Pastor, Church & Law

Church Property Disputes—Dispute Resolution Procedures

§ 7.04

Key point 7-04. Churches and denominational agencies can avoid church property disputes by adopting appropriate nondoctrinal language in deeds, trusts, local church bylaws, or denominational bylaws.

How may a denomination ensure that it will retain the property of an affiliated church that votes to disaffiliate? How may an independent church congregation ensure that its property will remain with a particular group in the event of a church split? When can a local church seeking to disaffiliate from a particular denomination safely assume that it will retain the church property? And, how will a faction (a majority or a minority of church members) in an independent church know what its rights are, if any, in church property following a schism? The Supreme Court responded to these concerns in Jones:

[T]he neutral principles analysis shares the peculiar genius of private-law systems in general—flexibility in ordering private rights and obligations to reflect the intentions of the parties. Through appropriate reversionary clauses and trust provisions, religious societies can specify what is to happen to church property in the event of a particular contingency, or what religious body will determine the ownership in the event of a schism or doctrinal controversy. In this manner, a religious organization can insure that a dispute over the ownership of church property will be resolved in accord with the desires of the members.⁸³

Private resolution of church property disputes may be facilitated in a number of ways, including the following:

deeds
trusts
governing documents of local churches
governing documents of denominational agencies
state statutes
resulting trusts
constructive trusts
arbitration
buy-sell agreements
characterization of denominational financing as a loan

Each of these options is summarized in the following paragraphs.

1. DEEDS

Deeds to church property can provide for private resolution of church property disputes in a variety of ways.

a. Denomination holds title to local church property. Some denominations have title to local church property deeded to themselves, because of a mandate in the denomination’s governing documents, or because the denomination contributed significantly toward the acquisition of the property or for some other reason has an equitable interest in the property. In such a case, neutral principles of law ordinarily would confirm the denomination’s ownership of the property.

b. A trust provision. A deed can specify that a local church holds title in trust for a parent denomination.⁸⁴The civil courts will enforce such a trust as long as no interpretation of church doctrine is required.

c. Reverter clauses. A deed could vest title in the local church, subject to a reversion clause or a possibility of reverter stipulating that in the event a stated condition occurs title will vest in a parent denomination or in a particular faction of the church. The condition must be worded in such a way that a court could enforce it without interpreting religious doctrine or polity. Neutral conditions might include disaffiliation or a disagreement about who owns church property. In either case, a court would be called upon to determine whether a disaffiliation or a property dispute had in fact occurred. Such a determination would not necessarily involve religious doctrine.

Alternatively, a reverter clause could specify that a church’s property immediately reverts to a parent religious body upon an attempted conveyance of property by the church. Such a provision would prevent a church from deleting a reverter clause in its deed by reconveying property to itself, either outright or through an intermediary, by a deed not containing the reverter clause. However, any reverter clause conditioned on an attempted conveyance of church property would automatically vest title in a parent denomination upon any attempted conveyance, even those unrelated to a disaffiliation.

Most conveyances of church property are not associated with a disaffiliation. Rather, they are prompted by a desire for a new location or a larger facility. But unless the church obtains a written release or renunciation of the reverter clause from the parent denomination and has it recorded in the office of the recorder of deeds for the county in which the property is located, the property may automatically revert to the denomination whenever a church conveys its property. In many states the parent denomination could execute a quitclaim deed in favor of the local church. The parent denomination of course could condition the execution of a release or quitclaim deed upon the inclusion of a reverter clause in the deed by which the local church acquires title to its new property.

A church deed could include a reverter clause conditioned on either an attempted conveyance of church property or disaffiliation. Such a clause presumably would be effective if its enforcement would not require an interpretation of church doctrine.

A church whose property is held subject to a reversion in favor of a parent religious body, whether through a provision in a deed, charter, bylaw, or constitution, ordinarily is not permitted to borrow money from a commercial lending institution unless the parent body signs a “subordination agreement” agreeing to subordinate its interests under the reversionary clause to the mortgage securing the lender’s loan. Such agreements have three objectives. First, they insure that the lender will have priority over the parent religious body in the event of a default. Second, they insure that the lender will be able to recover some or all of its losses by selling the church’s property in a foreclosure sale. Third, they insure that the church’s execution of a mortgage agreement in favor of the lender will not inadvertently trigger the reverter clause in favor of the parent religious body. A mortgage constitutes a conveyance of a church’s legal or equitable interest in its property to the lending institution (or, in the case of a deed of trust, to a trustee) until such time as the loan is repaid. Many commercial lending institutions remain unaware of the danger of failing to secure a subordination agreement from the beneficiary of a reverter clause.

d. Title held jointly. Title to local church property is sometimes held jointly by both the church and a denominational agency as joint tenants or tenants in common. However, note that depending on how the property is titled, a majority faction in the church may be able to have the property partitioned (the denomination and the local church would each be declared absolute owner of a fraction of the whole).

