Reversionary Clauses in Deeds: A Checklist

Ten items to understand about your deed.

Ten items to understand about your deed.

Many churches received title to their property by means of a deed containing a restriction. It is imperative for church leaders to be aware of such conditions. Consider the following points:

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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.
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.
Deeds to property may contain restrictions on the sale of the property. Two common restrictions are “powers of reentry” and “possibilities of reverter.” These interests are very similar, but they have very different legal consequences. A possibility of reverter arises when one person transfers property to another by means of a deed containing language clearly providing that title will automatically revert to the prior owner if the current owner violates a restriction in the deed. Language creating a possibility of reverter includes words such as “so long as,” “until,” or “until such time as.” To illustrate, assume that A transfers land to B with a deed specifying that title is transferred “so long as” B uses the property for church purposes. Here, the language is clear that if the land ceases to be used for church purposes, it will automatically revert to A. The significance of this is that the reversion of title to A is automatic, and requires no action by a court. On the other hand, deeds often contain conditions that do not call for an automatic reversion of title to the previous owner upon the occurrence of some condition. In such cases the prior owner has a “right of reentry.” Such a right does not vest automatically in the prior owner. Rather, the prior owner must go to court to have his or her interest recognized. As this case illustrates, this is a more uncertain interest in property, since it does not operate automatically.
Churches should check their deeds to see if they contain a condition that may give the prior owner either a possibility of reverter or a right of re-entry. In either case, the prior owner may attempt to claim title to the church’s property in the event the specified condition is violated. However, if the prior owner retained a possibility of reverter, the transfer of title back to the prior owner occurs immediately. This can cause major problems for a church when it belatedly discovers that it no longer owns the property.
The courts generally have a negative attitude toward restrictions on the sale of property by charities. Some states have enacted laws giving the civil courts some leeway in extinguishing such restrictions. If your church deed contains restrictions on the sale of property, you may want to consult with a local attorney concerning the existence of such a law in your state.
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.
It is possible in some cases to have conditions “released” by the previous owner (if he or she is willing to do so). Often this is done by having the previous owner execute a quitclaim deed. If the previous owner is no longer living (a fairly common circumstance), then the condition can be released only by all of the legal heirs of the deceased owner. This can be a very cumbersome process.
Be sure your church complies with any deed restrictions to the extent you are unsuccessful in getting them removed.
When acquiring property through purchase or gift, discourage the property owner from encumbering the title with any restrictions that could later create substantial inconvenience for the church.
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.

Church Law & Tax Report is published six times a year by Christianity Today International, 465 Gundersen Dr. Carol Stream, IL 60188. (800) 222-1840. ¬© 2008 Christianity Today International. editor@churchlawandtax.com All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. “From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.” Annual subscription: $69. Subscription correspondence: Church Law & Tax Report, PO Box 37012, Boone, IA 50037-0012.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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