RE170 Lesson 02 Estates Inland Method of Holding Title

8/14/2019 RE170 Lesson 02 Estates Inland Method of Holding Title

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Lesson 2:

Estates in Land andMethods of Holding Title

Principles of CaliforniaReal Estate

Introduction

This lesson will discuss:

types of estates in land

ways of holding title to property

Estates in LandInterests in real property

Interest: An interest in real property is a rightto the property or a claim against it.

Interests may be:

possessory (also called estates)

nonpossessory

Estates , , Possessory

Interests/ the right to exclusive use

and possession of the property, now/ future.

Other interests not Estates a Lien, (example: mortgage/) is an

interest in property but not estate.


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Categories of Estates

Two basic categories:

freehold estate (includes title)

leasehold estate (no title)

Both a freehold and a leasehold estatemay exist in the same property; therelationship between the two estates is

known as privity.

Two kinds of freehold estates:

fee simple estate

life estate

Freehold Estates

Fee simple:

the most common type of estate

the highest and most complete form ofland ownership

can potentially last forever

A fee simple estate is perpetual,

transferable, and inheritable.

Freehold Estates

Fee simple estates

Privity mutual relationship of multiple estateson a property, eg: freehold estate, leaseholdestate & mortgage hold estate can exist at thesame time.

A fee simple estate - also called 'a fee',representing the entire 'bundle of rights.' It isthe greatest estate in real property that a

person can have.Perpetual - potentially last foreverTransferable - from one owner to anotherInheritable - also called 'the estate ofinheritance'


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Two types of fee simple estates:

absolute

defeasible (qualified)

Fee Simple Estates

Fee Simple Estates

Fee simple absolute

Fee simple absolute: Title owner not subjectto any special limitations or conditions.

Fee simple absolute is the default estate,unless it is clear the grantor intendedotherwise.

Fee Simple Estates

Fee simple defeasible

Fee simple defeasible: Fee title with a

condition or qualification attached

Interest will end if a specified act orevent occurs

Fee simple estates are usually conveyed

without qualifications or conditions.

The current owner transfers title to the new

owner with no special limitations, and the

new owner is free to do whatever he wisheswith the property.

Sometimes owners want to control the future

use of the land after selling or giving it to

someone else.

So they transfer the property with a

condition or qualification attached to the

title.

The deed states that the new owner will ownthe property until or unless a specified act or

event takes place.

The new owners estate is a fee simple

defeasible, also called a qualified fee. The

owner of a fee simple defeasible holds the

same interest as the owner of a fee simple

absolute, except that the defeasible interest

will end if the specified act or event occurs.

eg: Ruth owned some property next to Clearview

Elementary School. 20 yrs ago, Ruth donated her

property to the school district. The deed said the

property was given on condition that it be used for

school purposes only. The school district put the

property to use as a school playground. This year,

20 years after Ruth's gift, the school district has

decided to close down Clearview Elementary.

Unless the school district puts the lot that wasRuth's property to some other school-related use,

Ruth (or her heirs) will have the right to file a legal

action to terminate the school district's interest in

the property. So the school district cannot start

using the property as a public parking lot, or try to

sell the property to someone who wants to develop

it as a shopping mall. But the school district would

be allowed to sell the property to someone who

was going to open a private school there. The samecondition that was imposed in Ruth's deed would

still apply to the new owner (the private school).


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Freehold Estates

Life estates

Life estate:

limited in time lasts only as long as a specified personis alive

James donated his farm to the ChildrensAid Society, but retained a life estate in

the farm. James has exclusive possessionand use of the farm until he dies, and thenthe farm will belong to the Childrens AidSociety. While James is alive, he is thelife tenant.

Life Estates

Example

Life Estates

Duration

Measuring life: The life on which a life estatedepends. (Need not be the life tenant)

In the example, Jamess life is themeasuring life for his life estate. Thelife estate will end when James dies.

The holder of a life estate is called the life

tenant.

Life estates are sometimes used to simplify

the division of property in a will, or to

avoid the expense of probate. By creating a

life estate, a property owner can transfer

title to someone else before his death, yet

keep possession of the property for himself

until he dies.

Measuring life is usually the life of the

person who has the life estate (the life

tenant), although it doesn't have to be.

Life Estate is a limited estate, much more

limited than fee simple ownership.

The life tenant's ownership lasts only as

long as the measuring life.


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Life EstatesFuture interests

Future interest: The ownership interest that

will begin when the life estate ends.

