Understanding Property Ownership Types

Use these links to jump to different sections:

• How Property Laws Shape Real Estate Ownership
• Types of Ownership in Real Estate
• Sole Ownership
• Joint Ownership
• Community Property
• Trust Ownership
• Life Estate
• Corporate Ownership
• Leasehold Estate
• Choosing the Right Ownership Type
• Find Experienced Legal Help

Owning real estate is one of the biggest purchases that people make in their lives. Because of this, you want to protect it by creating the right type of ownership. This becomes especially crucial when multiple people decide to buy property together. Understanding the different property ownership types will allow you to set up the best real estate ownership structure from the date of purchase.

How Property Laws Shape Real Estate Ownership

Local and state laws impact real property ownership by creating legal rights and limitations. Generally, ownership rights consist of the right to buy, sell, use, and develop real estate.

Depending on the legal issue, different types of law will impact ownership. Real estate law determines ownership, easements, adverse possession, and landlord/tenant relations. Tax law defines owners’ tax liability for owning property. Environmental regulations place standards and limits on how owners can develop and use their property. Zoning laws are local and limit how real estate gets used to ensure logical city planning. Estate planning law dictates how owners can transfer ownership once they have died. Finally, financial laws define how lenders can provide mortgages and financing to owners looking to buy property.

Zachary Schorr, a real estate attorney at Schorr Law in Los Angeles, California, illustrates how property location and jurisdiction can have a direct impact on your ability to exercise your property ownership rights. “If you are in downtown LA, for example, and you want to split up a piece of property, that’s going to be a whole different process than you’re than if you’re in Santa Monica and you have a giant lot that you want to split.”

Types of Ownership in Real Estate

Choosing the right ownership type when buying property is important to facilitate future decision-making. The ownership type will dictate legal rights and responsibilities. Choosing the wrong type can create unnecessary issues and discord.

Sole Ownership

A fee simple is the most common type of ownership where one person purchases real estate. It gives that person complete and maximum ownership control of the property. They have full rights to use, lease, develop, and sell the property. Having only yourself simplifies ownership because you do not have to get anyone’s approval for your decisions.

As the sole owner, you have an undivided interest in the entire property. You hold the title that lets you benefit from profit during a sale to a new owner. If there is a mortgage on the property, you can claim the full property tax benefits for interest paid.

There are a few drawbacks, such as taking on the entire liability. You must also pay for all the expenses to develop and maintain the property.

Joint Ownership

When more than one person buys property together, it is called joint ownership. Married couples are a common example of this type of ownership.

Joint Tenancy

In a joint tenancy, multiple owners are assigned to a single piece of real estate. Each owner has an equal share of the property, which includes a right of survivorship. Upon the death of one owner, the surviving owners automatically take over the ownership share.

The advantage of being joint tenants is that you can avoid probate. A surviving spouse can take immediate ownership of the property.  Co-owners can also reduce out-of-pocket expenses by sharing the maintenance and repair costs.

The disadvantage of a joint tenancy is the co-ownership interest. Because everyone has an equal ownership share, they also have an equal say in how the property gets used and managed. This can lead to conflict if the co-owners do not agree. There is also the increased risk of lawsuits. If one co-owner gets sued, the property can be pulled into the lawsuit involving the other co-owners. The same risk is present for creditor claims where one co-owner owes money. Finally, because there is an automatic transfer of ownership, it can limit how the owners arrange their estate plans. The property cannot be willed to someone outside of the joint tenancy.

Tenancy in Common

Unrelated individuals can buy property together through a tenancy in common. The parties are co-owners, each owning a portion of the property. They do not have a right of survivorship, so each owner can name a beneficiary in their will who will take over ownership. Owners can also obtain a mortgage for their ownership portion. However, lenders are hesitant to approve these types of liens. An owner does not have to obtain approval from the other co-owners if they want to sell their portion.

Difference Between Joint Tenancy and Tenancy in Common

While joint tenants and tenants in common own real estate together, there are several differences between these two ownership types. Joint tenants own equal shares and enjoy equal rights. This is not the case with tenants in common. Joint tenancy with the right of survivorship automatically transfers ownership. This does not happen with tenants in common.

Joint tenants own the entire property with the other owners. Tenants in common only own a percentage of the property. This difference gives tenants in common owners more flexibility when transferring ownership.

Community Property

Some states have community property laws, where the individuals in a legal marriage have equal real estate ownership. In these states, both spouses must agree to sell or transfer the property ownership. The laws in community property states can impact estate planning. It can also impact how divorcing spouses address the division of real estate assets.

Trust Ownership

A trust is a legal entity in which you put assets. While people commonly use them to manage money, a trust can also own real estate. To do this, an individual creates a trust, names a beneficiary, appoints a trustee, and designates the real estate to go into the trust. A trust can provide benefits by bypassing probate. Working with an estate attorney can help you determine what type of trust is best for what you want to accomplish. For some, the trust becomes the owner of the property right away. In others, the real estate enters the trust upon the owner’s death.

Life Estate

In a life estate, an individual enjoys ownership of the property for the length of their life. Upon their death, ownership automatically transitions to another party. The life estate owner has almost all ownership rights. They cannot sell it or leave it to someone else in their will.

Corporate Ownership

When the property is owned by a business, there isn’t a named individual as the owner. The business entity could be a partnership, LLC, or corporation. There are several advantages of having real estate ownership in the business name. It can protect the business assets from personal liability. There could also be tax benefits for the business. Finally, having the business own the property can create a layer of privacy for the individuals behind the business.

There are also disadvantages to having the business as the owner. There are potential capital requirements because commercial real estate is more expensive than residential real estate. Corporate taxes are higher than individual taxes, so business property ownership can result in a bigger tax liability. Investing the business’s financial assets into real estate also results in a lack of liquidity that can have further operational impacts.

Leasehold Estate

A leasehold estate is when the property owner gives someone else temporary rights to occupy and use the property. This is commonly referred to as a landlord-and-tenant relationship. The tenant only enjoys the rights given to them through the lease agreement with the owner. The rights end when the lease ends. At that point, all use and ownership rights revert to the owner. During the lease, the tenant cannot sell the property to someone else.

Choosing the Right Ownership Type

The ownership structure you choose for your property will depend on how you plan to purchase and use the real estate. There are several factors you can consider to help you decide between the different types of property ownership. Start by determining how many owners there will be and their relationship to each other. If there is more than one owner, you will need to consider transferability, right of survivorship, and estate planning goals.

It’s also helpful to speak with a lawyer who can explain the potential consequences of each ownership type. They will also know the local and state laws. These can impact how you plan to use the property. It is also important to speak about your future goals for the property. Different ownership types will have different requirements for transferring property in the future. You may find that the ease of changing property titles can impact how you structure your property ownership today.

Find Experienced Legal Help

Having so many ownership types available makes buying, selling, and owning property easier. Consulting with a real estate attorney can help you determine the best type for your situation. Your lawyer will ask about the facts of the situation and ownership goals. They will explain your options and the potential legal consequences of your chosen ownership type.

Visit the Super Lawyers directory to begin your search for an experienced real estate attorney.