A Powerful Tool
Transferring Property on Condition
A reversionary interest is created when a deed provides that the property transfer is “on condition that” or “only for so long as” the property described in the deed is used, or not used, for certain purposes. The reservation of a reversionary interest in a deed gives the original owner (and the owner’s heirs, successors and assigns) a powerful tool to take the land back if promises about future land use are broken.
A reversionary interest is useful for addressing a number of conservation scenarios:
- An owner may be more willing to donate land to a municipality for a public park or other conservation use if there is a mechanism in place for a transfer of ownership back to the owner (or the owner’s heirs, successors and assigns) if the municipality at a later date decides to sell the land, build a salt dome on it or use the land in some other way detrimental to the donor’s conservation intent.
- A donor wishes to donate land to a nonprofit that does not have conservation as its central purpose and wants to ensure that the land is maintained in a relatively natural and open condition. Examples of nonprofits that can benefit by open space donations but that aren’t necessarily inclined to maintain gifts of open space as open space in the long run include but aren’t limited to churches, universities and scouting groups. Reserving a reversionary interest in the deed at the time of the gift can assure that the land will transfer to a conservation organization if the recipient of the gift uses, or ceases to use, the land in conformity with the expectations of the donor.
- A reversionary interest can meet the needs of a donor who will not transfer ownership of his land to any entity without strong assurance that it will be used only for a specific public or charitable purpose, for example, a public trail.
- Funders of open space acquisitions can use reversionary interests to assure that property acquired with their grant funds will be used in conformity with their program standards or, if not, ownership will be transferred to another entity who will use the land in conformity with such standards.
Transferring Reversionary Interest to Another Entity
The possibility of future ownership – the reversionary interest – can be transferred to a land trust or other person or entity by recordation of a deed or other instrument of transfer in the public records of the county in which the land is located.
Because a reversionary right may not be exercised for an indeterminate period, an individual who has reserved such a right is well advised to transfer the right during his lifetime to an entity that can act quickly and decisively in the event of a breach of condition.
Varieties of Reversionary Interests
Reversionary interests can be structured in several ways. The change of ownership can occur automatically when the condition is broken or it can occur only if and when the holder of the reversionary interest elects to retake the property once the condition is broken. The reserved right can be structured as an option to repurchase for nominal, fair value or other consideration if and when the condition is broken.
An automatic reversion is created by a deed that grants title from grantor to grantee on condition that, or only for so long as, certain conditions are met. If nothing more is said about how the change of ownership is to occur, it happens automatically upon the occurrence of the condition. Full title and the right of possession become immediately vested in the original grantor or whoever now holds the grantor's possibility of reverter.
While this is true as a legal principle, in actuality it's not that simple: official title and tax records are not automatically changed merely by delivery of an affidavit that a certain occurrence has happened and, accordingly, by operation of law, the holder of the reversionary interest is now the owner of the property. An action in ejectment (an action to determine rights of possession) or, perhaps, if possession of the property is not in issue, an action in quiet title (an action to determine rights of ownership), may be necessary to establish the termination of the grantee's fee simple interest and the change of ownership to the holder of the reversionary interest on the public records. If the occurrence of the triggering event is disputed, then establishing the change of ownership may not be simple, easy or inexpensive.
Right of Reentry
It is generally unwise to accept ownership of a parcel of land that has not been inspected for conformance to applicable laws. The land may have been free of hazardous substances or waste when conveyed but there is no guarantee that it will be free of problems when the condition is broken. For that reason, a right of reentry may be preferable to an automatic reversion. The right of reentry is created by adding to the reversionary clause described above a provision along the lines of the following:
but if the land ceases to be used as and for a public park or nature preserve, then grantor, his heirs and assigns, have the right to re-enter the premises and, upon exercise of such re-entry, all right, title and interest of grantee in the above-described premises shall cease and revert immediately to grantor, his heirs and assigns.
Contemporary drafting practices would support adding to the provision an agreed upon method to effectuate the re-entry, other than by taking actual possession or by commencement of an action in ejectment, such as giving of notice by certified mail, etc. to the address of the then owner identified on the county tax records and/or posting at the property.