When a life estate is created, a futureinterest in the property is created at thesame time.

Life EstatesFuture interests

Two types of future interests:

estate in reversion

estate in remainder

Margarita grants a life estate to John, andstipulates that the property will come backto her (or to her heirs) at the end of themeasuring life. Margarita and her heirshave an estate in reversion. They are calledreversioners.

Future Interests

Estate in reversion

A life tenant can sell, lease, or mortgage his

interest, but that interest is only a life

estate. So the buyer's or tenant's or bank's

interest would end at the end of the

measuring life, too. eg: Suppose Jamesleases his life estate property to Terry for

two years. If James happens to die at any

point during that period, his death will

terminate Terry's lease. A lease from a life

tenant can last no longer than the life estate.

When a life estate is created, a future interest in the property iscreated at the same time.The future interest is the ownership interest that will begin when thelife estate ends.

The person who now holds a future interest will have fee simple titlewhen the life estate ends. A future interest can be classified as eitheran estate in reversion or as an estate in remainder.If the future interest is held by the grantor or her heirs, it's an estate inreversion. If it's held by someone else, it's an estate in remainder.


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On the other hand, if Margarita stipulatesthat the property will go to Sam (not back to

her or her heirs) when John dies, then Samhas an estate in remainder. Sam would becalled a remainderman.

Future Interests

Estate in remainder

EstatesDuties of a life tenant

A life tenant must pay any taxes,assessments, and other liens on theproperty.

A life tenant must not commit waste (bypermanently damaging the property).

SummaryFreehold Estates

Freehold estate

Fee simple absolute

Fee simple defeasible

Life estate

Because someone else (the reversioner orremainderman) has a future interest in theproperty, therefore the life tenant has certainduties during the life estate.1. A life tenant must pay any taxes,assessments, and other liens on the property.2. A life tenant must allow those with futureinterests in the property to inspect it from timeto time.

3. A life tenant must not commit waste. i.e. he/she must not injure, alter/ destroy the premises.must keep the property in good repair.


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Types of Leasehold EstatesTerm tenancy

Created by express agreement only.

Ends automatically when term expires. No notice requirement

Term tenancy

Periodic tenancy

Tenancy at will

Tenancy at sufferance

Leasehold EstatesTypes of estates

Periodic tenancy: A leasehold that is not

limited to a specific term. Also called aperiodic estate.

Automatic renewal: continues from rentalperiod to rental period until terminated bylandlord or tenant, with proper notice.

Required notice period = rental period.

Types of Leasehold Estates

Periodic tenancy

A surrender - Termination of a lease by mutualconsent.

If either tenant or landlord wants to terminate itsooner, they may do so only if they both agree.If tenant decided in the middle of lease termthat he no longer needed the leased space, hecould assign his lease to another person, unlessthe lease specifically prohibits an assignment.Of course, the new tenant would have the rightto possess the property only through the end oflease term.

Lease Periodic tenancy - Uncertain duration, noset termination date, proper notice must begiven if either party to the lease wants to

terminate it, the notice period must be = therental period. If neither party gives notice oftermination, the periodic tenancy automaticallyrenews itself each month.


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Term tenancy

Periodic tenancy

Tenancy at will




Tenancy at will

Tenancy at will: Tenant has possession ofproperty with landlords consent, for anindefinite period of time. Also called anestate at will.

No specified end date

Rent may be paid on an irregular basis

or not at all

Generally a tenancy at will can beterminated at any time, by either the tenantor landlord.

California requires 30-day notice (from thetenant or landlord) to terminate a tenancy at

will.


Tenancy at will

It can be terminated at any time by either thelandlord or the tenant. It has no specifiedtermination date and no regular rental period.In some cases, rent is paid on an irregularbasis; in other cases, no monetary rent is paid.Under the common law definition of a tenancyat will, no advance notice is required toterminate the tenancy.


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Tenancy at will

Unlike other leasehold estates:

tenancy at will cannot be assigned toanother person

tenancy at will ends automatically uponthe death of either party

Term tenancy

Periodic tenancy

Tenancy at will





Tenancy at sufferance: Tenant came toproperty under valid lease, but no longer hasany right to possession.

Tenant stays on after lease expires,without landlords consent.

More accurately called a holdovertenancy.

