Dirt lawyers have been known to joke that after decades of successfully practicing real estate law, they have never encountered a true rule against perpetuities situation. Here is one such situation that arose in Columbia and made it to our Court of Appeals this year.
Spring Valley Interests, LLC v. The Best for Last, LLC* involved a perpetual option to purchase a 74.425% undivided co-tenancy interest in real estate located in Columbia.
In 2017, Spring Valley’s predecessor, White Interests Limited Partnership, entered into an agreement with Best through which White loaned Best $800,000. Best used the loan proceeds to purchase the property. As a part of the consideration for the loan, Best granted White the freely assignable perpetual option. The language of the option contains no termination date other than a statement that Best would exercise the option at its sole discretion by delivery of a written notice no later than thirty days before the intended closing.
White assigned the option to Spring Valley, and in 2019, Spring Valley sent Best a letter exercising the option. Best objected to the purchase of the undivided co-tenancy interest and, instead, insisted that Spring Valley exercise the option by becoming a member of Best. The parties negotiated and nearly came to an agreement except for Spring Valley’s insistence on certain attorneys’ fees.
Spring Valley filed a complaint seeking specific performance of the option. Best filed an answer asserting defenses including that the option was void because it violated the common law rule against perpetuities. Spring Valley asserted that our common law rule was preempted by our statutory rule against perpetuities (S.C. Code § 27-6-10, et seq.), which became effective in 2007.
The common law rule mandates that any interest not certain to vest within a life in being plus 21 years is void. The statutory construction provides for a ninety-year wait-and-see period that would likely save otherwise violative transfers. The statutory construction states that it supersedes the common law rule, but also states that it does not apply to nonvested property interests arising out of nondonative transfers.
Best eventually filed a motion for summary judgment, which the circuit court granted, stating that the statute does not apply to nondonative transfers and, therefore, cannot replace the common law; thus the common law is the appropriate legal standard to conclude that the option is unenforceable. The Court of Appeals affirmed.
The Court of Appeals stated that most states that have adopted a form of the uniform rule seem to conclude that such adoption removes commercial transactions from the common law rule and the uniform rule. But South Carolina was the first state to adopt a form of the uniform act, and the Court said it cannot say with certainty that the abolishment of the common law rule was the legislature’s intent at the time.
Also, according to the Court, the complete abolition of the common law rule without some provision for limitations in commercial transactions risks putting two legal principles at odds—freedom to contract and restrictions on alienability.
Since the Court believed it could construe the statutory construction in a manner that preserved the common law, it affirmed the lower court’s ruling finding the option void under the common law.
I would not be surprised to see this case go to our Supreme Court.
*South Carolina Court of Appeals Opinion 6070 (July 10, 2024).
Let's Talk Dirt 