2. TRUSTS

Some denominations have amended their governing documents to declare that all affiliated churches hold property “in trust” for the denomination. The objective is to insure that the denomination will control the property of any affiliated church that votes to disaffiliate. As an example, the Supreme Court in the Jones case cited paragraph 1537 of the Methodist Book of Discipline:

Title to all real property now owned or hereafter acquired by an unincorporated local church … shall be held by and/or conveyed to its duly elected trustees … and their successors in office … in trust, nevertheless, for the use and benefit of such local church and of The United Methodist Church. Every instrument of conveyance of real estate shall contain the appropriate trust clause as set forth in the Discipline. …

The Court noted that Section 2503 of the Book of Discipline requires that the following “trust clause” be incorporated in any deed transferring real estate to a church:

In trust, that said premises shall be used, kept, and maintained as a place of divine worship of the United Methodist ministry and members of the United Methodist Church; subject to the Discipline, usage, and ministerial appointments of said church as from time to time authorized and declared by the General Conference and by the Annual Conference within whose bounds the said premises are situated. This provision is solely for the benefit of the grantee, and the grantor reserves no right or interest in said premises.

The Book of Discipline also stipulates that in the absence of a trust clause, a trust in favor of The United Methodist Church would be implied if:

the conveyance is to the trustees of a local church associated with any predecessor to The United Methodist Church;
the local church uses the name of any predecessor to The United Methodist Church and is known to the community as a part of The United Methodist Church; or
the local church accepts ministers appointed by any predecessor to The United Methodist Church.

The Supreme Court inferred that such “implied trusts” would be legally enforceable since they necessitate no interpretation of religious doctrine.

Churches that receive title to property subject to an express trust ordinarily must release the trust when the property is sold. For example, if a deed to church property specifies that the property is held by the church in trust for the use and benefit of a particular denomination, this trust attaches to the property and must be released upon a sale of the property in order to relieve the transferee of the terms of the trust.

In 1979, the Protestant Episcopal Church in the United States of America (PECUSA) adopted Canon 1.7.4, which provides:

All real and personal property held by or for the benefit of any parish, mission or parish, mission or congregation is located. The existence of this trust, however, shall in no way limit the power and authority of the parish, mission or congregation otherwise existing over such property so long as the particular parish, mission or congregation remains a part of, and subject to this Church and its constitution and canons.

PECUSA Canon II.6.2, further provides:

In the event of the dissolution of any Parish or Mission by the Convention, the real and personal property of the Parish or Mission shall immediately vest in the Trustees of the Diocese, in trust for the dissolved Parish or Mission.

The Book of Order of the Presbyterian Church (U.S.A.) (“PCUSA”) contains several paragraphs subjecting local church properties to an express trust in favor of the PCUSA. These include the following:

All property held by or for a particular church … whether legal title is lodged in a corporation, a trustee or trustees, or an unincorporated association … is held in trust nevertheless for the use and benefit of the Presbyterian Church (U.S.A.).⁸⁵

Whenever property of, or held for, a particular church of the Presbyterian Church (U.S.A.) ceases to be used by that church as a particular church of the Presbyterian Church (U.S.A.) in accordance with this constitution, such property shall be held, used, applied, transferred, or sold as provided by the presbytery.⁸⁶

The relationship to the Presbyterian Church (U.S.A.) of a particular church can be severed only by constitutional action on the part of the presbytery. … If there is a schism within the membership of a particular church and the presbytery is unable to effect a reconciliation or a division into separate churches within the Presbyterian Church (U.S.A.), the presbytery shall determine if one of the factions is entitled to the property because it is identified by the presbytery as the true church within the Presbyterian Church (U.S.A.). This determination does not depend upon which faction received the majority vote within the particular church at the time of the schism.⁸⁷

The Cumberland Presbyterian Church denomination amended its constitution in 1984 to include a provision subjecting all local church property to a trust in favor of the denomination. The amendment provides, in relevant part:

3.32 The Cumberland Presbyterian Church is a connectional church and all lower judicatories of the church to-wit: synod, presbytery, and the particular churches are parts of that body and therefore all property held by or for a particular church, a presbytery, a synod, the General Assembly, or the Cumberland Presbyterian Church, whether legal title is lodged in a corporation, a trustee or trustees, or an unincorporated association, and whether the property is used in programs of the particular church or of a more inclusive judicatory or retained for the production of income, and whether or not the deed to the property so states, is held in trust nevertheless for the use and benefit of the Cumberland Presbyterian Church.

