St. Regis Paper Co. v. Brown
247 Ga. 361, 276 S.E.2d 568 (1981)
Rule of Law:
An option to purchase real estate that is contained within a lease and is exercisable within the term of the lease does not violate the rule against perpetuities, even if the lease term extends beyond the period specified in the rule.
Facts:
- St. Regis Paper Co. entered into two timber leases with Brown for terms of sixty years plus a few months.
- The leases contained options granting St. Regis the right to purchase the real estate.
- The purchase price was fixed on a per-acre basis.
- The options could be exercised at any time during the term of the lease, but not during the first twelve years.
- This created a period of over sixty years from the execution of the lease during which the options could be exercised.
Procedural Posture:
- St. Regis Paper Co. and Brown litigated the validity of the purchase options in a Georgia trial court.
- The case was appealed to the Court of Appeals of Georgia.
- The Court of Appeals held that the options to purchase were void ab initio as violations of the rule against perpetuities.
- The Supreme Court of Georgia granted certiorari to review the decision of the Court of Appeals.
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Issue:
Does an option to purchase real estate contained within a lease, which is exercisable beyond the period of the rule against perpetuities, violate that rule?
Opinions:
Majority - Clarke, Justice.
No. An option to purchase written into a lease and exercisable within the period of the lease does not violate the rule against perpetuities. The rule was intended to prevent the tying up of property in family settlements, not to hinder modern commercial transactions. Applying the rule here would have the reverse effect of its purpose, which is to encourage the free dealing and development of land. Most American jurisdictions distinguish between an 'option in gross' (held by a party with no interest in the land), which is subject to the rule, and an 'option appendant' to a lease (held by a lessee), which is not. The court adopts this majority view, reasoning that a lessee already holds a vested interest in the property, and the option to purchase simply allows that interest to ripen into a larger one, which furthers the policy goals of the rule by encouraging the lessee to develop the land.
Dissenting - Smith, Justice,
Yes. An option to purchase real estate contained within a lease which is exercisable beyond the period of the rule against perpetuities does violate that rule. Existing Georgia precedent makes no distinction between options in gross and options appendant to a lease, holding that any option to purchase realty that does not comply with the time limits of the rule is a prohibited perpetuity. The rule against perpetuities is a statutory command in Georgia, and this court's prior interpretations have become an integral part of that statute. The majority is disregarding stare decisis and judicially altering a statute that the legislature has chosen not to amend. If the law is to be changed to create an exception for commercial leases, that change should be made by the General Assembly, not the court.
Analysis:
This decision significantly altered Georgia's property law by aligning it with the majority American rule regarding options in leases. It creates a crucial carve-out from the rule against perpetuities for commercial transactions, promoting economic development and providing certainty for long-term commercial leases. By distinguishing between options appendant to a lease and options in gross, the court limited the rule's application to its historical context of family wealth transfers, preventing it from acting as a 'trap for the unwary' in sophisticated real estate deals. The ruling ensures that long-term lessees who negotiate purchase options can rely on their enforceability, thereby encouraging investment and improvement of leased property.
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