Chapter 7
Limited Liability Companies
An alternative, hybrid business entity with the combined characteristics and benefits of a limited partnership and an S corporation that is established according to the laws of the state in which the LLC is chartered.
Partnership
An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individuals rather than as a single entity.
Cooperative Ownership
In cooperative ownership, a corporation holds title to the land and the building. The corporation then offers shares of stock to prospective tenants. The price the corporation sets for each apartment becomes the price of the stock. The purchaser becomes a shareholder in the corporation by virtue of stock ownership and receives a proprietarylease to the apartment for the life of the corporation. Because stock is personal property, the cooperative tenant-owners do not own real estate, as is the case in a condominium. Instead, they own an interest in a corporation that has only one asset: the building.
Trusts In Practice
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).
Ownership in Severalty
Ownership in severalty occurs when property is owned by one individual or corporation. The term comes from the fact that a sole owner is severed or cut off from other owners. The severalty owner has sole rights to the ownership and sole discretion to sell, will, lease, or otherwise transfer part or all of the ownership rights to another person.
Joint Tenancy
Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent's interest passes to the surviving joint tenant or tenants by the right of survivorship.
Severalty
Ownership of real property by one person only, also called sole ownership.
Common Elements
Parts of a property that are necessary or convenient to the existence, maintenance, and safety of a condominium or are normally in common use by all the condominium residents. Each condominium owner has an undivided ownership interest in the common elements.
In Pennsylvania Condominium conversions
Pennsylvania law requires that the owner of the property take certain steps to protect existing tenants when an existing rental property is converted to condominium ownership. Property owners must ensure that the existing tenants are properly informed about the pending conversion and given ample opportunity to either purchase their units or continue as tenants for a period of time. The law is also explicit about the way leases and rental rates can be administered during a conversion.
Tenancy by the Entirety In Pennsylvania
Tenancy by the entirety is recognized in Pennsylvania. Each spouse has an equal, undivided interest in the property. Unless another form of co-ownership is specified, a tenancy by the entirety is automatically created, by virtue of a legally formed marriage, when the owners take title as spouses. In addition to the death of one spouse, a tenancy by the entirety may be terminated by an agreement between both parties (through the execution of a new deed), a divorce (which leaves the parties as tenants in common), and a court-ordered sale of the property to satisfy a judgment against the spouses as joint debtors (the tenancy is dissolved so that the property can be sold to pay the judgment).
Condominium
The absolute ownership of a unit in a multiunit building based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other condominium unit owners.
Terminating joint tenancies In Pennsylvania
The disposition of the deceased tenant's ownership is governed by the joint tenancy with right of survivorship rather than by the person's will or the state's inheritance laws (although a dangerous substitute, joint tenancy is sometimes known as "the poor man's will"). Pennsylvania law requires that right of survivorship be clearly stated for survivorship to occur. For example, the document would say, "A and B as Joint Tenants with Right of Survivorship and not as Tenants in Common."
Partition
The division of cotenants' interests in real property when the parties do not all voluntarily agree to terminate the co-ownership; takes place through court procedures.
Tenancy in Common
When two or more new owners acquire title to a parcel of real estate and the deed does not stipulate the tenancy, they acquire title, by operation or rule of law, as tenants in common. But if the conveyance is made to a husband and wife with no further explanation, in Pennsylvania a tenancy by the entirety is created
General Partnership
A typical form of joint venture in which each general partner shares in the administration, profits, and losses of the operation.
Trust
A fiduciary arrangement whereby property is conveyed to a person or an institution, called a trustee, to be held and administered on behalf of another person, called a beneficiary. The one who conveys the trust is called the trustor.
Tenancy In Common
A form of co-ownership by which the owners individually hold an undivided interest in real property as if sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have right of inheritance.
Time-share
A form of ownership interest that may include an estate interest in property or a contract for use, which allows use of the property for a fixed or variable time.
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 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.
