The Arkansas Supreme Court ruled that a donor's restrictions in a deed of property to a church are legally enforceable.
In 1944, a donor executed a deed conveying property to a local church. The deed contained the following clause: "This transfer or deed is made with the full understanding that should the property fail to be used for the Church of God, it is to be null and void and property to revert to [the donor] or heirs." Several years later, the church wanted to sell its property and relocate. It asked a local court to cancel the clause in question and confirm that the church owned absolute title to the property.
The trial court granted the church the relief it requested, noting that the donor's reserved interest in the property was void on the ground that it violated the "rule against perpetuities." An heir of the donor appealed the case to the state supreme court, which reversed the trial court's decision and ruled that the property would revert to the donor's heirs if the church sold it.
The court acknowledged that the "rule against perpetuities" is recognized in virtually every state, including Arkansas, and that "this longstanding rule prohibits the creation of future interests or estates which by possibility may not become vested within a life or lives in being at the time of the effective date of the instrument and 21 years thereafter."
The court concluded that this rule did not apply in this case since the donor had retained a "possibility of reverter" that vested in the donor as soon as the deed was executed and accordingly was not subject to the rule against perpetuities. The court observed: "[T]he rule against perpetuities is alive, well, and fully applicable to terminate interests where those interests do not vest within 21 years after some life in being at the time of the creation of the instrument. However, the rule has no application to reversionary interests, which remain in the transferor and heirs. Such is the interest retained by the transferor in this instance …."
This case is of fundamental importance to those churches that have received property (by either gift or purchase) by means of a deed containing similar restrictions. Many persons have donated or sold property to churches "so long as" the property is used for church purposes, or so long as the property is used as a church of a specified denominational affiliation.
These kinds of restrictions often provide that the property shall revert to the original owner (or the original owner's heirs) in the event the condition is breached. Accordingly, any attempt by such a church to sell its property or to disaffiliate from its denominational affiliation can result in the automatic reversion of the property to the original owner (or the owner's heirs).
Obviously, this result can have disastrous and completely unforeseen consequences to the church. It is prudent, therefore, for any a church to address the following considerations prior to a sale of its property:
- Does the deed by which the church received title to the property contain any condition restricting sale?
- If the deed does contain a restriction on sale, is it in a legally recognizable form and is it legally enforceable under state law? Only an attorney can answer this question.
- If a legally enforceable restriction on sale does exist, is the previous owner (who imposed the restriction) willing to release it? If so, then an attorney should be enlisted to prepare an appropriate document releasing the restriction. If the previous owner is deceased, then only his or her legal heirs can release the restriction. Even if a church has no plans to sell its property, it would be prudent to discuss a release of such a restriction with the previous owner during his or her life, since a release of such a restriction becomes much more difficult after this person's death. Collins v. The Church of God of Prophecy, 800 S.W.2d 418 (Ark. 1990).