8.2.5. Interests of contingent duration

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8.2.5.1. Determinable interests

The distinguishing feature of a determinable interest is that, on the happening of the future contingency, the determinable interest itself automatically expires, and the alternate reversionary/remainder interest waiting in the wings (here called a ‘possibility of reverter’) is automatically converted into an absolute, unconditional entitlement. This automatic transmission of title from one person to another is potentially dangerous: there is nothing to alert outsiders to the change in entitlement, and even the parties themselves may be unaware that it has happened. For this reason, such interests are nearly always now created under a trust, so that the title is vested in a trustee, who is required to hold the property on trust first for the determinable interest holder until the contingency occurs, and then on trust for the reversioner. Outsiders therefore deal only with the trustee and are not concerned with whether the beneficial interest has shifted from the determinable interest holder to the reversioner, and the duty of ensuring that the benefit goes to the reversioner once the contingency has occurred is placed on the trustee. This use of a trust is compulsory if the determinable interest is in freehold (as opposed to leasehold) land: the Law of Property Act 1925, Schedule 1, Part I, converted all legal determinable fee simple and determinable life interests into equitable interests under a trust.

8.2.5.2. Interests subject to a condition subsequent

An interest subject to a condition subsequent is quite different. It is essentially an interest of a specified duration (it could be perpetual, or limited to a life time, or to a period of years) which will become terminable prematurely if and when a future event occurs. The conceptual difference from a determinable interest is that, whereas in the latter the contingency measures the duration of the interest, in the former it defeats or forfeits an interest prematurely. However, the practical difference is that, in the case of an interest subject to a condition subsequent, none of this happens automatically. Instead of automatically terminating the interest, the contingency merely gives the alternate interest holder the right to elect to forfeit the interest. The terminology is that the creation of an interest subject to a condition subsequent automatically confers on someone else a right of entry (alternatively called a right to forfeit), and the happening of the contingency makes that right of entry or forfeiture exercisable. Unless and until it is exercised, the original interest continues.

This leads to two important further differences from determinable interests. First, because the shift in title requires a positive, provable act on the part of the holder of the right of entry or forfeiture, there is no great difficulty in ascertaining whether it has occurred or not. Consequently, there is no particular reason to hide these interests behind a trust, and in practice a trust would not normally be used here, even if the interest is in freehold land. The provisions of the Law of Property Act 1925 which impose a trust whenever there are successive interests in freehold