A typical tenancy at will occurs when a tenantprovides maintenance services to the landlordinstead of paying rent. For example, if Dave isa gardener, you might agree to let him stay atyour house in exchange for landscaping theyard. You don't require him to pay you any rent,and his stay is for an uncertain length of timebecause you don't know when he'll be donewith the work. If you decide you want Dave tomove out before then, you're legally required togive him notice of termination.

A tenancy at sufferance inaccurately called anestate at sufferance. Technically, it's not a trueestate at all. It arises when a tenant comes intopossession of the property under a valid lease,but holds over after the tenancy has expired,staying on against the landlord's wishes.

No notice of termination is required, as thetenant no longer has legal possession of theproperty.


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Summary

Leasehold Estates

Leasehold estate Term tenancy

Periodic tenancy

Tenancy at will


All property has at least one owneranindividual, a group of individuals, or abusiness, agency or organization.

Depending on the number and type ofowners, title to property can be held in

different ways.

Ways of Holding Title


Ownership in severalty

Ownership in severalty: Ownership by oneperson (often called sole ownership).

Individual owner may be:

a natural person (a human being)

an artificial person (a legal entity such as

a corporation)

Also called "separate" or "sole" ownership. The

root of the word "severalty" is "sever," which

means to keep separate and apart. If you own

property in severalty, you own it separately,

apart from anyone else.

Here is an example of ownership in severalty.

It's likely that your city or town owns quite a bit

of property: parks, parking lots, and other

public spaces. It also owns buildings like the

city hall and public library. The city probably

has title to each of these properties in severalty,

because the city is legally regarded as a single

artificial person


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Ways of Holding TitleConcurrent ownership

Concurrent ownership: Ownership by two ormore persons at the same time (also calledco-ownership).


Concurrent ownership

In California, there are three types ofconcurrent ownership:

tenancy in common

joint tenancy

community property

Concurrent OwnershipTenancy in common

Most basic form of concurrent ownership

Created by terms in deed

or

By default, if no other arrangement specified

To hold title as tenants in common, two ormore persons must each have an ownershipinterest in a single piece of property. That's theonly requirement. Although tenants in commonoften have equal shares of ownership, theirshares don't have to be equal.


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Tenants in common can have unequal

ownership interests

But each owner has an undivided interestto enjoy the whole property (unity ofpossession)

Tenancy in CommonOwnership interests

A tenant in common is free to sell, will, ormortgage his interest without the consent ofthe other tenants.

Tenancy in CommonTransfer of interests

A tenancy in common will end if:

all co-tenants agree to sell the property

they agree to divide the property intoseparate parcels

a co-tenant files a partition suit, to havethe courts divide the property interests

Tenancy in Common

Termination

Suppose Sharon transfers title to one acre ofland to Bob, Carmen, and Andy, as tenants incommon. If the deed doesn't state otherwise,each co-tenant will be presumed to have a one-third interest. On the other hand, Sharon's deed

could grant Bob a 50% interest, Carmen a 20%interest, and Andy a 30% interest. The ownershipinterests of tenants in common can beapportioned in any way, as long as they add upto 100%.

Apportioning ownership interests is not the samething as apportioning the land itself. Theinterests held by tenants in common (and byother types of co-owners) are called undivided

interests. They apply to the property as a whole,not just a portion of it.

In our example, Bob, Carmen, and Andy allhave the right to possess and use the entire acrethat they own together. None of them is legallyrestricted to a particular portion of it. Sharingpossession of the whole property is a hallmark ofco-ownership. It's referred to as unity ofpossession.

Partitioning co-owned property means dividingit into separate properties that are each ownedby one of the former co-tenants in severalty.

In some cases, tenants in common can't agreeon what to do with the co-owned property.Then one of the co-tenants may file a legalaction called a suit for partition, asking a judgeto divide the property up among them. In a suitfor partition, if it won't work to subdivide theland itself, the judge will order the property tobe sold. Each of the former co-tenants willreceive a share of the sale proceeds based on

his or her percentage of ownership.

A tenant in common is also transferable to theirheirs/ children.


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Concurrent Ownership

Joint tenancy

In a joint tenancy, two or more persons are

joint and equal owners of a property.

Joint Tenancy

Four unities

To create and continue a joint tenancy fourunities must exist:

unity of interest

unity of title

unity of time

unity of possession

Joint Tenancy

Right of survivorship

The right of survivorship is the key feature ofa joint tenancy.

