Texas Supreme Court holds reversionary interest in right to purchase is compensable.

El Dorado Land Co. v City of McKinney, NO. 11-0834, (Tex. March 29, 2013)

This case has gone up to the Texas Supreme Court before on interlocutory appeal, back down, and now returns. This is an inverse condemnation lawsuit where the issue is whether a reversionary interest in real property is compensable. The Supreme Court held that is it compensable under the Texas Constitution. In 1999, El Dorado Land Company sold several acres of land to the City of McKinney for use as a park. El Dorado’s special warranty deed provided that the conveyance was “subject to the requirement and restriction that the property shall be used only as a Community Park” otherwise it reverted back to El Dorado under a right of purchase. The City built a library on part of the property but did not allow El Dorado to repurchase the property. El Dorado sued under an inverse condemnation claim.

The City argued it was not a taking, but merely a possible breach of a contract. The issue for the Court was whether this option to purchase was merely a contract right or a property interest subject to compensation under the Texas Constitution. After a detailed analysis, the Court determined that while this type of interest was not a “possibility of reverter” it was nonetheless a reversionary interest in real property subject to a takings analysis.  The Court qualified, however, that it was not saying that a taking actually occurred in this case and remanded the case for further proceedings.

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