Option to Reacquire
No compensation is paid upon the occurrence of an automatic reversion or a right of re-entry. This may be perfectly acceptable if the original transfer was a donation strictly for open space purposes. But if the original transfer was a sale, in whole or in part, or the grantee is expected to install improvements consistent with applicable restrictions, then the grantee may not be willing to accept the creation of a reversionary interest that does not provide for some compensation being paid to the grantee upon the reversion or exercise of right of re-entry. One method to address this need for compensation is to substitute for a right of re-entry an option to purchase. The purchase price could be the original consideration adjusted by some factor, compensation for the present value of improvements, fair market value or some other calculation that takes into account the reasonable expectations of the parties without rewarding the grantee for breach of the condition triggering the reversionary right.
Issues to Consider
Identifying Triggering Events
Consideration should be given to drafting the triggering event so that action can be taken before damage or destruction of conservation values has occurred.
Change of Use
Change of use as a triggering event may be difficult to enforce without reference to a description of ongoing uses as of transfer date or a description of uses that may or may not be ongoing as of the transfer date but which do not trigger the reversionary right.
Change of Ownership
Change of ownership alone as a triggering event may be challenged as an unreasonable restraint on alienation unless the restriction is limited to a particular category of owners that bears some reasonable relationship to the purpose of the condition. For example, if the purpose of the reversionary right is to limit the universe of potential owners to entities who would have qualified as an original grant fund recipient, then the triggering event could be drafted so as to be a change of ownership to a person or entity who would not so qualify.
If change of ownership is the triggering event, a right of first purchase may be considered as an additional or alternative right to reacquire the property.
Grant to Third Party
To avoid an issue as to whether a third party can be vested with the reversionary interest reserved in a deed, it is advisable not to name the third party in the deed; instead, transfer the reversionary right reserved to the grantor (and their heirs, successors and assigns) to the third party by separately recorded assignment.
Has the Reversion Occurred?
The possibility of reversion impacts marketability of title to a greater degree than the existence of a deed restriction on future use of the property (sometimes called a restrictive covenant). If a restrictive covenant is violated, perhaps inadvertently, the owner can cease the non-compliant activity without concern that his title may be vulnerable to divestment. If the violation has triggered a reversion, title may have been divested or may be subject to divestment even though nothing appears on the public record and the triggering activity has ceased without any visible signs on the property. Title risks are a factor taken into consideration in establishing market value of a property.
Who has Rights?
Determining who has the right to exercise, modify or release a reversionary right can be a complicated title problem. Possibilities of future ownership are often not specifically addressed in wills and so pass through residuary clauses or intestate succession over a number of generations resulting in a large number of individuals holding an undivided proportionate share in the reversionary right.
An action in ejectment or quiet title may be necessary to effectuate the reversionary right and establish good and marketable title on the public record.
Remedies for breach of a restrictive covenant, such as injunctive relief, may not be available if the occurrence is stated only as a triggering event for the reversionary right and not as a separately enforceable restrictive covenant.
Property law varies by state. While Pennsylvania law is the context for this exploration of reversionary interests, much of the guide's content has relevance nationwide.
Section 5 of the Act defines “Transfer of Property” as “In the following sections ‘transfer of property’ means an act by which a living person conveys property in present or in future, to one or more other living person, or to himself, and one or more other living persons, and “to transfer property” is to perform such act.
In this section “Living Person” includes “a company or association or body of individuals whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.”
The word “property” has not been defined in the Act, but it has a very wide meaning and includes properties of all descriptions. It includes movable properties such as case, books, etc., and includes immovable properties also such as lands or houses. It also includes intangible properties such as ownership, tenancy, copyrights, etc.
The word ‘transfer’ has also very wide meaning. It may be either transfer of all the right and interests in the property or transfer of one or more of subordinate right in the property.
The transfer of property may be made to take place with immediate effect or to take place on a future date; however the property must be in existence at the date of transfer. There can be no transfer of future property. The expression ‘in present or in future’ governs the word ‘conveys’ and not the word ‘property’, e.g., A transfers his property to B for life and then to C. The transfer in favour of B is present (although he gets only life interest) but the transfer in favour of C is future transfer.
The transfer of property as defined under Section 5, is an act between two living persons. Thus the conveyance of the property must be from one living person to another living person. However transferee need not be a competent person like transferor. A transferee may be a minor, insane or child in mother’s womb.
The word “living person” includes corporations and other association of person. A transfer can be made by a person to himself, as for instance when a person vests property in trust and himself becomes the whole trustee.
