LEARNING OBJECTIVES
 When you've finished reading this Chapter, you should be able to:
► identify the four basic forms of co-ownership.

► describe the ways in which various business organizations may own property.

► explain how a tenancy in common, joint tenancy, and tenancy by the entirety are created and how they may be terminated.

► distinguish cooperative ownership from condominium ownership.

► define the following key terms:

common elements; joint venture; severalty; community property; limited liability company; syndicate; condominium; (LLC); tenancy by the entirety; cooperative; limited partnership; tenancy in common ; co-ownership; partition; time-sharing; corporation; partnership; trust; general partnership; right of survivorship; joint tenancy; separate property. 

REAL ESTATE PRACTICE & PRINCIPLES KEY WORD MATCH QUIZ --- CLICK HERE ---

 

As we've seen, many different interests in land exist—fee simple, life estates, and easements, for instance. Licensees also have to understand how these interests in real property may be held. Although questions about forms of ownership should always be referred to an attorney, successful brokers and salespersons must under-stand the fundamental types of ownership so they will know who must sign various documents. They also must know what form of ownership a purchaser wants and what options are possible when more than one individual will take title. Because the form of ownership determines how the property can be reconveyed later, it is very important for the licensee to get it right the first time.

Although the forms of ownership available are controlled by state laws, a fee simple estate may be held in three basic ways:

1. In severalty, where title is held by one individual

2. In co-ownership, where title is held by two or more individuals

3. In trust, where a third individual holds title for the benefit of another

When real estate is owned by one individual, that individual is said to own the property in severalty. The term comes from the fact that this sole owner is "severed" or "cut off" from other owners. The severalty owner has sole rights to the ownership and sole discretion over the transfer of the ownership. When either a husband or wife owns property in severalty, state law may affect how ownership is held.

When title to one parcel of real estate is held by two or more individuals, those parties are called co-owners or concurrent owners. Most states commonly recognize various forms of co-ownership. Individuals may co-own property as tenants in common, joint tenants, or tenants by the entirety, or they may co-own it as community property. During the lifetime of the co-owners, however, there is no apparent difference among the various types of ownership. Only when the property is conveyed or one of the owners dies do the differences become apparent.

A parcel of real estate may be owned by two or more people as tenants in common. In a tenancy in common, each tenant holds an undivided fractional interest in the property. A tenant in common may hold, say, a one-half or one-third interest in a property. The physical property, however, is not divided into a specific half or third. The co-owners have unity of possession, that is, they are entitled to possession of the whole property. It is the ownership interest, not the property, that is divided.

The deed creating a tenancy in common may or may not state the fractional interest held by each co-owner. If no fractions are stated, the tenants are presumed to hold equal shares. For example, if five people hold title, each would own an undivided one-fifth interest.

Because the co-owners own separate interests, each can sell, convey, mortgage, or transfer his or her interest without the consent of the other co-owners. However, no individual tenant may transfer the ownership of the entire property. When one co-owner dies, the tenant's undivided interest passes according to his or her will.

When two or more people acquire title to real estate and the deed does not indicate the form of the tenancy, the new owners are usually determined to have acquired title as tenants in common. But if the deed is made to a husband and wife with no further explanation, this assumption may not apply. In some states, a deed made to a husband and wife creates a tenancy by the entirety; in others, community property; and in at least one state, a joint tenancy.

Most states recognize some form of joint tenancy in property owned by two or more people.

The most distinguishing feature of joint tenancy is the right of survivorship. Upon the death of a joint tenant, his or her interest does not pass to heirs or according to a will. Rather, the entire ownership remains in the surviving joint tenant(s). Essentially, there is simply one less owner.

As each successive joint tenant dies, the surviving joint tenants acquire the deceased tenant's interest. The last survivor takes title in severalty and has all the rights of sole ownership, including the right to pass the property to his or her heirs.

IN PRACTICE   The form under which title is to be taken by individuals or married partners should always be discussed with an attorney. Licensees may not give legal advice or engage in the practice of law.

