Condo – A system of co-ownership of individual units in a multi-structure, combined with joint ownership of commonly used property (sidewalks, hallways, stairs, etc.). Each condo unit is also called a condo or (more often) condo. The owner of each unit owns that unit in fee simple and can mortgage the unit. Can come in various designs and architectural styles, but generally refers to the form of ownership.
Bylaws – A set of rules that govern the affairs of a condo or neighborhood homeowner’s association. In the case of a condo, these rules determine much of what a homeowner may do with his or her unit as well as with the common property of the complex. For example, an association of condos prepares bylaws that state the minimum number of owners needed to conduct a meeting, to decide on policies, to elect officers, and other matters.
Common areas – Clubhouse, pool, hallways, stairs, elevators, malls
Cooperative – Type of corporate ownership of real property whereby stockholders of the corporation are entitled to use a certain dwelling unit or other units of space. Special income tax laws allow the tenant stockholders to deduct their share of interest and property taxes paid to the corporation. Shares of stock represent ownership. In contrast for condos, purchaser gets a deed to a specific unit. Both may assess monthly fees. Co-ops are found in large cities like NY. They are typically financed as one property, whereas each condo unit is financed individually.
Corporation – A legal entity properly registered with a state’s secretary of state. It can have limited liability, perpetual life, freely transferable shares, and centralized management. S corporation is a corporation with a limited number of stockholders (75 or fewer) that elects not to be taxed as a regular corporation but meets certain other requirements. In their personal income tax returns, shareholders include their pro-rata share of capital gains, ordinary income, tax preference items, and so on. Corporations have perpetual life, some is stated, but lengthy and renewable.
Double Taxation – This means that the same income is taxes twice, once at the entity level and again at the entity’s ownership level. For example, a corporation has profits and pays a corporate tax. When it distributes the profits to the corporate stockholders in the form of dividends, they also pay income tax as individuals. This can be avoided by using a form of ownership that doesn’t pay tax. Many forms of ownership are just conduits that pass the income to owners.
Freely Transferable – Gives any purchaser of that interest the same ownership rights that were held by the seller. Where this does not exist, the purchaser may not gain the same rights as, for example, the partners in a partnership.
General Partnership / Partnership – An agreement between two or more persons or entities to go into business or invest. Either partner may bind the other, within the scope of the partnership. Each partner is liable for all the partnership’s debts. Typically, a general partnership is not a taxable entity because its income and losses are passed through to the partners.
Limited Liability – As applied to a corporation or limited partnership, means that some or all of the owners can’t lose more than they have invested.
LLC – Can be either a LLC or a LLP. States govern the maximum number of co-owners. For federal income tax purposes, the owners may elect to be taxed as a partnership or certain other forms.
Limited Partnership – This consists of at least one general partner and at least one limited partner. The general partner(s) are responsible for running the affairs of the business and are liable for all partnership debts. The limited partner(s) have limited liability, which means that they cannot lose more than they have invested, but they cannot participate in everyday business decisions.
Method of Owning Real Estate – The method of owning real estate affects income taxes, estate taxes, continuity, liability, survivorship, transferability of interests, disposition at death, and bankruptcy. Ownership forms include:
- Sole Proprietorship
- Tenancy in Severalty
- Tenancy in Common
- Joint Tenancy
- Tenancy by the Entirety
- Community Property
- Limited Partnership
- Subchapter S Corporation
- Limited Liability Corporation
- Limited Liability Partnership
- Real Estate Investment Trust
Real Estate Investment Trust (REIT) – A most likely closed-end mutual fund that owns real estate. It must invest most of its capital in real estate and earn most of its income from real estate investments. A REIT must be widely held; that is, it must have at least 100 shareholders, and the five shareholders who on the most shares cannot collectively own ore than 50 per cent. “Closed-end” means that it cannot be open to issuing more stock, with the possible exception of periodic new offerings.
Sole Proprietorship – An ownership of a business, including income-producing real estate, by one individual, as contrasted with a partnership, corporation, or other entity with more than one owner.
Tenancy in Severalty – Ownership of property by one person or one legal entity (corporate ownership). There are no restrictions on transfers and no double taxation. There are, however, no limits on liability, which may extend beyond the amount invested. For example, Abel owns lands as a tenancy in severalty. He enjoys the absence of partners or co-tenants, free transferability, and freedom from double taxation, but he has unlimited liability.
Joint Ownership – Co-ownership or co-tenancy is ownership by two or more people. It could be tenancy in common, joint tenancy, a partnership, or another form of ownership.Is one two or more persons own a part of a business organization or property, and there may be more than one business organization or property involved.
A Joint Venture – Is an agreement between two or more people who invest in a single business or property.
Joint Tenancy – Is ownership of realty by two or more persons, each of whom has an undivided interest with the right of survivorship. This form of ownership is typically used by related persons such as a husband and wife, parent and child, or siblings. Taxation?
Tenancy in Common – Ownership of property by two or more persons, each of whom has an undivided interest (SEE BELOW), without the right of survivorship (SEE BELOW). Upon the death of one of the owners, the ownership share of the decedent (the one who died) is inherited by the party or parties designated in the decedent’s will. Tenancy in common avoids double taxation, but owners have unlimited liability. For example, a syndicate is formed using a tenancy in common. Under this arrangement, all of the investors must sign the deed for the entire property to be conveyed. Each tenant in common may convey his or her portion independently.
Undivided Interest – Is an ownership right to use and possession of a property that may be shared among co-owners, with no one co-owner having exclusive rights to any portion of the property. Portion of ownership vs. portion of tract.
Survivorship – The right of a joint tenant or tenants to maintain ownership rights following the death of another joint tenant. Survivorship prevents heirs of the deceased from making claims against the property. (Check dad’s co-owned properties.)
Note: In order to create a joint tenancy and community property, there must always be equal interest. In community property, the interests are equal but without the right of survivorship, unless it is specifically indicated as “community property with right of survivorship.” A joint tenancy may or may not involve a husband and wife.
Partition – The division of real property between those who own it with an undivided interest. After partition, each owner owns a particular part of land.
Proprietary lease – The lease the corporation provides to the stockholders that allows them to use a certain apartment unit under the conditions specified. (This is usually a part of coop ownership along with a certain amount of shares of stock.)
Tenancy by entirety – A form of ownership, recognized in some states, that exists only between husband and wife, with equal right of posession and enjoyment during their joint lives, and with the right of survivorship– that is, when one dies, the property goes to the surviving tenant.
Community Property – Property accumulated through the joint efforts of a husband and wife and owned by them in equal shares.