When a joint tenant dies, her interest:

automatically passes to surviving jointtenants

cannot be willed and is not part of estate

Unity of interest: each joint tenant must hold thesame estate. Each must have an equal interestin the property.Unity of title: the joint tenants must receive their

interests in the property through the same deedor will.Unity of Time: The joint tenants must all receivetheir interests in the property at the same time.Unity of possession: the same thing in a jointtenancy as it does in a tenancy in common.Joint tenants have the right to possess and usethe entire property, not just a particular portionof it. They both own all of it. Their interests areundivided.

The four unities are essential to a joint tenancy.If any one of the four unities doesn't exist at thebeginning, or is somehow broken, then the jointtenancy either isn't established in the first place,or it is destroyedeither partially or entirely.

Since joint tenancy property isn't part of adeceased joint tenant's estate, the propertydoesn't have to go through the probate process.That's an advantage that may save the survivorstime and expense. Also, any liens or creditors'claims against the deceased joint tenant'sinterest are extinguished at death. The surviving

joint tenants receive that interest free and clear.


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Joint TenancyTermination

Like a tenancy in common, a joint tenancy

can be terminated through a partition suit.

A joint tenancy will also be terminated if anyone of the four unities is destroyed, (but onlyfor the tenant doing the conveyance.)


Community property

Community property is property ownedjointly and equally by a husband and wife inCalifornia, and certain other states.


Community property

In community property states:

Everything owned by a married couple thatisnt the separate property of one spouse isthe community property of both spouses.

Courts presume all property acquired during

marriage is community property.

Example of broken unities: Gary, Beth, and Calown property as joint tenants. Suppose Garysells his one-third interest to Dan. Dan is not a

joint tenant in relation to Beth and Cal, becausehe did not receive his title in the same deed atthe same time as they did. Instead, Dan is atenant in common, which means the right ofsurvivorship does not apply to his interest.

However, the two remaining original co-owners,Beth and Cal, are still joint tenants in relation toone another. Each still has survivorship rights inregard to the other's interest.

If a joint tenant does not sell his interest in theproperty, but merely executes a mortgage ordeed of trust against his interest in the property.This does not break the unity of title, and the

joint tenancy is still valid. The mortgage is only

an encumbrance, not a transfer of title.

Community property is property ownedconcurrently and equally by a husband andwife.


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Community PropertyDefinitions

Separate property:

property owned before marriage gift or inheritance acquired during themarriage

anything purchased with separateproperty funds, or proceeds from

separate property

Community PropertyDefinitions

Community property: All property acquiredduring the marriage

through skill or labor, or

using community funds or communitycredit.

Community Property

Joinder requirement

Joinder: The signatures of both spouses areneeded in order to list, sell, or encumbercommunity real property, or to purchaseproperty that will be community realproperty.

Spousal approval usually not required fortransfer of personal property, unlessclothing, furnishings or personal residence(mobile home or live-aboard boat.)

Acquired Before MarriageGift or Inheritance during marriageBought With Separate Funds during marriageProfits or proceeds from separate property,

such as appreciation, rents, or interest fromseparate property, are also classified as aspouse's separate property.

Each spouse has an undivided 50% interest inall of the couple's community property. If amarried person dies without making a will(intestate), his or her interest in the communityproperty passes to the surviving spouse.

The joinder requirement-both spouses mustjoin in the transaction.

It's generally advisable to have a seller's spousesign the transaction documents even if the

seller believes the property is separateproperty. In case the seller is mistaken, thespouse's signature serves as a release of his orher community property interest.

The joinder requirement applies to some, butnot all, community personal property. Thespouse's approval is needed to transfer thefollowing types of community personalproperty: clothing, household furnishings, a

personal property residence (mobile home orlive-aboard boat).


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Community Property

Right of survivorship

Since 2001, California law has allowed

married couples to hold property ascommunity property with right of survivorship.

This prevents a married person from willing hishalf interest in community property to

someone other than the spouse (as the titlepasses directly to the surviving spouse.)

Community PropertyDomestic partners

In 2005, Californias community property lawswere extended to apply to registered domesticpartners as well as married couples.

Registered domestic partners may holdproperty as community property or community

property with the right of survivorship.

Concurrent OwnershipMarital property in other states

Property ownership for a married couple in anon-community property state will vary, andmay be:

no different than co-ownership byunmarried parties

tenancy by the entirety

some other form of marital property

A married person can, however, will his or herinterest to someone other than the spouse.Alternatively, a married couple may choose totake title to property as community property

with right of survivorship. Property held in thismanner can't be willed to someone other thanthe surviving spouse.

