Ancient laws could see councils lose funds from land sales, warns DTZ

Local authorities looking to sell libraries, schools and museums as part of a savings drive could lose the funds generated if the land in question is subject to a reverter clause imposed at the time it was donated, a leading real estate consultancy has claimed.

Rebekah Formosa, a consultant in DTZ’s corporate real estate consulting team, said: “Back in the nineteenth century the Schools Sites Act 1841-1852, Literary and Scientific Institutions Act 1854, and the Places of Worship Sites Act 1873 were designed to encourage wealthy individuals to gift land for charitable purposes which would benefit the wider community, such as for the purpose of schools, museums, and libraries.

“However, there was one specific stipulation set by the benefactors: should the land cease to be used for the purposes specified at the time of granting it, a reverter clause would kick in, meaning the land must be transferred back to its original owner.”

The DTZ consultant said it had been estimated that some 2,000 schools alone were built with the help of the School Sites Acts.

Formosa explained: “If the land is subject to the reverter clause and ceases to be used for its original purpose, and it is either sold or leased to a third party for another use, the net proceeds of the sale or rent have to be returned to the original owner or the living descendants.

“In many cases, the length of time that has elapsed since the granting of the land might mean that no descendants can be traced. In this case, the Charity Commission and the Secretary of State have the authority to set up a trust to take care of any proceeds in the eventuality that these individuals are located, and in the meantime use the money for the benefit of that trust.”

Formosa cited a landmark House of Lords case in 2005 won by genealogist firm Fraser and Fraser as an illustration that reverter clauses are still significant.

The case involved a deed dated April 1866, which set up a school to educate the poor in the St Philip’s parish in Canterbury, Kent. A reverter clause in accordance with the Schools Sites Act 1841 applied, and the Church of England was forced to pay back the proceeds of the sale to the descendants of the landowner who donated the land almost 140 years before.

DTZ’s Formosa warned that local authorities were at risk of losing any funds generated from a sale or rent. “We would therefore urge any councils considering selling or changing the use of public buildings in their estate to seek professional advice and importantly, to do their research,” she said. “Whilst the widespread practice of selling school, museums, libraries, and places of worship sites could derive revenue savings, from a capital perspective, it could prove to be a costly mistake.”

Philip Hoult