Kinds of Transfer
The Act contemplates the following kinds of transfers: (1) Sale, (2) Mortgage, (3) Lease (4) Exchange, and (5) Gift. Sale is an out-and-out transfer of property. In mortgage, there is a transfer of limited interest in property. A lease is a transfer of a right to enjoy immovable property for a certain time or in perpetuity. Exchange is like a sale, but differs from it as regards the consideration. In sale, the consideration is money, while in exchange, the consideration is another thing. In a gift, there is no consideration.
In Harish Chandra v. Chandra Shekhar, AIR 1977 All 44 , it was held that a realease-deed is a conveyance, hence a transfer of property. If the release deed states that the releaser was the owner and it shows an intention to transfer his title and its operative word sufficiently was the conveyed the title it would amount to transfer.
Transfer of Property Act, 1882 not amounting to Transfer of Property
As the transfer of property’ means ‘conveying of property’, i.e., creation of new title or interest in the favour of the transferee, if new title or interest has not created in favour of transferee , the property cannot be said to be conveyed, thus no transfer of property.
- Partition- As nothing new is obtained by a co-sharer on partition, it is not a transfer of property. His specific share, which vested in him earlier, is simply separated.
- – The only right created in a charge is a right to payment out of the property subjected to charge, thus it is not a transfer. [Gobind Chandra v. Dwarka Nath, (1908) 35 Cal 837]
- Relinquishment:—It is an extinction of a right and therefore, there is nothing left to transfer. Thus a relinquishment by a reversioner of his reversionary interest does not amount to transfer (Barati Lal V. Salik Ram, 38 All 107). But if the person in whose favour the ‘release’ is executed, gets certain rights by virtue of such release, the transaction may amount to a transfer [Maniapp pillai v. Periasami, (1975) 1 MU 236].
- Surrender.—It is not a transfer as it is the manager of a lesser estate with a greater one [Multhan Lal Saha v. Nagendra Nath Adhikari, (1933) 60 Cal 379].
- Easement.—The creation of an easement does not amount to a transfer.
- Will.—Because it operates from the death of the person making it, while the definition contemplates a transfer by a living person, does not fall within the definition of transfer.
- Compromise.—It may or may not amount to transfer. It depends on the facts and circumstances of each case. In Hussiaa Banu v. Shivanarayan, AIR 1968 MP 307, it was held that where one of the parties to a settlement gives up a claim to receive a certain sum of money from the other, in consideration of the latter’s given up the right to certain property claimed by him, it would amount to a transfer.
- Family arrangement/settlement.— A family settlement entered into by the parties for the purpose of putting an end to the disputes among family members does not amount to transfer, not being an alienation it does not amount to the creation of an interest.
What may be Transferred
Section 6—”Property of any kind may be transferred, except as otherwise provided by this Act, or by any other law for the time being in force.”
This section enumerates different kinds of property which cannot be transferred (Exceptions to Section 6)—-
- Spes Successionis [Section 6(a)]—“The chance of an heir-apparent succeeding to an estate, the chance of a relation obtaining a legacy on the death of a kinsman, or any other mere possibility of a like nature, cannot be transferred.”
A mere possibility/chance/expectancy of an, heir succeeding to an estate is excluded from the category of transferable property, e.g., A a Hindu, dies leaving a widow B and On two C. C has only a spes successionis, as his succession to the estate is dependant on 2 factors, i.e., his surviving the widow B, and B leaving the property intact.
- Right of Re-entry. [Section 6(b)] “A mere right of a re-entry for breach of a condition subsequent cannot be transferred to anyone except the owner of the property affected thereby.
By a Mere given to right of re-entry meant a right to resume possession of-land which has been given to another person for a certain time. It is usually inserted in lease empowering the lessor to re-enter up a breach of covenants in the lease.
(a) A grants a lease of a plot of land for 5 years to B with the condition that B shall not dig a tank on the land. B digs the tank. A relates to transfer C the right of re-entry for the breach of the condition committed by B. The transfer is invalid.
(b) A grants a lease of plot for 5 years to B. Subsequently A transfers his right of re-entry at the expiry of 5 years to C. The transfer is valid as at the expiry of lease the right of reentry is transferred along with the land to .
