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  1. #1

    Wink Buying Land with Perpetuities

    My question involves real estate located in the State of: Kentucky & Indiana

    I recently passed an old farmhouse and field that was neglected but quite obviously the last farm left in a developed subdivision and it got me thinking about perpetuities. (I'm not a lawyer, but have had a few law classes, so correct me on any of this I get wrong, but this is my understanding of it.) In short, what I remember is that you can establish perpetuities in your will so long as they don't violate the RAP. Perpetuities are restrictions for land use written into a will, that if violated, affect property ownership. I remember an example in a book of a farmer willing his farm to his son, provided that he maintain it as a dairy farm. Perpetuities have a time limit, which at least used to be based off of a relevant person's lifespan - but I think it is 90 years now(?). So, theoretically there are properties out there with perpetuity rules extending up to 90 years from now.

    (I used to go to school next to a subdivision with a tree in the middle of a road because the farmer who owned the land had included a perpetuity in his will that a specific tree never be cut down; his son sold the property to a developer who specifically paved around the tree.)

    Because of the inherent restrictions, I assume that perpetuities decrease land value - but they would not be problematic for a person who was willing to work with the restrictions. Specifically, I am looking for a little farm in the Louisville area (a place where most of the farms have been developed already), but I am wondering if there are still farms preserved by those perpetuities. How do you find properties with perpetuities, if you are looking for sort of a niche? Is there even any point in looking? Finally, I know that there is a city land trust that holds a few farms with perpetuities (or at least, that it what it sounds like from the wording on their website). What does it mean for a land trust to own (but not necessarily take care of) land that "must be farmland" or "must be preserved as a watershed"? Is that generally land that you can buy?

    Thanks!
    Dr. D

  2. #2
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    Default Re: Buying Land with Perpetuities

    Are they truly perpetuities if they are not perpetual but rather have some limited life?


    This may help you in your research

    https://lawprofessors.typepad.com/tr...petuities.html

  3. #3
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    Default Re: Buying Land with Perpetuities

    Quote Quoting Dr. Dickerson
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    Perpetuities are restrictions for land use written into a will, that if violated, affect property ownership.
    No, that's too broad. The common law rule against perpetuities (RAP) is a rule that deals with the title to real estate, not restriction on use of the property. As the Indiana courts put it "The Rule Against Perpetuities is an ancient, but still vital, rule of property law intended to enhance marketability of property interests by limiting remoteness of vesting." Buck v. Banks, 668 N.E.2d 1259, 1260 (Ind. Ct. App. 1996). The final clause, "limiting remoteness of vesting", refers to the title to the property title must vest in some person within the time specified in the rule.

    The rule is targeted against the practice of restricting property to being held only by the descendants of the property. Such restrictions on alienation (i.e. transfer) of title are generally disfavored in the law, though the traditional common law RAP itself is also falling out of disfavor, in part because it is notoriously difficult to apply. As a result, a number of jurisdictions have either simplified the rule or gotten rid of it altogether. Kentucky is one that has eliminated it. Indiana has simplified it a bit.

    A restriction that a particular tree never be cut down does not affect when title in the property vests, so that would not violate the RAP.

  4. #4

    Default Re: Buying Land with Perpetuities

    Thanks! That clears things up quite a bit. What is the proper term for a restriction of use placed on a property? Is that still allowed in Kentucky and Indiana law?

  5. #5
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    Default Re: Buying Land with Perpetuities

    Quote Quoting Dr. Dickerson
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    Thanks! That clears things up quite a bit. What is the proper term for a restriction of use placed on a property? Is that still allowed in Kentucky and Indiana law?
    Kentucky has eliminated the RAP entirely; there are no longer restrictions on vesting of title in that state. The RAP still exists in Indiana, but not by common law. Instead, the state has enacted a version of the Uniform Statutory Rule Against Perpetuities. That law provides the rule as follows:

    Sec. 3. (a) A nonvested property interest is valid if:
    (1) when the interest is created, the interest is certain to vest or terminate not later than twenty-one (21) years after the death of an individual then alive; or
    (2) the interest either vests or terminates within ninety (90) years after the interest's creation.