There is only a small group of states (nine inall) that have a community property system. Inother states, ownership by a married couple is

no different than co-ownership by unmarriedparties, or else some other form of maritalproperty is recognized. In some states, Oregonfor example, married couples may hold title toproperty as tenants by the entirety. A tenancyby the entirety is similar to a joint tenancy--there is a right of survivorship--but it can becreated only by a married couple.


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Summary

Individual and concurrent ownership

Ownership in

severalty

Concurrentownership

Tenancy in common

Joint tenancy

Four unities

Right of

survivorship

Community property

Separate property

Joinder


Business organizations

The way in which a business is organizedaffects how title to property is held.

A syndicate is a group ofindividuals who poolresources to form abusiness enterprise.

A syndicate may be

organized as a: ?

Business OrganizationsSyndicates

General partnership Limited partnership

Corporation

Limited liabilitycompany

Joint venture

Trust

Businesses can be organized in a variety ofdifferent ways, each with advantages anddisadvantages for the business owners, sothere is different types of businessorganizations.

Syndicate,


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Business Organizations

Partnership

A partnership is an agreement of two or

more persons to conduct business as co-owners and divide profits.

Business OrganizationsPartnership

Types of partnerships:

general partnership

limited partnership

PartnershipsGeneral partnership

In a general partnership, each partner has:

an ownership interest

a voice in management decisions

a right to share in the profits

an obligation to share liabilities

A partnership is an association of two or morepersons to carry on a business as co-ownersand divide the profits.

The partners' ownership interests may be equalor unequal, depending on the terms of theircontractual agreement. A partnership

agreement isn't required to be in writing, butputting it in writing is a good idea.


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General PartnershipProperty ownership

Property is partnership property if its:

acquired in the partnerships nameacquired in partners name and deed

refers to the partnership

Although partners have a right to usepartnership property, a partner is not a

co-owner of this property and has notransferable interest in it.

However, a partners interest in the

partnership itself may be transferred.

General PartnershipProperty ownership

General PartnershipUnlimited Liability

Each partner may be held personally liablefor the debts and obligations of the generalpartnership.

Unless otherwise agreed, all of the partnershave an equal right to use and possess thepartnership property for partnership purposes.

But a partner is not a co-owner of the

partnership property and has no transferableinterest in it.

This means that if a partnership is ownedequally by three individuals, each would havean equal right to use and possess partnership-owned property.

However, it is the partnership (the businessentity) that owns the property, not the partners.

Each partner may be held personally liable forthe debts and obligations of the generalpartnership.So, if creditors cannot satisfy their

claims out of the partnership property, they candemand payment out of an individual partner'sown property. For example, they could place alien against a partner's home. This personalliability is the main disadvantage of organizinga business as a general partnership.


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PartnershipsLimited partnership

A limited partnership is more regulated than

a general partnership.Must meet requirements of CaliforniaUniform Limited Partnership Act.

Agreement must be in writing.

PartnershipsLimited partnership

A limited partnership has at least onegeneral partner, plus one or more limitedpartners.

Limited partners have:

no role in management decisions

no personal liability for business debts

Business OrganizationsCorporations

A corporation:

is a legal entity (an artificial person)

can enter into contracts and own property

is liable for business debts and obligations

has perpetual existence (no joint tenancy)

The limited partners have limited liability,which means that they are not personally liablefor the partnership's debts.Only the general partners are personally liable.Limited partners ordinarily are not permitted tobe involved in the day-to-day management ofthe business. They also have no control overthe partnership property. The limited partner'srole is that of a passive investor, not an active

participant. Because a limited partnership canhave just a few investors and insulate thoseinvestors from liability, many real estatesyndicates are organized as limitedpartnerships.

Corporation;

A corporation is made up of stockholders, a

board of directors, and corporate officers. Thecorporation raises funds by selling shares ofcommon stock. The stockholders (also calledshareholders) are investors who own shares inthe corporation. Shareholders elect the boardof directors, which has overall control over thebusiness. The board supervises the officers ofthe corporation, who manage the businessfrom day to day.


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CorporationsShareholders

A corporation is owned by its shareholders,

who purchase shares of stock as aninvestment.

Shareholders have no managementcontrol

Shareholders have limited liability

Shareholders have a right to shareprofits (but no interest in property)

CorporationsSecurities

Shares in a corporation are known assecurities.