Creating joint tenancies. A joint tenancy can be created only by the intentional act of conveying a deed or giving the property by will. It cannot be implied or created by operation of law. The deed must specifically state the par-ties' intention to create a joint tenancy, and the parties must be explicitly identified as joint tenants. Some states, however, have abolished the right of survivorship as the distinguishing characteristic of joint tenancy. In these states, the deed must explicitly indicate the intention to create the right of survivorship for that right to exist.

    1. Unity of possession—all joint tenants holding an undivided right to possession

    2. Unity of interest—all joint tenants holding equal ownership interests

    3. Unity of time—all joint tenants acquiring their interests at the same time

    4. Unity of title—all joint tenants acquiring their interests by the same document

The four unities are present when the following requirements are met:

► Title is acquired by one deed.

► The deed is executed, signed, and delivered at one time.

► The deed conveys equal interests to all of the parties.

► The parties hold undivided possession of the property as joint tenants.

Because the unities must be satisfied, many states require the use of an intermediary when a sole owner wishes to create a joint tenancy between himself or herself and others. The owner conveys the property to a nominee, or straw man. Then the nominee conveys it back, naming all the parties as joint tenants in the deed. As a result, all the joint tenants acquire title at the same time by one deed.

 

Some states have eliminated this "legal fiction" and allow the sole owner to execute a deed to himself or herself and others "as joint tenants and not as tenants in common," thereby creating a valid joint tenancy.

Terminating joint tenancies. A joint tenancy is destroyed when any one of the four unities of joint tenancy is terminated. A joint tenant is free to convey his or her interest in the jointly held property, but doing so destroys the unities of time and title. The new owner cannot become a joint tenant. Rights of other joint tenants, however, are unaffected.

FOR EXAMPLE    Alva, Betty, and Cindy hold title to Blackacre as joint tenants. Alva conveys her interest to Doris. Doris now owns a fractional interest in Blackacre as a tenant in common with Betty and Cindy, who continue to own their undivided interest as joint tenants. Doris is presumed to have a one-third interest, which may be reconveyed or left to Doris's heirs.

Cotenants who wish to terminate their co-ownership may file an action in court to partition the property. Partition is a legal way to dissolve the relationship. when the parties do not voluntarily agree to its termination. If the court determines that the land cannot be divided physically into separate parcels without destroying its value, the court will order the real estate sold. The proceeds of the sale will then be divided among the co-owners according to their fractional interests.

 

Tenancy by the entirety. Some states allow husbands and wives to use a special form of co-ownership called tenancy by the entirety. In this form of ownership, each spouse has an equal, undivided interest in the property. (The term entirety refers to the fact that the owners are considered one indivisible unit because early common law viewed a married couple as one legal person.) A husband and wife who are tenants by the entirety have rights of survivorship. During their lives, they can convey title only by a deed signed by both parties. One party cannot convey a one-half interest, and generally they have no right to partition or divide. On the death of one spouse, the surviving spouse automatically becomes sole owner. Married couples often take title to property as tenants by the entirety so that the surviving spouse can enjoy the benefits of ownership without the delay of probate proceedings.

IN PRACTICE    An attorney should be consulted about the requirements to create a tenancy by the entirety. Under common law, a grant to a husband and wife automatically created a tenancy by the entirety, even when no form of ownership was specified in the deed. Some states, however, require that the intention to create a tenancy by the entirety be specifically stated. If it is not stated in the deed, a tenancy in common can result.

► By the death of either spouse (the surviving spouse becomes sole owner in severalty)

► By agreement between both parties (through the execution of a new deed)

► By divorce (which leaves the parties as tenants in common)

► By a court-ordered sale of the property to satisfy a judgment against the husband and wife as joint debtors (the tenancy is dissolved so that the property can be sold to pay the judgment)

Community property rights. Community property laws are based on the idea that a husband and wife, rather than merging into one entity, are equal partners in the marriage. Any property acquired during a marriage is considered to be obtained by mutual effort. The states' community property laws vary widely. Essentially, however, they all recognize two kinds of property: separate property and community property.

 

Separate property is real or personal property that was owned solely by either spouse before the marriage. It also includes property acquired by gift or inheritance during the marriage, as well as any property purchased with separate funds during the marriage. Any income earned from a person's separate property remains part of his or her separate property. Separate property can be mortgaged or conveyed by the owning spouse without the signature of the nonowning spouse.

