, that raises a problem. Who are some people that would not be present at the time of creation?

Answer 20

An heir, widow or widower, assignee, devisee, or grandkid

Question 21

Classify these interests as a first step in a RAP essay: O grants to A for life, then to B for life, then to B’s kids that survive him

Answer 21

• O: present possessory interest and reversion if B has no kids or B does not survive A
• A: present possessory life estate. Vested
  – B: remainder life estate. Vested
  – B’s kids: contingent remainder. This vests when B dies, who is a measuring life, so it is valid under RAP

Question 22

Classify these interests as the first step in an RAP essay: O grants to Coal Co. as long as it is used for mining. If it ceases, then to A

Answer 22

– O: possibility of reverter
– Coal company: fee simple determinable **RAP
A: executory interest ***RAP: the land could be used for mining forever, so this is invalid