Covenants
This is for discussion purposes (although it's a real life scenario that I'm discussing), but I was curious what the collective wisdom of WSO could come up with with regard to covenants and alternative financing:
Got a situation with a church where the congregation of 2,800 people voted 2,773 - 27 to leave its current denomination. The 27 dissenters who remained with the denomination successfully sued and, after 7 years, the courts granted the denomination the $26 million historical church building and displaced the now-3,000 church members.
The 27 people have grown to 200, but it's not nearly enough to maintain this 300-year-old church, so the denomination is looking to sell. I've got a friend who is hyper wealthy. I've heard him discuss the idea of buying the church and selling it back to the 3,000-person congregation at cost, more or less. The denomination refuses to sell the church back to the congregation that left. They may even put in the sales contract covenants forbidding the sale to the congregation for an undetermined number of years.
With regard to covenants, is it legally enforceable to sell someone property but prevent them from selling it to a certain group of people in the future? Could a congregation simply re-arrange itself in a different LLC or organizational structure to get around such a covenant? Also, are there any kind of alternative financing arrangements that might exist that would allow the buyer and then seller to get his money back but technically not transfer ownership/deed to the congregation?
Obviously, this is some pretty complicated real estate law, but figured I'd pose this question to some real estate guys to get their thoughts.
(Maybe I should post this question on JDOasis...)
You can put whatever you want in the sales agreement. The trick here would be enforcing it, likely under claim of breach of contract. This would lead to the sellers to show damages caused to them due to breach of contract...which won't exist. Regardless it would be a pain in the ass.
I have two suggestions for you scenario that may or may not work. I'm just a noobie in the game. A covenant could be put in place that would restrict use based on a certain use yielded from the real estate. Say a church sells the building with a covenant that the use be used for a charter school. I don't think it would be possible to prevent a certain group from purchasing a property. Mainly because a new LLC could be formed which would be an easy loophole.
Second suggestion I have in terms of title and outlay would be for your friend to purchase the property and fulfill a long term net lease with the church group fulfilling outlay over a period of time, or even a ground lease where your friend would own the land and the church group would own the building improvements.
You can never legally prevent anyone from owning anything. I mean you could structure an LLC, where they bring one outsider to manage the corporation. Then you can have a flow through from this LLC to the parent, which is own by the congregation that left. Its not even expensive to do this. I mean it's literally impossible to restrict someone unless the government has reasonable cause to, example would be someone convicted of insider trading purchasing a brokerage or something. Otherwise, nope, the congregation can very easily come back.
Interesting discussion so far. I live in a county that has a lot of protected lands (lands that cannot be developed). The protections were made part of the deed. Therefore, buying and selling the property, while legal, is of no real benefit as no development can take place, so the land has little marketable value.
Is that materially different than an organization forbidding future sale to another organization in the sales contract?
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