Assume that Owner A deeds to Buyer B real property in Texas via a special warranty deed that contains the following provision:
The property shall be used exclusively for XYZ purposes. In the event said property should cease to be used for such XYZ purposes, said property shall become the property of Organization ABC and Organization ABC shall have the right to use and hold said property and dispose of same as Organization ABC may determine.
What happens if Buyer uses the property for other than XYZ purposes?
Can Owner A enforce the use requirement? If so, what process is used to enforce?
If Buyer B sells the property to a third party, can Buyer B’s successor-in-interest use the property for other than XYZ purposes?
Can Organization ABC enforce the provision in the deed if Buyer B or Buyer B’s successor-in-interest use the property for other than XYZ purposes?
So many questions… But, in Texas—a state having over 171 million acres of real property and a 175-plus year history—these types of legal issues and questions are not uncommon.
The hypothetical deed provision noted above is, more likely than not, a type of reversionary interest. Reversionary interests are generally referred to as a “possibility of reverter” or “right of entry”—the latter also known as a “power of termination.” The distinction between the two types of reversionary interests is that a possibility of reverter is said to transfer possession of the property automatically to the holder of the reversionary interest upon satisfaction of a condition, while a right of entry requires some action on behalf of the holder of the interest to take possession of the property after the condition is broken.
Enforcement of a right-of-entry reversionary interest is not always clear-cut. In general, if a party cannot show that a restriction both exists and is intended to inure to its benefit, then that party may lack standing to enforce the restriction. The courts may require that the deed provision “run with the land” in order for the provision to be enforceable against successors-in-interest to title. A deed provision or covenant runs with the land if (1) it touches and concerns the land, (2) it relates to a thing in existence or specifically binds the parties and their assigns, (3) it is intended by the original parties to run with the land, and (4) the successor to the burden has notice. Covenants that run with the land bind the heirs and assigns of the covenanting parties, while personal covenants do not.
Conditions subsequent (i.e., reversionary interests carrying a right-of-entry) are not favored by Texas courts. The promise or obligation of the grantee may be construed as a covenant unless an intention to create a conditional estate is clearly and unequivocally revealed by the language of the instrument.
[I]n the absence of proof that a restriction was imposed for the benefit of other land, it is construed as a personal covenant merely with the grantor. In many instances it is held that unless it is expressly shown in the conveyance itself that the restriction is imposed for the benefit of other land, or unless there is an obvious purpose to sell in accordance with a general plan, the covenant must be construed as merely a personal one. In any and all events, . . . where there is nothing to show that the grantor owned other lands and nothing whatever to disclose his purpose, or the mutual intention of the party, the covenant (if it is a covenant at all) must be construed to be purely a personal one with the grantor.
Davis v. Skipper, 125 Tex. 364, 83 S.W.2d 318, 322 (1935).
If there be doubt as to the meaning of the language used in a deed instrument, then the courts will generally construe the provision to be a covenant, for Texas law will usually not permit a liberal construction to be placed upon its terms in order to cause a forfeiture of a right secured by the instrument. See Stevens v. Galveston, H. & S.A. Ry. Co., 212 S.W. 639, 644 (Tex. Comm’n App. 1919) (quoting S. Texas Tel. Co. v. Huntington, 104 Tex. 350, 136 S.W. 1053, on reh’g, 104 Tex. 350, 138 S.W. 381 (1911)).
“Under the common law and the great weight of authority in our American courts, it is held that the reversionary interest of the grantor in a deed conveying a fee-simple estate upon condition subsequent is not assignable can only be enforced by the original grantor and those connected with him in blood, and determines upon an assignment of the right or subsequent deed to the property.”
Moroney v. St. John Missionary Baptist Church, Inc., 636 S.W.3d 698, 705 (Tex. App.—Houston [14th Dist.] 2021, review denied) (quoting Stevens, 212 S.W. at 644).
However, the courts also cannot ignore what is plainly written in deeds. Id. (“Although we construe deeds strictly against a grantor, see Stevens, 212 S.W. at 644, we cannot ignore what is plainly written.”). Indeed, a court’s primary concern in construing a deed is to ascertain the true intent of the parties as expressed in the instrument. The construction of an unambiguous deed is a question of law to be resolved by the court. When construing such a deed, the intent of the parties is to be determined from the express language found within the four corners of the document. All parts of the deed are to be harmonized, construing the instrument to give effect to all of its provisions.
Insights
There you have it as to conditions subsequent, and the answer to the questions is: It depends. Conditions subsequent are not favored by the courts and may be strictly construed against enforcement. But, in discerning the intent of the parties, the courts must also not ignore what is plainly written. In the hypothetical deed provision, Owner A certainly can seek to enforce its right-of-entry reversionary interest in the event Buyer B violates the exclusive use provision. Depending on the nature of the type of use in issue, the condition subsequent might “run with the land” and thus be enforceable against Buyer B or its successor-in-interest. And, Organization ABC, being expressly identified as the third-party beneficial holder of the right-of-entry reversionary interest, has a strong leg to stand on because the intention of Owner A and Buyer B is clearly and unequivocally indicated for Organization ABC’s benefit. Other legal theories also may be leveraged for enforcement purposes, but that is beyond the scope of this Insights blog. To avoid the varying questions on this subject, due care should be taken when crafting reversionary interests intended for inclusion in deeds to real property situated in the Lone Star State.
Freeman Law aggressively represents clients in tax litigation at both the state and federal levels. When the stakes are high, clients rely on our experience, knowledge, and talent to help them navigate all levels of the tax dispute lifecycle—from audits and examinations to the courtroom and all levels of appeals. Schedule a consultation or call (214) 984-3000 to discuss your tax needs.