Limited Partnership
A limited partnership is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments.
Cooperative
A residential multiunit building whose title is held by a trust or corporation that is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corporation, each possessing a proprietary lease.
Community Property
A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law, found predominantly in western states, the system was unknown under English common law.
Cooperative Ownership - 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.
Pennsylvania Uniform Condominium Act
The state law adopted from the national model act that governs the development and operation of condominiums. The law also provides for certain disclosures to purchasers of condominium units.
Time-Share Ownership
Time-share permits multiple purchasers to buy interests in real estate; time-shares are most common with resort property ownership. Each purchaser receives the right to use the facilities for a certain period. A time-share estate is a real property interest in a condominium. A time-share use is a contract right to use the real estate owned by the developer.
The four requirements for unities are the following:
Title is acquired by one document or deed. The deed is executed 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.
Co-ownership
Title ownership held by two or more persons.
Partnerships In Pennsylvania
Under common law, a partnership is not a legal entity and technically cannot own real estate. Individual partners must hold title as tenants in common or joint tenants. However, in states that have adopted the Uniform Partnership Act, including Pennsylvania, a partnership is recognized as a legal entity and can hold title in the partnership's name. Similarly, under the Uniform Limited Partnership Act, a limited partnership is recognized as a legal entity that can hold title to property 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.
Separate Property
Under community property law, property owned solely by either spouse before the marriage, acquired by gift or inheritance after the marriage, or purchased with separate funds after the marriage.
To create joint tenancy, four groups or unities are needed:
Unity of possession—all joint tenants hold an undivided right to possession. Unity ofinterest—all joint tenants hold equal ownership interests. Unity of time—all joint tenants acquire their interest at the same time. Unity of title—all joint tenants acquire their interest by the same document.
Right Of Survivorship
Upon the death of a joint tenant, the deceased's interest transfers directly to the surviving joint tenant or tenants. Essentially, there is one less owner.
Corporations
is a legal entity—an artificial person—created under 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 or as a tenant in common. 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.
Tenancy by the Entirety
is a special form of co-ownership used in some states that allows a husband or wife to inherit the other spouse's ownership interest upon death. 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. Spouses 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.
Community property rights
laws are based on the idea that a husband and wife, rather than merging into one entity, are equal partners in the marriage. Under community property laws, any property acquired during a marriage is considered to be obtained by mutual effort.
In Pennsylvania Condominium sales
requires that prospective purchasers be provided with enough information to ensure that they are knowledgeable about the operation of the condominium association, including the fees that unit owners must pay, and the covenants and restrictions that will affect their ownership. At least 15 days before a sales contract is signed, prospective purchasers in a new condominium or condominium conversion must be given a public offering statement. The document must detail 22 separate categories of information, including such items as bylaws, rules and regulations, projected operating budgets for the building, liens or encumbrances on the property, and so forth. A purchaser who is not properly provided the statement may cancel the contract without penalty within 15 days after receiving the material. In addition, the prospective buyer may recover an amount equal to 5% of the unit's sale price, up to a maximum of $2,000 or actual damages, whichever is greater. Prospective purchasers of newly converted units must also be given a two-year warranty (which takes effect the day the units are conveyed) against structural defects in both the building's units and the common elements. In addition, purchasers must be furnished with a report prepared by an independent architect or engineer that describes the age and condition of all structural components and mechanical and electrical systems. Each succeeding purchaser (not the first purchaser) of a condominium unit must be given copies of the condominium declaration, bylaws, rules, and regulations of the association, and a resale certificate. The resale certificate, which is prepared by the owners' association, contains pertinent financial information such as maintenance fees, possible assessments, capital expenditures, and insurance coverage (the association may charge the seller for the expense of preparing this information). The unit owner must furnish the resale certificate along with the condominium documents for the prospective purchaser's review before the closing. Buyers who receive this information after they've signed an agreement of sale have the right to void the agreement within five days after receiving the information, if they so choose.