Community property consists of all other property, both real and personal, acquired by either spouse during the marriage. Any conveyance or encumbrance of community property requires the signatures of both spouses. When one spouse dies, the survivor automatically owns one-half of the community property. The other half is distributed according to the deceased spouse's will. If the spouse dies without a will, the other half is inherited by the surviving spouse or by the decedent's other heirs, depending on state law. Community property does not provide an automatic right of survivorship as joint tenancy does.

A trust is a device by which one person transfers ownership of property to some-one else to hold or manage for the benefit of a third party. Perhaps a grandfather wishes to ensure the college education of his granddaughter, so he transfers his oil field to the grandchild's mother. He instructs the mother to use its income to pay for the grandchild's college tuition. In this case, the grandfather is the trustor—the person who creates the trust. The granddaughter is the beneficiary—the person who benefits from the trust. The mother is the trustee—the party who holds legal title to the property, and is entrusted with carrying out the trustor's instructions regarding the purpose of the trust. The trustee is a fiduciary who acts in confidence or trust and has a special legal relationship with the beneficiary. The trustee's power and authority are limited by the terms o the trust agreement, will or deed in trust.

IN PRACTICE    The legal and tax implications of setting up a trust are complex and vary widely from state to state. Attorneys and tax experts should always be consulted on the subject of trusts.

Most states allow real estate to be held in trust. Depending on the type of trust and its purpose, the trustor, trustee, and beneficiary can all be either people or legal entities, such as corporations. Trust companies are corporations set up for this specific purpose.

Real estate can be owned under living or testamentary trusts and land trusts. It can also be held by investors in a real estate investment trust (REIT), discussed in Appendix I.

A property owner may provide for his or her own financial care or for that of the owner's family by establishing a trust. This trust may be created by agreement during the property owner's lifetime (a living trust) or established by will after the owner's death (a testamentary trust). (Note that neither of these are related to the so-called living will, which deals with the right to refuse medical treatment.)

The person who creates the trust conveys real or personal property to a trustee (usually a corporate trustee), with the understanding that the trustee will assume certain duties. These duties may include the care and investment of the trust assets to produce an income. After paying the trust's operating expenses and trustee's fees, the income is paid to or used for the benefit of the beneficiary. The trust may continue for the beneficiary's lifetime, or the assets may be distributed when the beneficiary reaches a certain age or when other conditions are met.

A few states permit the creation of land trusts, in which real estate is the only asset. As in all trusts, the title to the property is conveyed to a trustee, and the beneficial interest belongs to the beneficiary. In the case of land trusts, however, the beneficiary is usually also the trustor. While the beneficial interest is personal property, the beneficiary retains management and control of the real property and has the right of possession and the right to any income or proceeds from its sale.

One of the distinguishing characteristics of a land trust is that the public records usually do not name the beneficiary. A land trust may be used for secrecy when assembling separate parcels. There are other benefits as well. A beneficial interest can be transferred by assignment, making the formalities of a deed unnecessary. The beneficial interest in property can be pledged as security for a loan without having a mortgage recorded. Because the beneficiary's interest is personal, it passes at the beneficiary's death under the laws of the state in which the beneficiary lived. If the deceased owned property in several states, additional probate costs and inheritance taxes can be avoided.

A land trust ordinarily continues for a definite term, such as 20 years. If the beneficiary does not extend the trust term when it expires, the trustee is usually obligated to sell the real estate and return the net proceeds to the beneficiary.

 

IN PRACTICE    Licensees should exercise caution in using the term trust deed. It can mean both a deed in trust (which relates to the creation of a living, testamentary or land trust) and a deed of trust (a financing document similar to a mortgage). Because these documents are not interchangeable, using an inaccurate term can cause serious misunderstandings.

► OWNERSHIP OF REAL ESTATE BY BUSINESS ORGANIZATIONS

A business organization is a legal entity that exists independently of its members. Ownership by a business organization makes it possible for many people to hold an interest in the same parcel of real estate. Investors may be organized to finance a real estate project in various ways. Some provide for the real estate to be owned by the entity; others provide for direct ownership by the investors.

