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Choosing the Best Way to Hold Title on Commercial Real Estate

commerical_spaceWhether you're investing in real estate alone or with business partners, you need to decide whose name will be listed on the title.

Florida law allows a variety of ways for people and business entities to hold title, so you should carefully consider all of the options before drawing up the final documents.

Common Ways to Hold Title on Real Estate with Multiple Owners

Each method of holding title comes with its own rules about who may control, use, sell, or inherit the property; and each will have different tax and financing implications. The titleholder will be the legal owner, so he or she has both the control and liability related to the property.

Common types of joint ownership of real property recognized in the State of Florida include:

  • Joint tenancy. This allows two (or more) owners to hold title jointly with equal rights to the property, with each owner becoming a “tenant.” If one joint tenant dies and the others have Right of Survivorship, ownership passes to the surviving owners automatically with no probate required. However, there are a few disadvantages to this arrangement. For example, any decisions regarding financing or commercial uses of the property must be approved by all tenants. Also, a creditor may take action against all tenants in order to collect a debt from one owner, including forcing partners to divide the property in order to sell the indebted owner’s share.
  • Tenants by entirety. This method is for investors who are legally married and forming a business partnership. Spouses hold title as one legal entity, and title is automatically transferred to the living spouse in the event of the other’s death with no need for probate. However, the property cannot be subdivided, and title will automatically convert to tenancy in common if the couple divorces.
  • Tenancy in common. This title recognizes the two (or more) persons holding title as joint owners with equal rights to the property during their lifetimes. Ownership can be held in equal shares or divided unequally, depending on preference and needs. Each owner holds title individually, so each one may sell or bequeath his or her share, with ownership passing to the owner's heirs after death. One disadvantage of this arrangement is that lenders almost always require mortgage documents to include the signatures of all parties in order to place a lien on the entire business, rather than just a portion of the business.
  • Sole ownership. Joint owners may choose to title the property in one partner’s name only, or in the name of a trust or business entity. Sole ownership gives the titleholder the ability to make decisions about the property without the need to consult others. However, this type can make the transfer of ownership more difficult if the owner dies or becomes incapacitated without a will.

Holding Title as an Entity is a Wise Choice for Commercial Real Estate Owners

The majority of commercial real estate is held through a business entity, as this offers a layer of liability and financial protection for owners. The different entities vary, with each offering different tax benefits and ownership structures.

Entities that may hold title to real estate include:

  • Corporations. A corporation, such as a limited liability company (LLC), is a legal entity owned by shareholders. The company is legally separated from those shareholders, so if debts are incurred or legal action is taken against the company, the shareholder’s individual assets cannot be collected.
  • Partnerships. A partnership, such as a limited liability limited partnership (LLLP), gives partners and named investors partial ownership of the business while allowing the owners and company to remain separate.
  • Trusts. A trust may be the legal owner of a property, with the decisions made by a trustee on behalf of its beneficiaries. A real estate investment trust (REIT) that is earning income may decrease the amount of a business’s corporate income taxes.

If you're investing in commercial real estate, we can help you determine the best way to hold title and guide you through the process up to closing and beyond. Our real estate attorneys work to ensure you have maximum control over your investment, allowing you to make sound business decisions every step of the way.

Simply fill out the brief contact form on this page to set up a consultation and get your questions answered.

 

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