Rights of a reverter: gone but not forgotten

It may be time to get back to the classroom: property lawyers should be alert to peculiarities when dealing with property formerly owned by schools, institutions promoting science, the arts and literature or used as a place of worship. There may be trusts of land which should be overreached and sellers ought to be clear as to whether sale proceeds are due to third party beneficiaries.

Pursuant to the School Sites Act 1941, the Literary and Scientific Institutions Act 1854 and the Places of Worship Sites Act 1873 (“Acts”), any freehold interest in property which was granted, transferred or enfranchised (either by gift, sale or exchange) for a specific purpose would revert to the benefactor should use for that purpose cease.

Traditionally this could give rise to a title defect as a seller of property subject to the Acts might not have had title to dispose of that property. Clearly this was unsatisfactory, therefore the Reverter of Sites Act 1987 abolished the right of reverter and substituted a trust for sale (now a trust of land).

Owner trustees are free to sell affected property. However,  the proceeds of sale are held on trust for those who would otherwise have benefited from reverter rights.

If the original use of the property has ceased (which should always be verified), a buyer must ensure overreaching applies by checking the sale is by at least two trustees or a trust corporation (provided the corporation’s authority to act extends to private trusts – see Fraser v Canterbury Diocesan Board of Finance and Integrated Services Programme [2007] EWHC 1590). This will ensure the buyer will acquire the land free from the rights of reverter.

If, however, the original use is continuing at the time of disposition, the reverter trust has not yet arisen. If the specific use ceases during the buyer’s ownership, it is the buyer who will then hold the property on trust for the beneficiaries of the right of reverter. The buyer may not therefore be entitled to future sale proceeds.

Although the rights of reverter have been abolished and can be avoided by buyers through overreaching (provided the original use has stopped), it can remain a problem for sellers who oversee a change of use in affected property during their period of ownership:  proceeds from sale are then held on trust for the beneficiaries of the right of reverter.

This article was written by and posted on behalf of Samuel Goldsmith.