Brief Fact Summary. Robert and Helen Clanton entered into a ten year lease, with an option to renew for another ten years, with Emerson Stanley for shopping center space in 1971 for a minimum annual rent of $11,400. The lease was amended by the Clantons in 1988 and 1989, the latter amended providing the Clantons the right to extend the lease for additional five year periods at the end of each prior lease period and gave them the right of first refusal if the property was offered for sale. Stanley’s sole heir Donna Shaver challenged the validity of the lease amendments.
Synopsis of Rule of Law. Commercial, nondonative transactions such as options to renew, rights of first refusal, and commercial leases are exempt from the provisions of the rule against perpetuities, but if the involve the lease of a city lot they are limited to 99 years.
The rule against perpetuities originated as a rule of property law during the mercantilistic period of English history.View Full Point of Law
Issue. Does the rule against perpetuities apply in situations involving commercial, nondonative transactions such as this?
Held. No. The 1989 amendment is valid and gives the Clantons a series of five year options to renew their lease under the terms stated in the lease, but the total term of the lease is not to exceed 99 years from its effective date of 1971.
The rule against perpetuities was established in the common law in order to favor the free alienation of property. The purpose of the rule was inapplicable to commercial transactions. Under the statutory rule against perpetuities, California law does not enforce the rule against perpetuities in cases of commercial, nondonative transactions.
The statutory rule called the Uniform Act specifically excludes commercial transactions such as renewal options and rights of first refusal from the provisions of the rule against perpetuities. The 1989 amendment is exempt from the Uniform Act because it involves an option to renew, a right of first refusal, and a lease to commence in the future at a time certain.
The trial court found that the provisions in the 1989 amendment which created indefinite options to renew the lease were invalid under the rule against perpetuities. This was error. However, under another statute, the lease or grant of any town or city lot must not exceed a term of 99 years. Therefore, this 1989 amendment to the lease is not a violation of the rule against perpetuities, but is subject to a maximum term of 99 years from its inception in 1971.
Concurrence. The majority opinion was correct in the result, but wrote an opinion unworthy of publication, and this issue is unlikely to come up for another 99 years.
Discussion. This case illustrates the difficulty of trying to extend family type laws of transfer of interests in land into the realm of commercial transacti