A partnership is an association of two or more persons who carry on a business for profit as co-owners. In a general partnership, all the partners participate in the operation and management of the business and share full liability for business losses and obligations. A limited partnership, on the other hand consists of one or more general partners as well as limited partners. The business is run by the general partner or partners. The limited-partners are not legally permitted to participate, and each can be liable for business losses only to the extent of his or her investment. The limited partnership is a popular method of organizing investors because` it permits investors with small amounts of capital to participate in large estate projects with a minimum of personal risk.

Most states have adopted the Uniform Partnership Act (UPA), which permits real estate to be held in the partnership name. The Uniform Limited Partnership Act (ULPA) also has been widely adopted. It establishes the legality of the limited partnership entity and provides that realty may be held in the limited partnership's name. Profits and losses are passed through the partnership to each partner, whose individual tax situation determines the tax consequences.

General partnerships are dissolved and must be reorganized if one partner dies, withdraws, or goes bankrupt. In a limited partnership, however, the partnership agreement may provide for the continuation of the organization following the death or withdrawal of one of the partners.

A corporation is a legal entity—an artificial person—created under the authority of the laws of the state from which it receives its charter. A corporation is managed and operated by its board of directors. The charter sets forth the powers of the corporation, including its right to buy and sell real estate (based on a resolution by the board of directors). Because the corporation is a legal entity, it can own real estate in severalty. Some corporations are permitted by their charters to purchase real estate for any purpose; others are limited to purchasing only the land necessary to fulfill the entities' corporate purposes.

 

As a legal entity, a corporation continues to exist until it is formally dissolved. The death of one of the officers or directors does not affect title to property owned by the corporation. Individuals participate, or invest, in a corporation by purchasing stock. Because stock is personal property, shareholders do not have direct ownership interest in the real estate owned by a corporation. Each shareholder's liability for the corporation's losses is usually limited to the amount of his or her investment.

One of the main disadvantages of corporate ownership of income property is that the profits are subject to double taxation. As a legal entity, a corporation must file an income tax return and pay tax on its profits. The portion of the remaining profits distributed to shareholders as dividends is taxed again as part of the shareholders' individual incomes.

An alternative form of business ownership that provides the benefit of a corporation as a legal entity but avoids double taxation is known as an S corporation. Profits of S corporations are taxed at the applicable rates of their shareholders, whether or not distributed to them as dividends. S corporations are generally small, closely-held corporations that are not taxed directly. S corporations are subject to strict requirements regulating their structure, membership, and operation. If the Internal Revenue Service (IRS) determines that an S corporation has failed to comply with these detailed rules, the entity will be redefined as some other form of business organization, and its favorable tax treatment will be lost.

Generally speaking, a syndicate is two or more people or firms joined together to make and operate a real estate investment. A syndicate is not in itself a legal entity; however, it may be organized into a number of ownership forms, including co-ownership (tenancy in common, joint tenancy), partnership, trust, or corporation. A joint venture is a form of partnership in which two or more people or firms carry out a single business project. The joint venture is ` characterized by a time limitation resulting from the fact that the joint venturers do not intend to establish a permanent relationship.

The limited liability company (LLC) is a relatively recent form of business organization. An LLC combines the most attractive features of limited partnerships and corporations. The members of an LLC enjoy the limited liability offered by a corporate form of ownership and the tax advantages of a partnership. In addition, the LLC offers flexible management structures without the complicated requirements of S corporations or the restrictions of limited partnerships. The structure and methods of establishing a new LLC, or of converting an existing entity to the LLC form, vary from state to state.

"Home" does not refer only to a brick bungalow on a grassy lawn surrounded by a white picket fence. A growing urban population, diverse lifestyles, changing family structures, and heightened mobility have created a demand for new forms of ownership. Condominiums, cooperatives, and time-share arrangements are three types of property ownership that have arisen in residential, commercial, and industrial markets to address our society's changing real estate needs.