Securities are regulated by the Securitiesand Exchange Commission (SEC).

CorporationsCalifornia law

A corporation formed in California is knownas a domestic corporation.

A corporation formed in any other state orforeign country is a foreign corporation, andmust be certified by the state.

Shares in a corporation are securities, because theyrepresent a financial investment in an enterprisewithout managerial involvement. Limited partnershipinterests are also securities. Securities are regulatedby the Securities and Exchange Commission, afederal agency.

Although a corporation is owned by its stockholders, itis a legal entity that is separate from the stockholders.It's an artificial person that can enter into contracts orown property. It can also get into debt and be sued, orbring suit against someone else. If a stockholder dies,the corporation continues to exist. By contrast, apartnership won't necessarily continue if a generalpartner dies. A corporation has a potentially perpetual

existence.The major benefit of the corporate form oforganization is the stockholders' limited liability.While the corporation itself is liable for its debts andfor illegal actions taken in its name, the stockholdersare not personally liable for its debts or actions. acorporation has the same property rights as any otherperson. It may own, convey, or encumber property. Itholds title in severalty.Because of its potentially perpetual existence, a

corporation cannot own property in joint tenancy.If one joint tenant has the potential to live forever,there can be no true right of survivorship.So when a corporation owns property with anotherparty, they take title as tenants in common.The person who enters into a contract or conveyanceon behalf of the corporation must be an officerauthorized by the board of directors.


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Limited liability company (LLC)

The LLC combines many of the advantages

of a corporation with those of a partnership:ability to manage the company

limited liability

avoidance of double taxation

Business OrganizationsLimited liability company (LLC)

To create an LLC, owners create anoperating agreement and file with the state.

The owners of an LLC are known asmembers.

Managing members of an LLC can bindthe LLC with their actions.


Joint venture

Joint venture: Occurs when two or moreindividuals or organizations join together fora specific project or transaction.

Not an ongoing business endeavor

Generally regulated like a partnership

LLC-a relatively new form of businessorganization. Depending on agreementterms, all of an LLC's owners (referred to asmembers) may manage the company, orcertain members may be appointed to

manage it.But an LLC's managing membersaren't personally liable for the LLC's debts. AllLLC members have limited liability, likecorporate stockholders.The key benefit for an LLC in comparison to acorporation is a tax advantage. A corporationhas the problem of double taxation.Corporate earnings are first taxed ascorporate income. Then, when the earningsare distributed to stockholders, they are taxedagain, as the personal income of thestockholders. By contrast, the earnings of anLLC are taxed only as the personal income ofthe members.

There are no formal requirements for thecreation of a joint venture.The parties simplyagree that they're going to work together on a

particular project, and then they share theirprofits or losses.


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Business OrganizationsTrusts

In a trust, one or more trustees manage

property for beneficiaries, with powers listedin the trust agreement.

Trusts are sometimes used as a form ofbusiness ownership.

One example is a real estate investment

trust (REIT).

TrustsReal estate investment trust

REIT: An unincorporated syndicate created byinvestors to finance large real estate projects.

Qualifies for special tax treatment

Regulated by SEC

Investors have limited liability

Strict requirements:

at least 100 investors

only invest in real estate and mortgages

distribute at least 90% of income toinvestors

Summary:

Business organizations Syndicate

General partnership

Limited partnership

Limited liability

company (LLC)

Corporation

Joint venture

Real estateinvestment trust

(REIT)

A trust is an arrangement in which one or moreparties (known as trustees) manage assets forthe benefit of others (known as beneficiaries).

Title to the trust property is vested in the

trustees, who must manage the propertyaccording to the terms of the trust.

REIT- a business association that invests almostexclusively in real estate or real estatefinancing. By doing so, it qualifies for specialtax treatment, such as the ability to avoiddouble taxation. It passes profits through to itsinvestors without paying corporate income tax.To qualify for that tax advantage, an REIT must

meet strict requirements.

REIT investors have the benefit of limitedliability, like corporate stockholders, limitedpartners, or LLC members.Interests in a real estate investment trust arefreely transferable.Those interests are securities, so their sale issubject to the supervision of the Securities andExchange Commission.

In a typical REIT, trustees invest and managethe trust property on behalf of the investors,following guidelines in the documents thatestablished the trust.A real estate investment trust generally is notincorporated.


