Peppercorn (legal)

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In legal parlance, a peppercorn is a metaphor for a very small cash payment or other nominal consideration, used to satisfy the requirements for the creation of a legal contract. It is featured in Chappell & Co Ltd v Nestle Co Ltd ([1960] AC 87), which stated that "a peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn". [1] [2]

Contents

Function in contract law

In English law, and other countries with similar common law systems, a legal contract requires that each side must provide consideration. In other words, each party will give something of value to the other party for the contract to be considered binding. [3] The situation is different under contracts within civil law jurisdictions because such nominal consideration can be categorised as a disguised gift. [4]

However, courts will not generally inquire into the adequacy or relative value of the consideration provided by each party. [5] So, if a contract calls for one party to give up something of great value, while the other party gives up something of much lesser value, then it will generally still be considered a valid contract, even though the exchange of value greatly favors one side. Courts, however, will reject "consideration" that was not truly bargained for. For example, in the 1904 case Fischer v. Union Trust Co., the Michigan Supreme Court held that the one dollar paid for the sale of real property did not constitute valuable consideration since the transaction had not been bargained for—a dollar was handed to a mentally incompetent "buyer" who then dutifully handed it to the "seller". The dollar was not considered real consideration, not because the dollar was too small an amount, but because it did not induce the seller to part with the property. Such promises that are motivated by love and affection are insufficient to constitute consideration. [6]

So, in order for an essentially one-sided contract (such as a gift) to still be valid and binding, the contract will generally be written so that one side gives up something of value, while the other side gives a token sum—one pound, dollar, or literally one peppercorn. Peppercorn payments are sometimes used when selling a struggling company whose net worth may be negative. If some party agrees to take it over and assume its liabilities as well as its assets, the seller may actually agree to make a large payment to the buyer. But the buyer must still make some payment, however small, for the company in order to establish that both sides have given consideration. [7]

Concealing the value of consideration

A peppercorn is also used in more balanced contracts, where one side wishes to conceal the nature of their payment. For example, since real estate contracts are generally matters of public record, the purchaser of a house may not wish to list the exact amount of the payment on the contract. But there must be some specific payment listed in the contract, or the contract will be considered void for lack of consideration. So the contract may be written to reflect that the house is being sold in return for "ten dollars and other good and valuable consideration". The ten dollars is the "peppercorn" that provides concrete consideration and ensures that the contract is valid, while the actual amount paid for the house is hidden and referred to only as the "other good and valuable consideration." [8]

In leases for real property

Another common example is the English practice of "peppercorn rent", the nominal rental sum for property, land or buildings. Where a rental contract is put in place and the owner of the property wishes it to be rent-free, it is normal to charge a small sum as "peppercorn rent", because if the owner wants to lease the property, he must charge some rent so that consideration exists for both parties. Furthermore, a peppercorn rent is often used as a form of nominal ground rent where a (potentially substantial) premium has also been paid on commencement of a long lease of, say, 99 or 125 years (a "virtual freehold"). [9] The notional collection of the annual peppercorn rent helps to maintain a formal landlord–tenant relationship between the two parties, precluding the risk of a claim for adverse possession from the tenant arising, were no consideration to be paid for an extended period. [10]

The land on which the Ontario Legislative Building resides was leased by the University of Toronto for a peppercorn lease of 999 years. [11]

It is not uncommon, even in the modern day, for a peppercorn rent to be denominated in (sometimes whimsical) physical goods rather than currency. For example, many of the buildings in London's Covent Garden are leased at a peppercorn rent of "one red apple and a posy of flowers", [12] the National Coastwatch station at St Albans Head occupies buildings owned by the Encombe Estate in exchange for "one crab per annum if demanded" [13] while the Isles of Scilly Wildlife Trust leases untenanted land on the Isles of Scilly from the Duchy of Cornwall for one daffodil per year. [14]

Transactions involving actual peppercorns

The Masonic Lodge of St. George's, Bermuda, rents the Old State House as its lodge for the annual sum of a single peppercorn, presented to the Governor of Bermuda on a velvet cushion atop a silver platter, in an annual ceremony performed since 1816 on or about 23 April. [15]

The Sevenoaks Vine Cricket Club in Sevenoaks, England, rents the Vine Cricket Ground from Sevenoaks Town Council at a yearly rent of one peppercorn. It is many years since the club paid only one peppercorn for the rent of the pavilion. The council, in return, gives a new cricket ball to Baron Sackville every year if requested. [16] [17]

The University of Bath's main campus is on a 999-year lease from the then Bath City Council. Each year a peppercorn is presented by the Treasurer of the University to the Chairman of the Bath and North East Somerset Council as rent (but also to further the relationships between "town and gown"). [18]