3.33 Whenever property of, or held for, a particular church of the Cumberland Presbyterian Church, ceases to be used by the church, as a particular church of the Cumberland Presbyterian Church in accordance with this Constitution, such property shall be held, used, applied, transferred or sold as provided by the presbytery in which that particular church is located.

3.34 Whenever a particular church is formally dissolved by the presbytery, or has become extinct by reason of dispersal of its members, the abandonment of its work, or other cause, such property as it may have shall be held, used, and applied for such uses, purposes, and trusts as the presbytery in which said particular church is located may direct, limit, and appoint, or such property may be sold or disposed of as the presbytery may direct, in conformity with the Constitution of the Cumberland Presbyterian Church. …

3.35 A particular church shall not sell, nor lease its real property used for purposes of worship, nurture or ministry, without the written permission of the presbytery in which the particular church is located, transmitted through the session of the particular church.

Trust provisions should be drafted in such a way as to avoid any interpretation of religious doctrine. To illustrate, an Arizona state appeals court refused to enforce an express trust on the basis of a deed conveying title to the “trustees of The Word Chapel, a religious body,” since this would require an examination into religious doctrine of [the church], and a determination of who the real [beneficiary] is according to their current beliefs. … [S]uch an approach was … expressly declared unconstitutional by the United States Supreme Court in [Hull]. … [W]e hold that any express trust, sought to be enforced in favor of some specific doctrine or belief, must be written so that the court can enforce it on purely secular terms.⁸⁸

Case studies

• A New York court ruled that a local church retained ownership of its property following its disaffiliation from the Presbyterian Church (U.S.A.), despite an attempt by the PCUSA to impose a trust on all church property through an amendment to its Book of Order. The court concluded that this provision was not enforceable in this case: “Only the owner of real property can convey an interest in the property; B cannot create a future interest in A’s property without A’s consent. … In the absence of any language in the deed to [the church] indicating that title is held subject to the laws or discipline of the national church a change in the laws of the national church does not affect title to the property held by the local church. Moreover, when [the church] acquired the real property [the amendments to the Book of Order] did not exist. … Mere silence and continuing its membership in the denominational church, absent more, is an insufficient expression of an intent to create a trust.”⁸⁹

• A North Carolina court ruled that the property of a local church that voted to withdraw from the Protestant Episcopal Church (PECUSA) automatically vested in the PECUSA because of a trust provision in the denomination’s canons. The court referred to Canon I.7.4 (quoted above), and concluded: “Prior to its withdrawal, the entire congregation had adhered to the Constitutions and Canons of PECUSA and the Diocese for nearly fifty years. During that time, [the church] elected delegates to participate in various conventions at which new and revised canons were adopted, and did not contest the adoption of those canons thereafter. Under the language of these canons, it is clear that the [church’s] property was to be held in trust for the Diocese. Its withdrawal essentially resulted in a dissolution of the parish whereby the property immediately vested in the Diocesan trustees until the Executive Council of the Diocese passed a resolution recognizing those members of the original congregation that remained loyal to PECUSA and the Diocese as the new [church]. Thus, the canons clearly established a form of governance impliedly assented to by the defendants that precluded the seceding vestry from taking control of the property.”⁹⁰

3. LOCAL CHURCH CHARTER OR BYLAWS

In the event of a church dispute, the local church charter or bylaws may provide for the disposition of property. Again, to be enforceable, such a provision must not require an interpretation of church doctrine.⁹¹This method of private resolution of church property disputes is of limited value, since the governing documents of many local churches can be amended by a vote of the church membership.⁹²

4. CONSTITUTION OR BYLAWS OF A PARENT DENOMINATION

The governing documents of a parent denomination may contain a provision vesting title to church property in the denomination in the event of a dispute or disaffiliation. Again, such a provision must be made dependent upon doctrinally neutral conditions.To illustrate, a provision mandating reversion of church property to the denomination in the event that a local church “departs” or “deviates” from the doctrine of the denomination would not be recognized by the courts, since enforcement would necessitate an interpretation of religious doctrine. As noted above, a number of denominations have adopted provisions attempting to control the disposition of local church property in the event of a disaffiliation through the imposition of a trust. Clauses adopted by the United Methodist Church and the Protestant Episcopal Church are quoted in the preceding paragraphs.

