Understanding Restrictions Placed on Property Deeds

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.

Deeds to church property may contain restrictions on the sale or use of the property imposed by the prior owner. A recent ruling by a Texas court illustrates why it is important for church leaders to be familiar with any such restrictions prior to any changes involving church property, including a different type of use or a transfer of the property to another party through a sale or gift.

Background

In 1935, George Dew conveyed to a church a two-acre tract of land. The deed provides:

It is the intention and purpose of the grantor herein to convey the surface rights in the above described land to said religious organization and its successors, for use as a church premises and for such religious purposes, with the understanding and agreement that if said premises are not used for said purposes, or if used and thereafter abandoned for religious purposes, then said premises herein granted are to revert to the grantor.

To have and to hold said premises as above described unto said religious organization and its successors and assigns, for use only as a church premises and for religious purposes so long as said premises are used for said purposes, subject to the condition that said premises herein granted shall in the event said premises are not used for said purposes, or should they be used for religious purposes and thereafter abandoned for said purposes, then said premises are to revert to the grantor.

Dew died a few weeks after the conveyance.

In recent years, the church sued Dew’s heirs in order to determine the status of the property. The church asked the court for a declaration that Dew’s reversionary interest terminated upon his death.

The church alleged, and the court found, that donors and investors were denying the church financial assistance to expand “because it is believed that [Dew’s heirs] may have some future nonpossessory vested interest in the property.”

One of Dew’s heirs counterclaimed for a declaratory judgment that she is “a holder of a reversionary interest under the terms of the deed.”

The trial court concluded:

• Dew conveyed to the church “a fee simple surface estate, subject to a condition subsequent” and not a “fee simple determinable with possibility of reverter”;
• Any right of entry for breach of the condition subsequent “was solely for the life of [Dew] and terminated upon his death on December 28, 1935, and therefore the condition subsequent is now invalid and unenforceable[.]”

The trial court signed a final judgment consistent with these findings, declaring, among other things, that Dew’s heirs have no future interest in the property.

One of the heirs appealed.

“Possibility of reverter” or “right of entry”

On appeal, the parties agreed that the following excerpts from George Dew’s will created a “future interest” (emphasis added):

• “[W]ith the understanding and agreement that if said premises are not used for [religious] purposes . . . then said premises herein granted are to revert to the grantor.”
• “[S]ubject to the condition that said premises herein granted shall in the event said premises are not used for said purposes . . . then said premises are to revert to the grantor.”

The parties asked the court to determine if the “reversionary interest” in George Dew’s will was a “possibility of reverter” or “right of entry.” The court explained the difference between these two kinds of future interests in property:

The historical distinction between the two types of reversionary interests is that a possibility of reverter is said to transfer possession of the property automatically to the holder of the reversionary interest upon satisfaction of a condition, while a right of entry requires some action on behalf of the holder of the interest to take possession of the property after the condition is broken. . . . Although the distinction often makes no difference. . . . We agree with the trial court and the Church that [the heir’s] interest was a right of entry rather than a possibility of reverter.

The parties agree that the deed uses language that has been associated with creating either a possibility of reverter or a right of entry. Language such as “so long as” and “revert” may indicate a possibility of reverter while language such as “subject to the condition” may indicate a right of entry. . . . When there is doubt which type of interest was intended, the doubt must be resolved in favor of a right of entry as it is “in a sense less onerous upon the grantee in that, under such a construction, the estate does not terminate automatically with the occurrence of the stated contingency, but only after re-entry or its equivalent is made by the grantor.”

Accordingly, we resolve any doubt in the church’s favor and hold that [Dew’s heirs] retained a right of entry rather than a possibility of reverter under the deed.

What this means for churches

This case is relevant to churches for three reasons.

1. Deeds to property may contain conditions on uses and transfers of the property

Two common restrictions on property (whether related to uses or transfers) are “powers of reentry” and “possibilities of reverter.” These interests are 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.

2. Check the church’s property deed for restrictions

Church leaders should check their property deeds to see if they contain conditions that may give the prior owner either a possibility of reverter or a right of reentry. 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 its property.

3. This case illustrates the courts’ negative attitude toward restrictions

This case demonstrates the negative attitude the courts have toward restrictions on the sale of property by charities. In some states, laws have been enacted giving the civil courts the authority to extinguish 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.

Moroney v. St. John Missionary Baptist Church, 638 S.W.3d 698 (Tex. App. 2021)