Reversion (law)
Encyclopedia
A reversion is a type of "remainder" interest
created when incomplete ownership
in property is alienated
subject to a condition subsequent
. Upon the fulfillment of the condition subsequent
, the incomplete possessory rights
cease to exist and exclusive ownership returns to the holder of the reversion interest by operation of law
(or automatically).
A reversion interest is logically similar, but not legally identical, to the rights retained by someone who lends his property to another for a limited time. Although the bailee would have the right to possess the property during the limited duration, these rights are neither permanent nor exclusive. When the time comes, the property rights of possession will terminate and return to the holder of the reversion.
Reversions are commonly created in real property
transactions, particularly during lease
arrangements as well as devise (the transfer of real property through a will
). In the context of a will, a testator
may devise a simple life estate
to a devisee. The testator
may retain the reversion in the estate
or give it to another individual. The owner of the life estate
will retain ownership of the property during the devisee's life, and may freely alienate this interest. However, upon the death of the devisee the life estate
will terminate and ownership of the real-property will fully vest in the holder of the reversion.
A tenancy for years is a simple illustration of a reversion interest in the context of leasing arrangements. An owner of real-property becomes a lessor by transferring a bundle of rights
- including, but not limited to, a right of entry
- to the leasee for a certain period of time. The lessor typically retains a reversion interest in the property which will mature after the lease expires. A common example of this transaction is the leasing of an apartment to a tenant
for a one-year period. When the lease expires, the rights of the leasee are terminated and exclusive ownership of the property returns to the lessor.
Reversions are analogous to the finance concept of a derivative
in which the underlying asset is a piece of property.
Reversion interests are freely alienable
in all American jurisdictions, and therefore may be bought and sold.
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
created when incomplete ownership
Ownership
Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties. The concept of ownership has...
in property is alienated
Alienation (property law)
Alienation, in property law, is the capacity for a piece of property or a property right to be sold or otherwise transferred from one party to another. Although property is generally deemed to be alienable, it may be subject to restraints on alienation....
subject to a condition subsequent
Condition subsequent
Condition subsequent refers to an event or state of affairs that brings an end to something else. A condition subsequent is often used in a legal context as a marker bringing an end to one's legal rights or duties...
. Upon the fulfillment of the condition subsequent
Condition subsequent
Condition subsequent refers to an event or state of affairs that brings an end to something else. A condition subsequent is often used in a legal context as a marker bringing an end to one's legal rights or duties...
, the incomplete possessory rights
Right of possession
The right of possession means that someone currently holds something in hand and this person may be the temporary keeper or the long-term owner of an object.This term is most commonly used in regards to property and is a land-backed asset...
cease to exist and exclusive ownership returns to the holder of the reversion interest by operation of law
Operation of law
The phrase "by operation of law" is a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles. For example, if a person dies without a will, his heirs are determined by operation...
(or automatically).
A reversion interest is logically similar, but not legally identical, to the rights retained by someone who lends his property to another for a limited time. Although the bailee would have the right to possess the property during the limited duration, these rights are neither permanent nor exclusive. When the time comes, the property rights of possession will terminate and return to the holder of the reversion.
Reversions are commonly created in real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
transactions, particularly during lease
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
arrangements as well as devise (the transfer of real property through a will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
). In the context of a will, a testator
Testator
A testator is a person who has written and executed a last will and testament that is in effect at the time of his/her death. It is any "person who makes a will."-Related terms:...
may devise a simple life estate
Life estate
A life estate is a concept used in common law and statutory law to designate the ownership of land for the duration of a person's life. In legal terms it is an estate in real property that ends at death when there is a "reversion" to the original owner...
to a devisee. The testator
Testator
A testator is a person who has written and executed a last will and testament that is in effect at the time of his/her death. It is any "person who makes a will."-Related terms:...
may retain the reversion in the estate
Estate (law)
An estate is the net worth of a person at any point in time. It is the sum of a person's assets - legal rights, interests and entitlements to property of any kind - less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person...
or give it to another individual. The owner of the life estate
Life estate
A life estate is a concept used in common law and statutory law to designate the ownership of land for the duration of a person's life. In legal terms it is an estate in real property that ends at death when there is a "reversion" to the original owner...
will retain ownership of the property during the devisee's life, and may freely alienate this interest. However, upon the death of the devisee the life estate
Life estate
A life estate is a concept used in common law and statutory law to designate the ownership of land for the duration of a person's life. In legal terms it is an estate in real property that ends at death when there is a "reversion" to the original owner...
will terminate and ownership of the real-property will fully vest in the holder of the reversion.
A tenancy for years is a simple illustration of a reversion interest in the context of leasing arrangements. An owner of real-property becomes a lessor by transferring a bundle of rights
Bundle of Rights
The bundle of rights is a common way to explain the complexities of property ownership. Teachers often use this concept as a way to organize confusing and sometimes contradictory data about real estate....
- including, but not limited to, a right of entry
Right of entry
Right of entry refers to one's right to take or resume possession of land, or the right of a person to go onto another's real property without committing trespass. It also refers to a grantor's power to retake real estate from a grantee in the case of a fee simple subject to condition subsequent....
- to the leasee for a certain period of time. The lessor typically retains a reversion interest in the property which will mature after the lease expires. A common example of this transaction is the leasing of an apartment to a tenant
Leasehold estate
A leasehold estate is an ownership of a temporary right to land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord....
for a one-year period. When the lease expires, the rights of the leasee are terminated and exclusive ownership of the property returns to the lessor.
Reversions are analogous to the finance concept of a derivative
Derivative (finance)
A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...
in which the underlying asset is a piece of property.
Reversion interests are freely alienable
Alienation (property law)
Alienation, in property law, is the capacity for a piece of property or a property right to be sold or otherwise transferred from one party to another. Although property is generally deemed to be alienable, it may be subject to restraints on alienation....
in all American jurisdictions, and therefore may be bought and sold.