Case studies

• A Kansas court ruled that the Church of God in Christ (the “national church”) owned the property of a local church that attempted to disaffiliate. The court noted that the Official Manual of the national church specifies: “A local church, which has been accepted by the Church of God in Christ and issued a Certificate of Membership, shall not have the legal right or privilege to withdraw or sever its relations with the General Church, except by and with the permission of the General Assembly.”⁹³

• A South Carolina court ruled that the property of a church that voted to disaffiliate from a parent denomination belonged to the denomination as a result of provisions in the denomination’s bylaws.⁹⁴

5. STATE STATUTES

State legislatures can enact statutes that provide for the disposition of property in the event of a church dispute. Illustratively, the Georgia legislature has enacted a law which provides that “the majority of those who adhere to its organization and doctrines represent the church. The withdrawal by one part of a congregation from the original body, or uniting with another church or denomination, is a relinquishment of all rights in the church abandoned.”⁹⁵Pennsylvania adopted a statute several years ago referred to as the “Lay Control of Church Property Act,” which provides:

Whensoever any property, real or personal, has heretofore been or shall hereafter be bequeathed, devised, or conveyed to any ecclesiastical corporation, bishop, ecclesiastic, or other person, for the use of any church, congregation, or religious society, for or in trust for religious worship or sepulture, or for use by said church, congregation, or religious society, for a school, educational institution, convent, rectory, parsonage, hall, auditorium, or the maintenance of any of these, the same shall be taken and held subject to the control and disposition of such officers or authorities of such church, congregation, or religious society, having a controlling power according to the rules, regulations, usages, or corporate requirements of such church, congregation, or religious society, which control and disposition shall be exercised in accordance with and subject to the rules and regulations, usages, canons, discipline and requirements of the religious body, denomination or organization to which such church, congregation, or religious society shall belong, but nothing herein contained shall authorize the diversion of any property from the purposes, uses, and trusts to which it may have been heretofore lawfully dedicated, or to which it may hereafter, consistently herewith, be lawfully dedicated. …⁹⁶

A Pennsylvania court, in commenting on this statute, noted that it “requires that properties attached to seceding local churches formerly in union with hierarchically governed denominations remain with the denomination.” The court concluded that the statute was consistent with and anticipated the neutral principles approach—and required that title to a seceding Presbyterian church revert to the denomination.⁹⁷

Such statutes must not involve any interpretation of religious doctrine or polity. The Georgia statute involves no doctrinal interpretations. A court only has to determine whether a faction in a church has withdrawn from the original body or united with another church or denomination. Such determinations normally would involve no interpretation of religious doctrine or polity, and as a result would constitute an appropriate means of resolving church property disputes.

6. RESULTING TRUSTS

In many states, a “resulting trust” arises by operation of law in favor of the person who purchases property in the name of another. The law presumes that it ordinarily is not the intention of a person paying for property to make a gift to the one receiving title. This presumption is rebuttable, however. Similarly, if a person contributes only a part of the purchase price of a piece of property placed in the name of another, a resulting trust will arise in favor of the payor on a prorata basis. In such cases, however, the courts often require the payor to demonstrate the precise percentage contributed toward the entire purchase price.

A local church that acquires property because of the contributions of a parent denomination may hold title subject to a resulting trust in favor of the denomination in proportion to its contribution. For example, a denominational agency contributing all or substantially all of the funds used to purchase a local church property should be entitled to the benefit of a resulting trust interest in the entire property.⁹⁸

Case study. An Ohio court ruled that a home purchased by a church for its pastor was subject to a “purchase money resulting trust” in favor of the church and therefore the home could not be considered in a property settlement following the pastor’s divorce. A pastor and his wife filed for a divorce. While the couple was engaged in dividing their assets, the pastor’s church intervened in the divorce action and asserted a legal interest in the couple’s home. The court ruled that when property is purchased by one person, but title is vested in another, the person holding title does so subject to a “purchase money resulting trust” in favor of the person who paid for the property—at least if the parties intended that the purchaser have some equitable interest in the property. The court pointed out that the church purchased the home and adjoining property as a site for a new church building. As a result, the pastor and his wife held title to the home in trust for the church, and the home was not marital property that could be divided between the pastor and his wife.⁹⁹

7. CONSTRUCTIVE TRUSTS

A constructive trust may be imposed if one person holds title to property that in equity and good conscience should be held by another. A constructive trust may arise as a result of several factors, including misrepresentation, failure to use property or funds for stated purposes, refusal to carry out the terms of an express trust, frustration of the terms of a will, or wrongful conveyance of another’s property. It is possible for the law of constructive trusts to apply to church property so long as no inquiries into church doctrine or polity are involved.¹⁰⁰

8. ARBITRATION

A church could insert a provision in its charter, constitution, or bylaws specifying that any dispute concerning title to any of its properties will be resolved through binding arbitration. Such provisions occasionally are contained in the organizational documents of nonprofit corporations, and they ordinarily are upheld as binding agreements on the part of the membership.

