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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 sufferance
Leasehold EstatesTypes of estates
Types of Leasehold Estates
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.
Types of Leasehold Estates
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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Types of Leasehold Estates
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
Leasehold EstatesTypes of estates
Types of Leasehold Estates
Tenancy at sufferance
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
Tenancy at sufferance
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
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).
Ways of Holding Title
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.)
Concurrent Ownership
Community property
Community property is property ownedjointly and equally by a husband and wife inCalifornia, and certain other states.
Concurrent Ownership
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
Ways of Holding Title
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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Business Organizations
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.
Business Organizations
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