The condominium form of ownership has become increasingly popular throughout the United States. Condominium laws, often called horizontal property acts, have been enacted in every state. Under these laws, the owner of each unit holds a fee simple title to the unit. The individual unit owners own a specific share of the undivided interest in the remainder of the building and land, known as the common elements. Common elements typically include such items as land, courtyards, lobbies, the exterior structure, hallways, elevators, stairways, and the roof, as well as recreational facilities such as swimming pools, tennis courts, and golf courses. The individual unit owners own these common elements as tenants in common. State law usually provides, however, that unit owners do not have the same right to partition that other tenants in common have. Condominium ownership is not restricted to highrise buildings; lowrises, town houses, and detached structures can all be condominiums.

Creation of a condominium. Many states have adopted the Uniform Condominium Act (UCA). Under its provisions, a condominium is created and established when the owner of an existing building (or the developer of unimproved property) executes and records a declaration of condominium. The declaration includes

► a legal description of the condominium units and the common elements (including limited common elements—those that serve only one particular unit);

► a copy of the condominium's bylaws, drafted to govern the operation of the owners' association;

► a survey of the property;

► an architect's drawings, illustrating both the vertical and horizontal boundaries of each unit; and

► any restrictive covenants controlling the rights of ownership.

Owning a condominium. Once the property is established as a condominium, each unit becomes a separate parcel of real estate that is owned in fee simple and may be held by one or more persons in any type of ownership or tenancy recognized by state law. A condominium unit may be mortgaged like any other parcel of real estate. The unit can usually be sold or transferred to whomever the owner chooses, unless the condominium association provides for a right of first refusal. In this case, the owner is required to offer the unit at the same price to the other owners in the condominium or the association before accepting an outside purchase offer.

IN PRACTICE    When someone buys a condominium, he or she should do as much background research as possible. Examining and understanding association fees and rules are critical so the buyer is aware of his or her responsibilities and is not surprised by a particular fee or rule. Most states require the disclosure of condominium documents to buyers; it's important that the buyer examine them.

Operation and administration. The condominium property is administered by an association of unit owners. The association may be governed by a board of directors or another official entity, and it may manage the property on its own or hire a property manager.

The association must enforce any rules it adopts regarding the operation and use of the property. The association is responsible for the maintenance, repair, cleaning, and sanitation of the common elements and structural portions of the property. It must also maintain fire, extended-coverage, and liability insurance.

The expenses of maintaining and operating the building are paid by the unit owners in the form of fees and assessments. Both fees and assessments are imposed and collected by the owners' association. Recurring fees (referred to as condo fees) are paid by each unit owner. The fees may be due monthly, quarterly, semiannually, or annually, depending on the provisions of the bylaws. The size of an individual owner's fee is generally determined by the size of his or her unit. For instance, the owner of a three-bedroom unit pays a larger share of the total expense than the owner of a one-bedroom unit. If the fees are not paid, the association may seek a court-ordered judgment to have the delinquent owner's unit sold to cover the outstanding amount or place a lien on the property.

Assessments are special payments required of unit owners to address some specific expense, such as a new roof. Assessments are structured like condo fees: Owners of larger units pay proportionately higher assessments than owners of smaller units.

In a cooperative, a corporation holds title to the land and building. The corporation then offers shares of stock to prospective tenants. The price the corporation sets or each apartment becomes the price of the stock. The purchaser becomes a shareholder in the corporation by virtue of stock ownership and receives proprietary lease to the apartment for the life of the corporation. Because stock is personal property, the cooperative to a tenant-owners n do not own real estate, as is the case with condominiums. Instead, they own an interest in a corporation that has only one asset: the building.
  

Operation and management. The operation and management of a cooperative are determined by the corporation's bylaws. Through their control of the corporation, the shareholders of a cooperative control the property and its operation. They elect officers and directors who are responsible for operating the corporation and its real estate assets. Individual shareholders are obligated to abide by the corporation's bylaws.

An important issue in most cooperatives is the method by which shares in the corporation may be transferred to new owners. For instance, the bylaws may require that the board of directors approve any prospective shareholders. In some cooperatives, a tenant-owner must sell the stock back to the corporation at the original purchase price so that the corporation realizes any profits when the shares are resold.