• The Iowa Supreme Court ruled that a dispute over control of a church’s property following its attempt to withdraw from a parent denomination was governed by a binding arbitration clause in the denominations governing document.¹⁰¹

9. BUY-SELL AGREEMENTS

A buy-sell (or “preemption”) agreement requires a property owner to offer the property to a designated person at a stipulated price before selling it to another. Religious denominations wanting to maintain control over the property of dissident churches could require churches to execute such an agreement, giving the parent denomination a preemptive right to purchase the church’s property at a specified price at or below market value. Such an agreement obviously would be of no value unless a dissident church wanted to sell its property. Alternatively, a denomination could enter into a purchase agreement with a local church giving the denomination the right to purchase the church’s property in the event of a disaffiliation. Such agreements, if supported by adequate consideration, ordinarily will be enforceable.¹⁰²

10. CHARACTERIZATION OF DENOMINATIONAL FINANCING AS A “LOAN”

A denomination that invests funds in a local, affiliated church could have the church execute a promissory note in favor of the denomination, secured by an appropriate mortgage instrument (with a “future advances clause” securing the repayment of any additional advances by the denomination), specifying that payment shall be due in full within a specified number of days (e.g., 30 days) after the church votes to disaffiliate from the denomination. This arrangement could protect the investment of the denomination in the local church. Some rate of interest should be specified to adequately compensate the denomination for the lost opportunity costs associated with the loss of its capital from the time of the “loan” to the time the church votes to disaffiliate.

11. CONCLUSION

If none of these neutral principles of law disposes of church property in the event of a dispute, then the courts will be compelled to apply the methodology of resolution that they have adopted.

In the sixth chapter of the apostle Paul’s first letter to the church at Corinth, he wrote:

If any of you has a dispute with another, dare he take it before the ungodly for judgment instead of before the saints? … [I]f you have disputes about such matters, appoint as judges even men of little account in the church! I say this to shame you. Is it possible that there is nobody among you wise enough to judge a dispute between believers? But instead one brother goes to law against another—and this in front of unbelievers! The very fact that you have lawsuits among you means you have been completely defeated already. Why not rather be wronged. Why not rather be cheated?¹⁰³

Paul’s denunciation of lawsuits involving Christians is clearly based in part upon the fear that such suits will give unbelievers a negative impression of Christianity. This fear is still warranted. In the Watson decision, the United States Supreme Court itself remarked:

[W]e have held [the case] under advisement for a year; not uninfluenced by the hope, that … charity, which is so large an element in the faith of both parties, and which, by one of the apostles of that religion, is said to be the greatest of all the Christian virtues, would have brought about a reconciliation. But we have been disappointed. It is not for us to determine or apportion the moral responsibility which attaches to the parties for this result.¹⁰⁴

Similarly, a state court observed:

Any church dispute has a deep effect upon all involved. If we all followed the teachings of Jesus as to turning the other cheek, there would be no need for courts. Likewise, if the teachings of Paul were followed, a religious dispute would never reach the civil courts. However, these disputes have plagued churches from time immemorial. Paul’s First Epistle to the Corinthians was written over such a dispute. As long as we are humans, such disputes will arise. In any religious dispute there is no winner; only losers. All sides lose and the cause for which the church was organized must lose.¹⁰⁵

The decision to take other Christians to court, like most ethical determinations, is not a private decision. It is a decision that also affects outsiders’ perceptions of the Christian faith. And, it is a decision that, in many cases, will directly contradict Paul’s command in First Corinthians 6. Such considerations, at the least, should encourage utilization of the various methods of private resolution promoted by the Supreme Court in Jones v. Wolf. In most cases such methods would avoid litigation. Their effect, however, would be cosmetic, covering over real and festering disputes among believers for whom Jesus prayed “that they may be one.” Only grace—not courts or neutral principles—can resolve these disputes.

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