- Easement [Section 6(c)]— “ An easement cannot be transferred apart from the dominant heritage.”
An easement B a right to use, or restrict the use of land of another in some way, for example, right of way, right of water or light, etc. (Section 3 Easement Act). These right cannot be transferred without the property which has the benefit of it.
- Restricted Interest [Section 6(d)].—”An interest in property restricted in its enjoyment to the owner personally cannot be transferred by him”
E.g., if a house is lent to a man for his personal use, he cannot transfer his right of enjoyment to another. Similarly a religious office like those of mutawali of a wakf or of mahant of a math and emoluments attached to priestly office cannot be transferred. ,
- Maintenance [Section 6(dd)].—”A right to future maintenance, in whatsoever manner arising secured or determined, cannot be transferred.”
A right to future maintenance is only for the personal benefit of the person to whom it is granted, thus it cannot be transferred.
- Mere right to sue [Section 6(e)] —”A mere right to sue cannot be transferred.”
A right to sue is personal to the party aggrieved, as for, e.g., damages for the breach of contract or for tort, claims for past mesne profit for suing an agent for accounts, for pre-emption, etc. These rights cannot be transferred. But where the right to sue has merged in a decree, the right under the decree is assignable. Thus, a right to mesne profit or damages under a decree is assignable.
- Public office [Section 6(f)].—”A public office cannot be transferred, nor can the salary of a public officer, whether before or after it has become payable.”
Thus prohibition is based on the ground of public policy as the public office is held for qualities personal to incumbent.
If the office is not public, it would be transferable, even though the discharge of its duties should be indirectly beneficial to the public.
- Pensions [Section 6( g)—“Stipends allowed to military, naval, air force and civil pensioners of the government and political pensions cannot be transferred, pension means a periodical allowances or stipend granted not in respect of any right of office but on account of part services of particular merits. Section 60 of CPC also exempts a pension from attachmet in execution of degree against the pension holder.
- Nature of Interests [Section 6(N)]. —”No transfer can be made (1) in so far as it opposed to the nature of the interest affected thereby, or (2) for an in so far unlawful object or consideration within the meaning of Section 23 of the Indian Contract Act, 1872, or (3) to a person legally disqualified to be a transferee. “
This clause forbids the transfer of certain things which from their very nature are not transferable, e.g., res communes (things of which no one in particular is the owner and may be used by all men), res nullius (things belonging to nobody).Res extra commercium (things thrown out of commerce)
Again, any property otherwise transferable becomes non-transferable when the object or the consideration of the transfer is unlawful (within. the meaning of Section 23, Indian Contract Act).
Lastly, a transfer cannot be made in favour of a person who is disqualified to be a transferee.
- Un-transferable interests [Section 6(i)].”Nothing in this section shall be deemed to authorise a tenant having an un transferable right of occupancy, the farmer of an estate in respect of which default has been made in paying revenue, on the lessee of an estate, under the management of a court of wards to assign his interest such as such tenant farmer or lessee.”
Persons Competent to Transfer
Section 7 of the Act provides that, “Every person competent to contract and entitled to transferable property, or authorised to dispose of transferable property not his own, is competent to transfer such property, either wholly or in part and either absolutely or conditionally, in the circumstances, to the extent and in the manner, allowed and prescribed by any law for the time being in force.”
Operation of Transfer
Section 8 of the Transfer of Property Act provides transfer of different kinds of property and their legal incidents. It provides, “Unless different intention is expressed or necessarily implied, a transfer of property passes for with the transferee all the interest which the transferor is then capable of passing in the property and in the legal incident thereof.
Such incidents include where the property is land, the easement annexed thereto, the rent and profits thereof accruing after the transfer and all things attached to the earth;
and, where the property is a house, the easements annexed thereto, the rent thereof accruing after the transfer, and the locks, keys, bars, doors, windows and all the other things provided for permanent use therewith; and, where the property is a debt or other actionable claim, the securities therefor except where they are also for other debts or claims not transferred to the transferee, but not arrears of interest accrued before the transfer;
and where the property is money or other property yielding income, the interest or income thereof accruing after the transfer takes effect.”
Transfer by Persons before they Acquire the Interest
Section 6(a) of the Act provides certain things which are non-transferable (spes sucessionis). These are as follows—
- the chance of an heir-apparent succeeding to an estate,
- the chance of a relation obtaining a legacy on the death of a kinsman,
- any other mere possibility of a like nature.