See also

Related Research Articles

In economics and finance, present value (PV), also known as present discounted value, is the value of an expected income stream determined as of the date of valuation. The present value is usually less than the future value because money has interest-earning potential, a characteristic referred to as the time value of money, except during times of zero- or negative interest rates, when the present value will be equal or more than the future value. Time value can be described with the simplified phrase, "A dollar today is worth more than a dollar tomorrow". Here, 'worth more' means that its value is greater than tomorrow. A dollar today is worth more than a dollar tomorrow because the dollar can be invested and earn a day's worth of interest, making the total accumulate to a value more than a dollar by tomorrow. Interest can be compared to rent. Just as rent is paid to a landlord by a tenant without the ownership of the asset being transferred, interest is paid to a lender by a borrower who gains access to the money for a time before paying it back. By letting the borrower have access to the money, the lender has sacrificed the exchange value of this money, and is compensated for it in the form of interest. The initial amount of the borrowed funds is less than the total amount of money paid to the lender.

Consideration under American law Concept in common law as applied in the US

Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from doing an act. In broad terms, if one agrees to do something he was not otherwise legally obligated to do, it may be said that he has given consideration. For example, Jack agrees to sell his car to Jill for $100. Jill's payment of $100 is the consideration for Jack's promise to give Jill the car, and Jack's promise to give Jill the car is consideration for Jill's payment of $100.

This aims to be a complete list of the articles on real estate.

Renting Agreement where a payment is made for the temporary use of a good, service or property owned by another

Renting, also known as hiring or letting, is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership. An example of renting is equipment rental. Renting can be an example of the sharing economy.

Landlord Owner of a rented building, land or real estate

A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant. When a juristic person is in this position, the term landlord is used. Other terms include lessor and owner. The term landlady may be used for the female owners. The manager of a pub in the United Kingdom, strictly speaking a licensed victualler, is referred to as the landlord/landlady. In political economy it refers to the owner of natural resources alone from which an economic rent is the income received.

Lease Contractual agreement in which an assets owner lets someone else use it in exchange for payment

A lease is a contractual arrangement calling for the user to pay the owner for use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment is also leased. Broadly put, a lease agreement is a contract between two parties: the lessor and the lessee. The lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return for regular rental payments. The lessee also agrees to abide by various conditions regarding their use of the property or equipment. For example, a person leasing a car may agree to the condition that the car will only be used for personal use.

Timeshare Property with a particular form of ownership or use rights

A timeshare is a property with a divided form of ownership or use rights. These properties are typically resort condominium units, in which multiple parties hold rights to use the property, and each owner of the same accommodation is allotted their period of time. Units may be sold as a partial ownership, lease, or "right to use", in which case the latter holds no claim to ownership of the property. The ownership of timeshare programs is varied, and has been changing over the decades.

A hire purchase (HP), also known as an installment plan or the never-never, is an arrangement whereby a customer agrees to a contract to acquire an asset by paying an initial installment and repays the balance of the price of the asset plus interest over a period of time. Other analogous practices are described as closed-end leasing or rent to own.

A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord. Although a tenant does hold rights to real property, a leasehold estate is typically considered personal property.

A real estate contract is a contract between parties for the purchase and sale, exchange, or other conveyance of real estate. The sale of land is governed by the laws and practices of the jurisdiction in which the land is located. Real estate called leasehold estate is actually a rental of real property such as an apartment, and leases cover such rentals since they typically do not result in recordable deeds. Freehold conveyances of real estate are covered by real estate contracts, including conveying fee simple title, life estates, remainder estates, and freehold easements. Real estate contracts are typically bilateral contracts and should have the legal requirements specified by contract law in general and should also be in writing to be enforceable.

Lease purchase contract

A Lease-Purchase Contract, also known as a Lease Purchase Agreement, is the heart of rent-to-own properties. It combines elements of a traditional rental agreement with an exclusive right of first refusal option for later purchase on the home. It is a shortened name for Lease with Option to Purchase Contract.

As a legal term, ground rent specifically refers to regular payments made by a holder of a leasehold property to the freeholder or a superior leaseholder, as required under a lease. In this sense, a ground rent is created when a freehold piece of land is sold on a long lease or leases. The ground rent provides an income for the landowner. In economics, ground rent is a form of economic rent meaning all value accruing to titleholders as a result of the exclusive ownership of title privilege to location.

Estoppel in English law

Estoppel in English law is a doctrine that may be used in certain situations to prevent a person from relying upon certain rights, or upon a set of facts which is different from an earlier set of facts.

Closed-end leasing is a contract-based system governed by law in the U.S. and Canada. It allows a person the use of property for a fixed term, and the right to buy that property for the agreed residual value when the term expires.

Consideration Concept of legal value in connection with contracts

Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts. The concept has been adopted by other common law jurisdictions.

Rental value is the fair market value of property while rented out in a lease. More generally, it may be the consideration paid under the lease for the right to occupy, or the royalties or return received by a lessor (landlord) under a license to real property. In the science and art of appraisal, it is the amount that would be paid for rental of similar real property in the same condition and in the same area.

