Car Wash Specialties…(Continued) Does Indefinite Term of Settlement Agreement Violate RAP?

Below is a student submission by Wes Dagestad

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Car Wash argues in their brief that the settlement agreement should not be subject to the rule against perpetuities because the agreement did not grant an interest in land, but merely granted Car Wash the contractual right to operate its business until Turnbull sold the property. This argument seems to suggest that Car Wash held no leasehold interest at all, and that the settlement agreement completely removed the real estate element from a commercial lease.  Under Missouri law, the basic nature of a lease is that it is “both a conveyance of real estate and a contract.” Kamada v. RX Group Ltd., 639 S.W.2d 146, 148 (Mo. App. 1982); Black’s Law Dictionary (7d). Further, a lease conveys possession of an interest in real estate from a landlord to the tenant, the tenant pays rent for that interest in real estate, and landlord maintains reversion. 6 Mo. Prac., Legal Forms § 7:1 (3d ed.). The contractual element of the lease may be either express or implied, fixing the parties’ rights and obligations.” Id.

Thus, Car Wash’s argument that their right to continue business operations as expressed in the settlement agreement eliminated any leasehold interest they possessed seems nonsensical. After the settlement agreement Car Wash continued to pay rent, and the parties entire dispute is over the nature of the provision in the settlement agreement that reads the parties “will continue to perform according to the lease.” Therefore, Car Wash may not argue that the agreement is not subject to the rule against perpetuities because they did not hold an interest in land.

The rule against perpetuities prevents future interests that do not vest within some life or lives being at the time of creation of the interest and 21 years thereafter, plus the period of gestation if gestation exists. 5 Mo. Prac., Probate Law & Practice § 351 (3d ed.). A future interest must vest within that period, and it is not enough that the interest may vest. Id. The future interest is void if there is any possibility that the interest will not vest within the prescribed period. Id. However, Missouri law indicates that the rule does not apply to reversion or leases with a perpetual option of renewal. Id. Car Wash does not argue that they possessed a perpetual right to renew the lease; they argue they had no enforceable options whatsoever. Therefore the indefinite term of the settlement agreement would violate the rule, if as Car Wash argues they no longer possessed a leasehold interest.

As discussed above, Missouri law expresses that a lease gives the landlord the right of reversion, and reversions do not fall within the rule against perpetuities. Car Wash is in somewhat of a legal pickle because they want to argue the rule against perpetuities should not apply to their agreement, but do not want to admit they are bound by the terms of the lease because of their failure to give notice to exercise the extension. The settlement agreement’s direct reference to the lease is supplemental in nature, not superseding. Without striking any specific terms in the lease, the terms of the lease would still seem to control the agreement, and “[t]o maintain an action on a lease…, the rent term must be certain enough to be readily ascertainable.” Burger v. City of Springfield, 323 S.W.2d 777, 783 (Mo. 1959). Without the original lease, and the vague nature of the settlement agreement, nothing seems readily ascertainable.

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