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Ways of Holding TitleCondominiums and cooperatives

Two special types of properties combine

aspects of individual ownership andconcurrent ownership:

condominiums (condos)

cooperatives (co-ops)

CondominiumsOwnership

Condominiums are usually residential, andoften look like an apartment complex

Residents:

own individual units (in severalty)

share ownership of common elements

Condominiums

Common elements

Common elements: Areas of the propertythat may be used by all residents.

Examples: grounds, hallways, lobby,elevator, and swimming pool

2 special types of properties that involve co-ownership: condominiums and cooperatives.

Most condominium developments are

residential, can be commercial/ industrial too.A typical condominium is made up of one ormore multi-family residential buildings andlooks just like an apartment complex.-each condominium resident (or family) owns aunit in fee simple.-all of the unit owners share ownership of thecondominium's common elements as tenantsin common.-maximize the use of available land.

-Condominiums with five or more units areregulated as subdivisions, even if they sharewalls.

Common elements are also called commonareas. Examples: grounds, the building's lobby,the elevator, the main hallways, the roof, and

swimming pool.


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Condominiums

Common elements

A specific interest in the common elements

is assigned to each unit.

The legal description of a unit might read:

Unit 20, together with a 3.5% undividedinterest in the common elements

CondominiumsLimited common elements

Limited common elements: Features thatserve a single unit, but are outside the unitsboundaries (and belong to all the owners)

Examples: parking spaces and balconies

Condominiums

Units as separate properties

The owner of a condominium unit:

receives a deed for the unit

finances the purchase with a separateloan

obtains a separate title insurance policy

pays separate taxes

is unaffected by foreclosures on otherunits

A given unit's percentage of interest in thecommon elements usually depends on the totalnumber of units in the condominium and theirrelative value. The percentages are set forth inthe condominium declaration, a document

prepared by the developer that providesdetailed information about every aspect of thecondominium property.

Note that the seller must give the condominiumbuyer a copy of the declaration, any privaterestictions (CC&Rs), and the bylaws andfinancial statements of the condominiumassociation.

The actual boundaries of a condominium unitare the finished interior surfaces of its walls,floors, and ceilings.Anything within those boundaries is ordinarilyowned by the unit owner.All aspects of the condominium propertyoutside of the units are common elements.A unit owner's separate property is the airspaceoccupied by the unit.

Limited common elements are owned by all ofthe unit owners as tenants in common, but theyare reserved for the exclusive use of the ownersof a specific unit or a specific group of units.

r example, the parking lot might be part of the commonements, but each assigned parking space might be aited common element. Parking space 16 might be aited common element reserved for the use of theners of Unit 9B.y feature that's designed to serve a single unit, but istside the unit's boundariessuch as a window box, an

wning, or a balconyis also classified as a limited

For most purposes, the individual units in acondominium are separate properties.

Sometimes the owner of an apartment buildingdecides to change the complex into acondominium. This process is calledconversion. Conversions are subject to stateregulations that protect the rights of the tenantsof the apartment building. For instance, eachtenant must receive 180 days' advance writtennotice of the conversion.


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CooperativesOwnership

A residential cooperative might look like a

condominium, but the ownership structure isvery different.

Title is held by a single entity, often acorporation.

Residents:

own shares in the corporation, and

have a long-term proprietary leaseon a unit

Cooperatives

A cooperative project is:

financed with a single mortgage

taxed as a single property

funded by shareholder rent payments(which are prorated share of expenses)

Condos and Co-opsComparison

Condos Co-ops

Own and finance units Tenants own sharesindividually Corp. owns property

Individual financing Blanket loan

Unaffected by defaults Responsible for

by other residents other tenant defaults

Can sell property freely Need approval forsale

Title to a cooperative project is held by acorporation formed for that purpose. Thecorporation owns the property. The residentssimply own shares in the corporation.

The shareholders do not actually own theirunits. Instead, each shareholder has a long-term proprietary lease on a unit.

An interest in a cooperative is not title to realestate. However, the long-term lease does givethe resident a leasehold estate in the property.

A cooperative project is financed with a single

mortgage & taxed as a single property.

The rent that a shareholder-tenant pays to thecorporation is a proportionate share of thecooperative's operating expenses. one tenant'sfailure to pay her share can affect all of theother tenants.


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SummaryCondos & Co-ops

Condominium

Common elements

Limited common elements

Cooperative

RE170 Lesson 02 Estates Inland Method of Holding Title

Documents

Transcript of RE170 Lesson 02 Estates Inland Method of Holding Title