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Reversionary rights

29 July 2010

INTRODUCTION
A reversionary right is a condition which provides that, on the happening of a prescribed event, ownership of the property will revert back to a previous owner or, if so expressed, to the heirs of the previous owner if since deceased, or their successors in title.

Local authorities often sell property subject to a condition that the purchaser must erect a dwelling on the said property within a specified period of time, failing which the property will revert back to the local authority. Failure to erect the building within the specified period of time, brings about the reversion.

From the outset one must distinguish between a reversionary right that binds successors in title and one that merely binds the existing owner. Reversionary rights not binding successors in title could be deemed to be personal rights not capable of being registerable, in terms of section 63 of the Deeds Registries Act 47 of 1937 ("the Act"). However, despite the prohibition contained in the aforesaid section there are nonreal rights (not binding successors in title) which by immemorial practice and custom have been allowed to be included in deeds. Preemptive rights proper and reversionary rights proper being examples of such nonreal rights (see in this regard Ex parte Zunckel 1937 NPD 295).

Difficulties on the interpretation of a reversionary right arise and every condition must be treated on its own merits and no general rule can be followed. Nevertheless, a reversionary right attached to the land binds successors in title and does not lapse on the death of the registered owner or in respect of forced sales. Different scenario's will now be discussed in more detail.

REVERSIONARY RIGHTS NOT BINDING SUCCESSORS IN TITLE
Where a reversionary right is so worded that it does not bind successors in title, the condition is of a personal nature and lapses on the death of the owner of the land or in the case of forced sales (see Bodasing v Christie NO and Another 1961 (3) SA 553 (A)). Where a condition is worded along the following lines;

"The transferee must erect a dwelling on the land within three years of date of purchase, failing which the land will revert to XYZ Home Owners Association."

This condition merely binds the owner of the land and on transfer of the land the condition will lapse, should the enforcer of the condition provide documentary evidence that a building has been erected on the land. Should a building not have been erected on the land within the specified period of time, the enforcer must waive its right to the condition. In both these instances the provisions of section 68 of the Act finds application. Should the enforcer of the condition desire that the condition must bind the successor of the registered owner, such preemptive right must be created de novo, in terms of section 65 of the Act. It can either be created notarially or in the power of attorney in terms of the last proviso to section 65(1) of the Act.

REVERSIONARY RIGHT BINDING SUCCESSORS IN TITLE
Where a condition is so worded that it binds successors in title, it does not lapse, in the case of forced sales or on the transfer of the land unless complied with.

A condition worded, as follows;

"The owner of the land or his successors in title must erect a dwelling on the land to the value of R800 000,00 within a period of four years from registration into the name of the purchaser, failing which the land will be transferred to ABC Home Owners' Association (Pty) Ltd free of charge."

will only lapse where the enforcer of the condition provides the registrar with documentary evidence that a dwelling has been erected on the property within the specified period of time. In this instance the provisions of section 68(1) of the Act will be applied and the noting of the lapsing of the reversionary right will be endorsed against the title of the land, simultaneously with the transfer of the property into the name of the new owner.

If a building has not been erected on the property and land is being transferred into the name of a new owner, the condition must be perpetuated into the new deed of transfer, if the specified period of time has not lapsed. However, where the time period referred to in the condition has lapsed and the building has not been erected, the property must revert to the enforcer of the condition, alternatively the enforcer must waive his right and the condition be cancelled in terms of the provisions of section 68 of the Act. The same principles will apply where the property is being transferred pursuant to a sale in execution or by the trustee in an insolvent estate.

REVERSIONARY RIGHTS BINDING SUCCESSORS IN TITLE WITH A RIGHT OF EXTENSION
It often occurs that the reversionary right conditions provides for a right of extension, for example;

"The owner of the land or his/her successors in title must erect a dwelling to the value of R800 000,00 on the withinmentioned property within a period of three years from date of transfer into the name of the purchaser, or within such extended period of time, failing which the property will revert to the XYZ Home Owners' Association, free of charge."

This condition does not automatically lapse on the expiry of the initial period of three years. The enforcer of the condition has the authority to extend the period of time. However, on transfer of the land into the name of a new purchaser, the enforcer will have to provide the Registrar with documentary evidence that the period of time has been extended.

From a conveyancing perspective it is always advisable to provide for a right to extend the specified period of time.

MORTGAGING LAND SUBJECT TO A REVERSIONARY RIGHT
Section 53(2) of the Act provides that property subject to a reversionary right may be mortgaged by the owner thereof and such person, by means of a bond passed by them jointly and severally, or may be mortgaged by the owner of the land with the consent of the enforcer of the reversionary right.

The bond will only be passed by the owner and the enforcer of the reversionary right where they are jointly indebted to the mortgagee. This very seldom occurs in practice.

The second alternative of providing a consent by the holder of the reversionary right is also very risky. It is evident that the legislature did not anticipate a reversionary right condition with section 53(2), merely a personal right, not binding successors in title.

Where a reversionary right binds successors in title, the following procedure should be followed:

The holder of the reversionary right will waive preference of the right in favour of the bond. Such waiver can be contained in a notarial deed or in such bond (see the provisions of regulation 41(7) of the Act).

The provisions of regulation 41(1) of the Act can be invoked in that the mortgage bond be made subject to the reversionary right. Once again, this is a risk on the part of the mortgagee and not advisable.

CONCLUSION
From the above it is abundantly clear that one must differentiate between a reversionary right proper (a condition not being a real right) and a preemptive right condition (a condition binding successors in title). The nature and wording of the condition will determine what procedure should be followed on transfer of the land, albeit a forced sale or not and in the case of mortgaging land subject to a reversionary right.

Allen West
Deeds Training
Pretoria


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