Church Property

A clause in a church deed limiting any future conveyance of the property to “Protestant evangelical churches” was not enforceable.

Key point 7-14. Some deeds to church property contain a 'reversion' clause stating that title will revert back to the previous owner in the event that a specified condition occurs. The courts will enforce such provisions, so long as they can do so without interpreting church doctrine.

The Washington Supreme Court ruled that a clause in a church deed limiting any future conveyance of the property to 'Protestant evangelical churches' was not enforceable. A church purchased property in 1956 and received a deed conveying the property 'for the perpetual use of Protestant Evangelical Churches' of the community. The church eventually outgrew its facilities, and the congregation voted to sell its property and relocate to a larger facility. The church's efforts to sell its property to another evangelical church were unsuccessful. As a result, the church wanted to sell its property on the 'open market' and build new facilities a few miles away. A church member filed a lawsuit in which she asked the court to enforce the 'restrictive covenant' in the deed that barred the church from selling its property to anyone other than a 'Protestant evangelical church.' A trial judge ruled that the restrictive covenant did not prevent the church from 'deviating from the trust terms to allow for the sale of the subject property to finance a new church building to serve the Protestant evangelical community.' The case was appealed to the state supreme court.

The supreme court began its opinion by observing, 'This case requires us to consider whether an alleged restrictive covenant in a deed … prevents the receiving church from selling [its property] in order to relocate to a larger, nearby property.' The court then reached the following conclusions:

Sale versus use

The court noted that 'whether the 1956 deed in fact restricts the sale of the property at all is questionable,' since 'a stipulation that the property be used for the stated purpose does not, unambiguously at least, prohibit the sale of the property and application of the funds to the stated purpose. This is exactly what the church proposes doing with the property. It does not propose using the funds generated by the sale of the property for any unrelated objective.'

Charitable trust

The court ruled that the 1956 deed created a charitable trust, and that the intent of the creator of the trust (the previous owner) had 'one overriding and dominant intent' in conveying the property to the church, and that was 'to benefit the church and to provide for its success, growth, and endurance as a church, in ministering and spreading the gospel to the evangelical Protestants of the community, regardless of where the ministries were specifically located.' The court concluded, 'The primary aspect of this purpose was to assist and ensure the continuation of the Protestant evangelical ministries of the community through the church, regardless of where they were specifically located and regardless of the name of that church and to see that ministry carried on.' While there was also an intent to ensure that the property would be available for the Protestant evangelical churches of the community, 'this purpose was secondary to the [prior owner's] overriding and dominant intent.'

The 'equitable deviation' doctrine

The 'equitable deviation' doctrine empowers the courts to approve deviations in the stated purposes of trusts under certain conditions. This doctrine is explained in a respected legal treatise as follows: 'The court may modify an administrative or distributive provision of a trust, or direct or permit the trustee to deviate from an administrative or distributive provision, if because of circumstances not anticipated by the grantor the modification or deviation will further the purposes of the trust.' Restatement (Third) of Trusts § 66(1). The court stressed that 'it is important to recognize that the objective of equitable deviation is not to disregard the intention of the grantor, but rather to give effect to what the grantor's intent probably would have been had the circumstances in question been anticipated.' However, the party 'seeking permission to deviate from the trust terms has the burden of showing either changed circumstances or that relevant circumstances were unknown to the grantor.' Upon a finding of unanticipated changed circumstances, the court must then determine whether a proposed modification or deviation 'would tend to advance (or, instead, possibly detract from) the trust purposes.'

In summary, the court concluded that the doctrine of equitable deviation allowed it to approve a deviation from the trust's original purpose if (1) changed, unanticipated circumstances occurred, and (2) a deviation would further the purposes of the trust. As to the first requirement, the court described 'present-day material circumstances not anticipated by the grantor' including significant congregational growth; limitations with the building and property; stricter development and building codes; drastic changes in the community; and changes in the attitudes, expectations, and needs of parishioners compared with the 1950s. These findings supported the conclusion that present-day conditions presented 'circumstances not anticipated by the grantor' in the maintenance of the church and its service to the community.

The court also concluded that the second requirement (deviation would further the purposes of the trust) was met. It pointed to testimony that 'the church's mission, and thus the trust's primary purpose, would in fact be substantially impaired by continued habitation of the specific parcel of property.' The court noted that 'growth is an essential and necessary part of a successful evangelical church,' that the previous owner 'subscribed to growth being one of the obligations placed upon an evangelical Christian church,' and that there was numerous problems with the current property making it impracticable for the church to carry out its mission. The court concluded that 'based on substantial evidence introduced at trial, we now find, as a matter of law, that changed, unanticipated circumstances exist that are material to the trust's purpose, and permitting deviation from the alleged restriction on alienation would in fact further the primary purpose of the trust. As such, the facts of this case permit deviation.'

The court made two final observations. First, any proceeds from the sale of the property 'shall remain subject to the charitable trust, and the church must use those proceeds to provide a new church facility serving the Protestant evangelical community.' Second, the claim that the church had breached its fiduciary duty as trustee of a charitable trust if permitted to sell the property 'is rendered moot by this opinion.'

. This case illustrates the importance of church leaders being aware of the existence of any restrictive covenants that apply to church property. A restrictive covenant is a restriction on the use of property. Usually, such covenants appear in deeds (as was true in this case). Property owners, including churches, generally are legally bound by such restrictions. Here are some practical tips that will assist church leaders in dealing with restrictive covenants:

  1. Never purchase property without a clear understanding of the existence of any restrictive covenants and how such covenants may limit the church's use of the property. The presence of a restrictive covenant can prevent a church from using property for its intended purpose. In most cases, restrictive covenants will be spelled out, or referenced, in the deeds to church property.
  2. If your church owns property, be sure you are familiar with any restrictive covenants before you plan any changes in the use of the property.
  3. In some cases, restrictive covenants can be modified or ignored because of widespread disregard by property owners, or because of substantial changes in the properties subject to the restrictions. However, as the church in this case learned, establishing such an exception can be a very costly legal battle that may take years. The attorneys fees you incur ordinarily will not be covered by any insurance policy, so they will be an expense the church must bear. Church leaders should never assume that a covenant can be ignored. Check with a real estate attorney for an opinion regarding the current viability of a covenant.
  4. Church leaders also should be aware that restrictive covenants often provide that a property owner who violates the restrictions is required to pay the legal fees incurred by other property owners in enforcing them. In other words, restrictive covenants not only may prevent a church from using property for a purpose that violates the covenant, but they also may force the church to incur an unbudgeted and possibly substantial expense in paying the legal fees of neighbors who successfully sue to enforce the covenant. Niemann v. Vaughn Community Church, 113 P.3d 463 (Wash. 2005).

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