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What Is Reversionary Interest? Understanding Your Future Property Rights

Reversionary interest is a future interest in real estate, where the original owner retains the right to reclaim possession after a certain event or period, such as the end of a lease. It's a legal concept that ensures property rights revert to the owner, safeguarding long-term interests. Curious about how this could impact your property investments? Let's delve deeper into the nuances of reversionary interest.
Renee Booker
Renee Booker

Property law contemplates a number of different types of interest in property, including remainder interests. A remainder interest is considered a future interest, meaning that the owner has a future interest in the property of some type that does not include current possessory rights. One type of remainder, or future, interest in property is a reversionary interest. Basically, a reversionary interest is an interest that a property owner retains when he or she gives another person incomplete interest in the property. A reversionary interest exists if the original owner will regain complete ownership and possessory rights to the property after a condition subsequent occurs, which returns possession of the property back to the original owner.

The two most common situations in which a reversionary interest is created are in a lease of property, or when a life estate is granted in a property. In both cases, the original owner's interest and possession of the property will eventually return to him or her. In the case of a lease, when it expires, all the rights to the property return to the original owner. In the case of a life estate, upon the death of the grantee, all interest and rights of possession also return to the original owner.

Man with hands on his hips
Man with hands on his hips

In a lease agreement, the lessee is granted a number of rights to the property according to the terms of the lease. At a bare minimum, the lessee is granted the right of possession for the term of the lease. The lessee does not have absolute rights to the property. In fact, the condition subsequent in a lease agreement that reverts all rights to the original owner is the expiration of the lease. There may be other conditions subsequent in a lease such as a default of the lease agreement.

A life estate may be created in a property if the owner of the property grants someone the right to live on the property for the duration of his or her life. A life estate may be more complicated, as the rights granted to a grantee under a life estate may vary by jurisdiction. In any event, the death of the grantee is considered the condition subsequent which is required for the rights to the property to revert back to the original owner. In some cases, the life estate was granted as a bequest in a last will and testament, meaning the reversionary interest will revert back to the estate and become part of the assets of the estate upon the death of the grantee.

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