FOR EXAMPLE    In a highly publicized incident, former President Richard Nixon's attempt to move into a highly exclusive Manhattan cooperative apartment building was blocked by the cooperative's board. In refusing to allow the controversial ex-President to purchase shares, the board cited the unwanted publicity and media attention other celebrity tenants would suffer.

The corporation incurs costs in the operation and maintenance of the entire parcel, including both the common property and the individual apartments. These costs include real estate taxes and any mortgage payments the corporation may have. The corporation also budgets funds for such expenses as insurance, utilities, repairs and maintenance, janitorial and other services, replacement of equipment, and reserves for capital expenditures. Funds for the budget are assessed to individual shareholders, generally in the form of monthly fees similar to those charged by a homeowners' association in a condominium.

Unlike in a condominium association, which has the authority to impose a lien on the title owned by someone who defaults on maintenance payments, the burden of any defaulted payment in a cooperative falls on the remaining share-holders. Each shareholder is affected by the financial ability of the others. For this reason, approval of prospective tenants by the board of directors frequently involves financial evaluation. If the corporation is unable to make mortgage and tax payments because of shareholder defaults, the property might be sold by court order in a foreclosure suit. This would destroy the interests of all share-holders, including those who have paid their assessments.

Advantages. Cooperative ownership, despite its risks, has become more desirable in recent years for several reasons. Lending institutions view the shares of stock as acceptable collateral for financing. The availability of financing expands the transferability of shares beyond wealthy cash buyers. As a tenant-owner, rather than a tenant who pays rent to a landlord, the shareholder has some control over the property. Tenants in cooperatives also enjoy certain income tax advantages. The IRS treats cooperatives as it does fee simple interest in single homes or condominiums in regard to deductibility of loan interest, property taxes, and homesellers' tax exclusions. Finally, owners enjoy freedom from maintenance.

IN PRACTICE    The laws in some states may prohibit real estate licensees from listing or selling cooperative interests because the owners own only personal property. Individuals who participate in these transactions may need a securities license appropriate for the type of cooperative interest involved.

Time-sharing permits multiple purchasers to buy interests in real estate, usually a resort property. Each purchaser receives the right to use the facilities for a certain period of time. A time-share estate includes a real property interest in condominium ownership; a time-share use is a contract right under which the developer owns the real estate.

A time-share estate is a fee simple interest. The owner's occupancy and use of the property are limited to the contractual period purchased—for instance, the 17th complete week, Sunday through Saturday, of each calendar year. The owner is assessed for maintenance and common area expenses based on the ratio of the ownership period to the total number of ownership periods in the property. Time-share estates theoretically never end because they are real property interests. However, the physical life of the improvements is limited and must be looked at carefully when considering such a purchase.

FOR EXAMPLE    Glengarry Estates offers 50 one-week time-shares in its six exclusive seaside residences. This totals 300 possible time-share estates. The maintenance and common-area expenses are $52,500 per year. If all the time-shares are taken by owners who buy only a single share, each owner must pay $175. If one owner buys a three-week share, he or she must pay $525. Finally, if Glengarry's developers manage to sell only six shares, those unfortunate owners might have to pay $8,750 each year to maintain their one-week vacation homes. (In practice, however, developers usually absorb the additional costs in such circumstances.)

The principal difference between a time-share estate and a time-share use lies in the interest transferred to an owner by the developer of the project. A time-share use consists of the right to occupy and use the facilities for a certain number of years. At the end of that time, the owner's rights in the property terminate. In effect, the developer has sold only a right of occupancy and use to the owner, not a fee simple interest.

Some time-sharing programs specify certain months or weeks of the year during which the owner can use the property. Others provide a rotation system under which the owner can occupy the unit during different times of the year in different years. Some include a swapping privilege for transferring the ownership period to another property to provide some variety for the owner. Time-shared properties typically are used 50 weeks each year, with the remaining two weeks reserved for maintenance of the improvements.

Membership camping is similar to time-share use. The owner purchases the right to use the developer's facilities, which usually consist of an open area with minimal improvements (such as camper and trailer hookups and restrooms). Normally, the owner is not limited to a specific time for using the property; use is limited only by weather and access.

