What Is a Reversionary Interest in Real Estate?
A reversionary interest is a future ownership right that returns property back to the original owner after a lease, life estate, or other temporary interest ends.
Reversionary Interest: Simple Definition
A reversionary interest is a future right in real estate where ownership automatically returns to the original owner—or their heirs—when a temporary estate expires. This commonly occurs after a life estate or term tenancy ends.
The person who retains the reversionary interest is called the reversioner.
How a Reversionary Interest Works
A reversionary interest exists whenever someone transfers a temporary right to use or occupy property but does not permanently transfer ownership. When the granted interest expires, the property "reverts" back to the original owner.
Reversionary interests are commonly created through:
- Life estates (property returns to grantor after the life tenant dies)
- Lease agreements (property returns to landlord after lease expiration)
- Estate planning arrangements
This differs from a remainder interest, where the property passes to a third party instead of back to the original owner.
Examples of a Reversionary Interest
- A homeowner grants a life estate to a relative. When the relative dies, the property automatically returns to the homeowner’s estate.
- A landlord leases property for 10 years. When the lease ends, the landlord’s reversionary interest becomes present ownership again.
- A property owner transfers temporary occupancy rights to an organization for a set term, with ownership reverting at the end of the period.
In all examples, the original owner retains a future legal interest in the property.
Benefits and Risks of a Reversionary Interest
- Benefits for Owners: Maintains control of long-term ownership, useful in estate planning.
- Predictable Transfer: Property automatically returns without probate in many cases.
- Risk: The property may depreciate or be poorly maintained during the temporary estate.
- Limited Control: The reversioner typically cannot manage or occupy the property until the interim estate ends.
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