Reversion Rights Explained
Sam James, Trainee Solicitor | 1st November 2022
Reversion rights are rights that may burden a property that was once gifted, and on a subsequent sale, the property has to be given back to the giftor. Reversion rights are a specific challenge which may be encountered when dealing with property transactions involving education, faith and other charitable organisations.
Publically funded compulsory education came into effect through the Elementary Education Act of 1870. Prior to this, school sites were provided by charitably-minded landowners who provided small sites in their estates or in their manors for use as a school or places of worship. To encourage landowners to provide sites, legislation was introduced “that if the land ceased to be used for the purposes for which it had been granted it would automatically revert”. Therefore, if the land is no longer to be used as intended when transferred (i.e. a school), the ownership of the land would be permitted to revert to the original owner or their heirs.
The legislation is:
- Reverter of Sites Act 1987;
- School Sites Acts 1841 to 1852; and
- Literary and Scientific Institutions Act 1854
(collectively, known as the Reverter Acts).
The initial legislation was intended for schools. However, the legislation extends to include religious and other charitable purposes.
If land being transferred is subject to a right of reversion the land, or the profits from a sale of the land, are to revert to the original land owner or their heir. As an heir may not be readily identifiable, the Reverter of Sites Act 1987 was passed, which had the effect of empowering The Department for Education or the Charities Commission to be trustee; and when a reverting event occurs, the trustees hold the land on a trust of land.
Properties that were donated under the Reverter Acts may no longer be fit for purpose, resulting in local authorities and charitable organisations moving to new sites to develop modern facilities. When old facilities become redundant and their use ceases, the right of the reverter may be triggered.
The land or the proceeds of sale will then be held on trust until the beneficiary (the giftor’s heir) has been discovered. If the beneficiary cannot be found, or if the beneficiary renounces their claim, the trustees can apply under the 1987 Act for a Scheme to return the land to charitable uses.
A local authority, or charitable organisation, could be in breach of a reversion right if they were to sell land to a developer that is subject to reversion rights. In the event that the beneficiary of rights of the reverter were to be uncovered, costs may be incurred in resolving the position, arising from damages, compensation or settlement which a court could order to be paid to the beneficiary.