IN PRACTICE    Laws governing the development and sale of time-share units are complex and vary substantially from state to state. In addition, the sale of time-share properties may be subject to federal securities laws. In many states, time-share properties are now subject to subdivision requirements.

Sole ownership, or ownership in severalty, means that title is held by one natural person or legal entity. Under co-ownership, title can be held concurrently by more than one person in several ways. The differences among the various types of ownership only become apparent when the property is conveyed or when one of the owners dies.

Under tenancy in common, each party holds a separate title but shares possession with other tenants. Individual owners may sell their interests. On the death of a tenant in common, his or her interest passes to the tenant's heirs or according to a will. No special requirements for creating this interest exist. When two or more parties hold title to real estate, they do so as tenants in common unless they express another intention. Joint tenancy indicates two or more owners with the right of survivorship. The intention of the parties to establish a joint tenancy with right of survivorship must be stated clearly. The four unities of possession, interest, time, and title must be present.

Tenancy by the entirety, in those states where it is recognized, is actually a joint tenancy between husband and wife. It gives the couple the right of survivorship in all lands they acquired during marriage. During their lives, both must sign the deed for any title to pass to a purchaser. Community property rights exist only in certain states and pertain only to land owned by husband and wife. Usually, the property acquired by combined efforts during the marriage is community property, and each spouse owns one-half. Properties acquired by a spouse before the marriage and through inheritance or gifts during the marriage are considered separate property.

Real estate ownership may be held in trust. To create a trust, the trustor conveys title to the property to a trustee, who owns and manages the property.

Various types of business organizations may own real estate. A corporation is a legal entity and can hold title to real estate in severalty. While a partnership is technically not a legal entity, the Uniform Partnership Act and the Uniform Limited Partnership Act, adopted by most states, recognize a partnership as an entity that can own property in the partnership's name. A limited liability company (LLC) combines the limited liability offered by a corporate form and the tax advantages of a partnership without the complicated requirements of S corporations or the restrictions of limited partnerships. A syndicate is an association of two or more people or firms that invest in real estate. Many syndicates are joint ventures assembled for only a single project. A syndicate may be organized as a co-ownership trust, corporation, or partnership.

Cooperative ownership indicates title in one entity (a corporation or trust) that must pay taxes, mortgage interest and principal, and all operating expenses. Reimbursement comes from shareholders through monthly assessments. Shareholders have proprietary, long-term leases entitling them to occupy their apartments. Under condominium ownership, each owner-occupant holds fee simple title to a unit plus a share of the common elements. Each unit owner receives an individual tax bill and may mortgage the unit. Expenses for operating the building are collected by an owners' association through monthly assessments. Time-share ownership enables multiple purchasers to own estates or use interests in real estate, with the right to use the property for a part of each year.

Tennessee provides for tenancy by the entirety for married couples only. This form of ownership automatically provides the right of survivorship. Common-law marriages are not recognized in Tennessee.

Tennessee recognizes tenancy in common, wherein each owner has an undivided interest in the property as a whole. There is no right of survivorship, and each owner may dispose of his or her interest as he or she pleases. Tennessee does not recognize joint tenancy by accident. This means joint tenancy must be specifically created by certain words in the deed. The language in the conveyance must contain the words "joint tenants with the right of survivorship." Simply stating "joint tenants" without the words "with the right of survivorship" will probably be interpreted to mean tenants in common.

Four unities are required to create joint tenants with the right of survivorship: the unities of time, title, interest, and possession. A sole owner who wishes to create a joint tenancy with the right of survivorship with other co-owners must convey the property to a "straw man" (a third party). Then the "straw man" can convey ownership to the owner and the other grantees as joint tenants with the right of survivorship.

Life estates are commonly used in Tennessee. Tennessee is still largely rural. Many rural people feel that passing life estate to their heirs is better than having a will prepared.

Both dower rights and curtesy rights, which are legal life estates, were abolished in Tennessee in 1977. About that time, the elective share right was created.

The elective share is not a life estate insofar as real property is concerned but conveys a fee simple interest. Essentially, this right calls for a surviving spouse to dissent from a deceased spouse's will and claim the right given him or her by state law. The right also exists for the surviving spouse if the deceased spouse died intestate.