The South African law of lease is an area of the legal system in South Africa which describes the rules applicable to a contract of lease. This is broadly defined as a synallagmatic contract between two parties, the lessor and the lessee, in terms of which one, the lessor, binds himself to give the other, the lessee, the temporary use and enjoyment of a thing, in whole or in part, or of his services or those of another person; the lessee, meanwhile, binds himself to pay a sum of money as compensation, or rent, for that use and enjoyment. The law of lease is often discussed as a counterpart to the law of sale.

In Ntshiqa v Andreas Supermarket (Pty) Ltd, an important case in the South African law of lease, the parties entered into a written lease agreement in terms whereof Ntshiqa let to Andreas Supermarket certain business premises for a period of five years for the operation of a supermarket. The agreement provided that, in the event of non-payment of rent, or the breach of any condition of the lease, the lessor would be entitled to cancel the lease and retake possession of the premises.

Retail leasing

A retail lease is a legal document outlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee use of an asset and guarantees the lessor regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid.

Ijarah Term of Fiqh in Islamic banking

Ijarah,, is a term of fiqh and product in Islamic banking and finance. In traditional fiqh, it means a contract for the hiring of persons or renting/leasing of the services or the “usufruct” of a property, generally for a fixed period and price. In hiring, the employer is called musta’jir, while the employee is called ajir. Ijarah need not lead to purchase. In conventional leasing an "operating lease" does not end in a change of ownership, nor does the type of ijarah known as al-ijarah (tashghiliyah).

References

  1. ↑ "Standard Deviants: All About Business Law". PBS. Retrieved 19 March 2015.
  2. ↑ "How does a company cost £1?". BBC News Magazine. 21 August 2006.
  3. ↑ Rapalje, Stewart; Lawrence, Robert L. (1997). "Consideration". A Dictionary of American and English Law: With Definitions of the Technical Terms of the Canon and Civil Laws : Also, Containing a Full Collection of Latin Maxims, and Citations of Upwards of Forty Thousand Reported Cases in which Words and Phrases Have Been Judicially Defined Or Construed. Vol. 1. The Lawbook Exchange. pp. 267–269. ISBN   9781886363335.
  4. ↑ Hyland, Richard (2009). "The Legal Concept of the Gift". Gifts: A Study in Comparative Law. Oxford University Press. pp. 127–218. ISBN   9780199711093.

    Hyland, Richard (2009). "Making the Gift". Gifts: A Study in Comparative Law. Oxford University Press. pp. 353–498. ISBN   9780199711093.

  5. ↑ E.g., Batsakis v. Demotsis , 226 S.W.2d 673 (Court of Civil Appeals of Texas, 1949).
  6. ↑ Edmund Polubinski, Jr. (1968). "The Peppercorn Theory and the Restatement of Contracts". William & Mary Law Review. 10 (1): 201–211.
  7. ↑ Valenta, Marcel (2010). "United States of America". In Pfeiffer, Gero F.; Timmerbeil, Sven; Johannesdotter, Frederik; Tidwell, Kay L. (eds.). International Asset Transfer: An Overview of the Main Jurisdictions : a Practitioner's Handbook. Walter de Gruyter. pp. 591–616. ISBN   9783899494822.
  8. ↑ Boackle, K. F. (2003). Real Estate Closing Deskbook: A Lawyer's Reference Guide & State-by-state Summary. American Bar Association. p. 65. ISBN   9781590312087.
  9. ↑ Clarke, David (2006). "Long Residential Leases: Future Directions". In Bright, Susan (ed.). Landlord and Tenant Law: Past, Present and Future. Bloomsbury Publishing. pp. 171–190. ISBN   9781847312785.
  10. ↑ Owens, Keith (2013). Law for Non-Law Students. Routledge. pp. 104–105. ISBN   9781135338688.
  11. ↑ "A brief history of Queen's Park in Toronto".
  12. ↑ Molly Dover (28 July 2006). "Capital & Counties JV wins Covent Garden". Property Week. Retrieved 5 August 2010.
  13. ↑ "Coastguard History at St Alban's Head". National Coastwatch Institution. Retrieved 30 June 2016.
  14. ↑ "Isles of Scilly". Duchy of Cornwall. Retrieved 19 March 2020.
  15. ↑ Ceola Wilson (22 April 2013). "Peppercorn ceremony draws Freemasons from US, UK and Canada". The Royal Gazette.
  16. ↑ "Not to be Sneezed at - a peppercorn paid from Savills sponsored cricket club". Savills. 31 July 2012.
  17. ↑ René Gayle (19 September 2013). "When to execute as a deed". Jamaica Observer. Archived from the original on 2 April 2015.
  18. ↑ ""Councillors call for end to peppercorn rent paid by University of Bath after 'clear loss of trust'"". 14 December 2017.
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