APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 82-88)
Before: ADAMS, WEIS and BECKER, Circuit Judges
In this diversity case we encounter the rule against perpetuities, a subject not noted for the frequency of its appearance in federal court. The district court determined that the rule does not apply to leases that are perpetually renewable. We agree and affirm the judgment in this respect. Because a non-competition covenant in the lease at issue in this case does not present a question that is ripe for adjudication, however, we vacate the judgment on that claim.
Plaintiff sought a declaratory judgment that her lease with defendant was void on the grounds that it violated the rule against perpetuities, the rent fixed was so inadequate as to be unconscionable, and the collateral covenants against competition were unreasonable. The district court found the lease valid and entered summary judgment for defendant on all claims.*fn1
Plaintiff owns a 59 acre tract located at the intersection of Route 19 and Interstate 90 near Erie, Pennsylvania. In July 1960, she leased 12 of these acres for a term of 99 years, "renewable thereafter forever, at the same rental as the ninety-ninth year." In addition, the lessee was given an option to purchase the property after July 7, 1980 for $200,000.
As part of the lease, plaintiff agreed that she would not maintain on the retained land "a business, use or occupancy" that would be detrimental to or competitive with the operation of a motel, restaurant, or gas station on the leased property. Plaintiff also agreed that she would not erect any building higher than twenty feet on designated portions of her remaining land.
A motel was built on the leased premises. In 1981, defendant took an assignment of the lease and purchased the motel for $2,300,000. Defendant has not exercised the option to purchase the land owned by plaintiff, but has continued to pay the specified $12,000 annual rental.
In her complaint plaintiff alleged that:
1. the lease is perpetual in term and "therefore violative of the rule against perpetuities... and also an unreasonable restraint on alienation;"
2. perpetual leasing at an annual rental of $12,000 is unconscionable and, therefore, the lease is void; and
3. the restrictive convenants on the plaintiff's land are "an unreasonable restraint upon the alienation of retained land and, therefore, [the] lease is wholly [or] partially void."
Although not specified in the complaint, plaintiff also contended in the district court that the option to purchase violated the rule against perpetuities and invalidated the lease.
The district court held that under Pennsylvania Law a lease with a perpetual option to renew or an option to purchase need not comply with the rule against perpetuities. Those provisions were therefore valid. As to the restrictive covenants on the use of the plaintiff's land, the district court found them enforceable because the ...