(i) Chance of an Heir Apparent
Both Hindu and Muslim law forbids transfer of the expectancy. A mere possibility or expectancy of a heir succeeding to an estate is excluded from the category of transferable property. Thus a Hindu reversioner has no right or interest. In presents in the property which the female owner holds for her life, e.g.:
A dies leaving two widows and a reversionary heir B. The widows set-up a Will which authorised them to adopt a son. B filed a suit challenging the validity of the Will and in order to raise money for the litigation transferred his share to C. The court set-aside the Will. On the death of the widows B entered possession of A’s estate. C sued B but C’s suit was dismissed as B, at the time of transfer, had spes successionis in A’s estate and, therefore, could not transfer it.
(ii) Chance of Legacy
The chance of a relation receiving a legacy is a possibility even more remote then the chance of succession of an heir, and therefore, is not transferable.
(iii)Other Possibilities of Like Nature
Such possibilities which belongs to the same category as the chance of an heir apparent or the chance of a relation obtaining a legacy, e.g. The possibility of winning a lottery or a prize in a certain competition cannot be transferred. A good illustration of this category is the ‘next cast in a fisherman’s net’. No one can guarantee that any fish will be caught, and the fisherman himself has no interest in the fish until they are caught in his net.
Transfer by Unauthorised Person (Doctrine of feeding empty grant by estoppel)
A person who has no title or interest in an immovable property, cannot transfer that property. Transfer by such person is a transfer by unauthorised person. Section 43 of the Ac provides the effect when such unauthorised person subsequently acquires interest in property transferred.
Section 43. Transfer by unauthorised persons who subsequently acquires interest property transferred-where a person fraudulently or erroneously represents that he is authorised to transfer certain immovable property and professes to transfer such property for consideration such transfer shall at the option of the transferee, operate on any interest which the transferor may acquire in such property at any time during which the contract of transfer subsists.
Nothing in this section shall impair the right of transferees in good faith for consideration without notice of the existence of the said option.
Illustration—A, a Hindu who has reported from his father B, sells to C three fields X, Y and Z representing that A is authorised to transfer the same. Of these fields Z does not belong to A, it having been retained by B on the partition, but on B’s dying A as heir obtains Z, C not having rescinded the contract of sale, may require A to deliver Z to him.
The general rule of nemo dat quod non habet (no one can give to another, what he himself does not have) has been relaxed through this section. The principle of this section is based partly on the English doctrine of estoppel by deed and partly on the equitable doctrine that a person who has promised more than he can perform must make good his promise when he acquires the power of performance.
For application of this section requisites must be satisfied—
- There must be fraudulent or erroneous representation of ownership by the transferor.
- Transfer must be by the wrong owner.
- Transferee must act on that false representation, in good faith.
- Transfer is for the consideration.
- Transfer subsequently acquires some interest in that property which he professed to transfer.
- The contract of transfer still subsists.
Subsequently acquired interest does not pass automatically to transferee but only when he claims the right in such property.
The exception to this section (Second paragraph of Section 43) protects the rights of the record transferee in good faith and for consideration who has no notice of the option in favour of the first transferee.
Section 6(a) and Section 43 compared
Section 6(a) and Section 43 seems to conflict each other. Where Section 6(a) deals with spes-successionis and sender mere possibility/expectancy of a heir succeeding to an estate as an un-transferable property, through Section 43, such transfer can be made effective if transferor subsequently acquires those property and other conditions satisfied.
In Jamma Masjid v. K. Deviah, AIR 1962 SC 847 Supreme Court explained the relationship between two sections. Court said that Section 6(a) and Section 43 relate to two different subjects and that there is no necessary conflict between them. Section 6(a) would apply where there is a transfer of a mere spes successionis and the party knowing that the transferor has no more right than that of a mere expectant heir Section 43 applies where an erroneous representation is made by the transferor to the transferee that he is the full owner of property and authorised to transfer it.
Supreme Court held that Section 6(a) enacts a rule of substantive law while Section 43 enacts a rule of estoppel which is one of evidence. Thus, these two provisions operate on different fields and under different conditions and there is no ground for reading a conflict between or cutting one b reference to the other. Each of them can be given full effect on their down the ambit of their own terms in their respective spheres.
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