Rights of Reverter Insurance
In Victorian times, individuals were encouraged to give land for certain charitable purposes, particularly in the areas of education and religion. In order to encourage the giving of land for these purposes, legislation was enacted that allowed the land given to revert to the original owner or their heirs if that land was no longer used for the purpose for which it was given:
- Reverter of Sites Act 1987
- School Sites Acts 1841 to 1852
- Literary and Scientific Institutions Act 1854
Collectively, these separate pieces of legislation are known as the Reverter Acts.
Following a 1981 Law Commission report on rights of reverter, the Reverter of Sites Act was passed in 1987. The practical effect of this legislation is to change the basis on which trustees hold the land when reverter occurs. As a result, when the reverting event occurs, the trustees hold the land on a trust of land. The Department for Education or the Charities Commission are empowered to be trustee.
The trust is for the benefit of those who are entitled to the land under the reverter provisions of the relevant legislation and who are referred to as ‘beneficiaries’. If the beneficiaries cannot be found, or if the beneficiaries renounce their claims, the trustees can apply under the 1987 Act for a Scheme to return the land to charitable uses.
A local authority would potentially be in breach of an original right of reversionary interest and the reverter legislation if they were to sell an old school site to a developer. In the event that the beneficiary of rights of reverter were to resurface, not only are there likely to be costs incurred in resolving the position, but there could also be other financial losses such as damages and compensation or settlement with the third party.
Why take out rights of reverter insurance?
Given the age of some of the properties that were donated, it is unsurprising that some are no longer entirely suitable for the provision of modern services and, as a result, local authorities frequently need to identify new sites to develop modern schools and libraries.
When old facilities become redundant and their use ceases, potentially the right of the heirs of the original donating owner to the reversionary interest may become enforceable.
Given the age of the original donation, the identity and whereabouts of the beneficiary may not be easy to ascertain. The potential beneficiary may be unaware of their right until the issue is raised with them. However, there may now be significant value in the reversionary interest and, as such, significant value to the local authority if the reversionary interest is not claimed in terms of the sale value of the property to a developer.
A developer may be reluctant to acquire a site without the issue of rights of reverter first being resolved which could be a costly and time consuming process. Rights of reverter insurance potentially represents a more cost and time efficient way of dealing with the issue, whilst providing security and cover against financial losses that could arise in the event of an enforcement or attempted enforcement of a right of reverter.
Rights of reverter insurance benefits
Right of reverter insurance provides protection against financial losses that might arise in the event that the beneficiary of the right might come forward and enforce or attempt to enforce a right of reverter.
Generally, a policy will provide cover for loss relating to:
- Damages or compensation awarded against the insured by the courts
- Cost of altering, demolishing and/or reinstating all or any part of the property including any part of any building or other construction on or forming part of the property
- Reduction in market value
- Abortive costs of works
- Costs of settlement
- Defence costs
- Cost and expenses incurred with the insurer’s consent
A rights of reverter insurance policy provides cover in perpetuity and, as such, can usually benefit successive owners of the property and their lenders.