The elective share right applies to the property, both real and personal, that was in the name of the deceased spouse. The amount to a surviving spouse whose name was not on the deed depends on how long the marriage had lasted, as follows:

     • If less than three years, the surviving spouse is entitled to 10 percent of the estate left by the deceased spouse.

     • If three years but less than six years, the share is 20 percent; • if six years but less than nine years, the share is 30 percent.

     • If the marriage lasted for more than nine years, the surviving spouse may claim 40 percent.

Tennessee does not recognize community property rights.

Tennessee allows for sole proprietorships, partnerships, limited liability company (LLC) operations, corporations, and subchapter S corporations. Tennessee also recognizes limited partnerships.

If an entity such as a church is not incorporated and is run by a group of trustees, title would go to the trustees for the church. If a corporation that owns real estate becomes defunct, the real estate is owned by the shareholders as tenants in common.

Time-shares are a form of ownership interest that includes the use of a property for a fixed or variable period of time. In Tennessee, a time-share interval may not be offered or disposed of until the program is registered with the Commission.

The act regulating the time-share program in Tennessee is the Tennessee Time-Share Act of 1981.

Tennessee requires that those who engage in selling time-share intervals hold a license issued by the Tennessee Real Estate Commission. A real estate broker and affiliate broker under contract to the broker may also sell time-share intervals.

A person who signs a contract to purchase a time-share interval is given the right of rescission. This right must be exercised within a certain period of time.

There are several situations that create a contract voidable by the buyer. The buyer may void the contract within ten days of the date the purchase agreement was signed if the buyer made an on-site inspection of the property. The buyer has 15 days to void the contract if no on-site inspection was made. The purchase agreement is also voidable at any time prior to the buyer's receipt of a public offering statement.

Because Tennessee is the destination for millions of visitors each year,  legislation has been enacted governing the activities of persons who rent, market, book, and manage residential units owned by others for travelers or transients staying not more than 14 days. The Vacation Lodging Services Law requires that such a business have a firm license, but it is not required that a real estate broker supervise such a business. The firm must establish an escrow account.

A real estate broker holding a real estate firm license who is engaged in the vacation lodging services business is deemed to satisfy this requirement. One person from the firm must be designated to complete a training program. The program requires eight hours of instruction to apply for the vacation lodging services license. This licensee must also complete such instruction every two years as a requisite for renewal of the license, which expires on December 31 of each even-numbered year.

The vacation lodging services firm must have an office at a fixed location that meets zoning laws and ordinances and must notify the Commission within ten days of any change in its location. The holder of this license is subject to the same disciplinary actions as any other licensee. The license can be revoked or suspended or the licensee can be reprimanded, but only after a hearing has been held under the provisions of the Tennessee Administrative Procedures Act.

The applicant for this license must establish an escrow account satisfactory to the Commission. Proof of such account must accompany each renewal application thereafter and be accompanied by the necessary fee.

The firm must keep records of the escrow account for at least three years, showing:

     • The depositor of the funds, • the date of deposit,

     • The date of withdrawal,

     • The payee of the funds, and

     • any other pertinent information required by the Commission.

Condominiums are examples of multiple owners of the same property. Articles of incorporation, bylaws, definitions, and restrictive covenants are all different; therefore, due diligence is required before making a decision to purchase. The condo buyer receives a deed to real property. The licensee who assists buyers in buying condos should always insist that the buyer read all relevant documents before entering into a purchase agreement.

The law in Tennessee that allows for the development and sale of condominiums is the Horizontal Property Act. It was enacted in 1963 before most people knew or cared much about condominiums.

Yes, there are protections. The owner or landlord must give two months' notice of the intent to convert to tenants who are renting units in apartments being converted to condominiums. The rent cannot be increased during this two-month period, and the unit cannot be sold during this period, except to the tenant renting it, even if the tenant's lease expires during the two-month period.

All sums (association dues) assessed by the homeowners' association but unpaid for the share of the common expenses chargeable to any unit constitute a lien and can be foreclosed on by suit from the homeowners' association or the association management company representing the co-owners. In other words, as a form of protest, nonpayment of association dues is not a good idea.