Q: What is the validity of 90 year “top” leases?
A: A top lease is one that takes effect if a prior lease is terminated or is no longer valid. Are 30-year leases, with the right to renew for up to an additional 99 years, valid? These were questions I wrote about in columns in 1992, 1993 and 1994 and a call from a reader about a 1950 oil and gas lease made me search my files. Such long-term leases were common in the early days of oil and gas development on the Prairies.
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Earlier, I argued that these leases might violate the ancient English property rule against perpetuities. English law, as it stood in 1870, is deemed to be part of the law of the Prairies unless specifically overruled by legislation. The rule of perpetuities provided that future interests in land had to vest within a life-in-being and 21 years or, if there was no life-in-being, within 21 years. Vesting means that there is an immediate enforceable interest in property.
The rule was aimed at land transactions that gave future rights that only became enforceable on some future event happening. An example would be a gift of land to a son on the condition that he have at least two male children. This would offend the rule, as the son might have his own sons well after the perpetuity period. The rule of perpetuities was developed by English courts to ensure that land not be tied up by uncertain future interests.
Two years ago, the Saskatchewan Court of Appeal dealt with the application of the ancient rule to a long-term oil and gas lease. In 1950, Mr. T granted a 99-year top lease to Freeholders Oil. It was a top lease because T had already signed a lease with Imperial Oil for 10 years and “for so long thereafter as the leased substances were produced from the lands.” Imperial Oil did not exercise its rights and its lease expired in 1959.
Top leases were not unusual. The court cited evidence in Saskatchewan of 2,100 such leases covering 450,000 acres. Freeholders interest was assigned to other companies and eventually a dispute arose as to whether it was valid because of the rule of perpetuities. In 1950, when Freeholders entered into the lease, it was unclear when or whether its lease would come into force because, had Imperial drilled there, it could have continued its interest “for so long thereafter as the leased substances were produced.”
In the end, the Freeholders lease did vest within the 21 year period because its interest vested when the Imperial lease expired.
Two of three appeal judges said that this ancient rule could no longer be justified in modern society and ruled that it did not invalidate the lease. The dissenting judge ruled that the legislature should be the one overruling ancient principles of law.
Some provinces have indeed passed legislation dealing with the ancient rule. Alberta’s Perpetuities Act provides that no interest will be void merely because there is “a possibility of the interest vesting beyond the perpetuity period” and it is presumed valid until “actual events establish that the interest is incapable of vesting with the perpetuity period.”
Using the Alberta approach, which has been adopted by other provinces, the date of the hearing rather than the date of the agreement is used to determine if the rule renders an agreement invalid.
Saskatchewan Justice has told me that there are no immediate plans for legislation as the Court of Appeal judgment has effectively rendered the rule meaningless.
Don Purich is a former practising lawyer who is now involved in publishing, teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