    Ind. Code Ann. 32-17-8-3(a).

  6. #6
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    Default Re: Buying Land with Perpetuities

    Quote Quoting Dr. Dickerson
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    In short, what I remember is that you can establish perpetuities in your will so long as they don't violate the RAP.
    That's a rather strange way of phrasing that (especially since, while the rule against perpetuities may come up as the result of a will, it does not otherwise have anything to do with wills or estates), but let's start out by noting that the State of Kentucky has abolished the rule against perpetuities. In Indiana, the rule (as to property interests created on or after 1/1/1991) is codified here.


    Quote Quoting Dr. Dickerson
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    Perpetuities are restrictions for land use written into a will, that if violated, affect property ownership.
    That's not at all correct.


    Quote Quoting Dr. Dickerson
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    I remember an example in a book of a farmer willing his farm to his son, provided that he maintain it as a dairy farm.
    That's a restrictive covenant; it's not a perpetuities issue, and the rest of your post indicates a lack of understanding of the distinction.


    Quote Quoting Dr. Dickerson
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    How do you find properties with perpetuities, if you are looking for sort of a niche?
    Assuming what you're really asking about are properties subject to restrictive covenants, there is no way to search based on that criteria.


    Quote Quoting Dr. Dickerson
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    What does it mean for a land trust to own (but not necessarily take care of) land that "must be farmland" or "must be preserved as a watershed"? Is that generally land that you can buy?
    I don't really understand the first question but assume that answering either question would require reading the relevant title documents.

  7. #7

    Default Re: Buying Land with Perpetuities

    Thank you! I think that fully clarifies and answers my questions!

    Thank you, everyone! I think that answers my question and clears up my confusion. I was confusing perpetuities with restrictive covenants. I think that I had learned about restrictive covenants in terms of them being abolished because of laws limiting perpetuities and hence the confusion. (Something along the lines of restrictive covenants not being upheld because the land could no longer revert to someone else if the covenant was broken due to the lifespan of a perpetuity. I think the particular example was of a dairy farmer who had willed his property to heirs with a restrictive covenant that it stay a dairy farm, or else the property would revert to the possession of some other heir. The question was whether someone several generations later could develop the land into a subdivision.)

    Has anyone had experience with a client selling a property they had obtained because the restrictive covenants on the land were too onerous? Other than things like homeowner's associations and building regulations in neighborhoods (imposed by the developer or builder), are restrictive covenants on properties common?

  8. #8
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    Default Re: Buying Land with Perpetuities

    Quote Quoting Dr. Dickerson
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    Has anyone had experience with a client selling a property they had obtained because the restrictive covenants on the land were too onerous? Other than things like homeowner's associations and building regulations in neighborhoods (imposed by the developer or builder), are restrictive covenants on properties common?
    The extent to which restrictive conditions on the land will be enforced is very much a state law issue and states vary on that. I don't have any experience with clients in either Kentucky or Illinois having that problem as I don't practice in either of those states. But generally speaking buyers are going to be reluctant to buy a property that has any significant restrictions on it, at least not without a discount on the price to account for that restriction. Where the restriction is significantly burdensome or limiting it may be hard to find anyone willing to buy it.

  9. #9
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    Default Re: Buying Land with Perpetuities

    Quote Quoting Taxing Matters
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    But generally speaking buyers are going to be reluctant to buy a property that has any significant restrictions on it, at least not without a discount on the price to account for that restriction. Where the restriction is significantly burdensome or limiting it may be hard to find anyone willing to buy it.
    I think that is what the OP is counting on. He wants some cheap land.

  10. #10
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    Default Re: Buying Land with Perpetuities

    Quote Quoting PayrolGuy
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    I think that is what the OP is counting on. He wants some cheap land.
    You mean buying the land cheap and then finding a way to remove the restriction so it can be sold for more? That may be what the OP is considering, but in that case the OP really needs to see a property law attorney in the state where the property is located for a review of the restriction and an opinion of how likely it is that the restriction may be removed.

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