Owning real estate in New York can be rewarding. Many people own commercial real estate with another person. This is known as joint tenancy.
What is joint tenancy and why might it be used for commercial property ownership?
Joint tenancy means that more than one person owns a commercial real property. There can be two people jointly owning the property or multiple parties owning it. However, regardless of how many property owners there are in a joint tenancy situation, all parties must have a legal agreement about their relationship before they sign a contract. Once a joint tenancy agreement has been reached, all parties share a common interest in their commercial real estate investment.
How does joint tenancy work?
When people enter into a joint tenancy relationship, they share equal rights to the property they own. Each party is required to uphold all obligations to maintain the property per their legal agreement and shared contract. That legal agreement involves a deed, which names all the owners as joint tenants, of the property. However, if one party fails to uphold their end of the agreement, all other parties are required to step in and take care of it.
In addition to the owners sharing obligations, they also share benefits. For example, if the joint tenants choose to rent the property to someone or sell it, each party gets an equal share of the profits.
If one party in a joint tenancy relationship passes away, the others have the right of survivorship. This means that the property does not need to go through probate. The property goes to the remaining owners instead of the deceased’s estate.
If any parties in a joint tenancy situation get into a dispute, the situation might become complex. Any disputes would have to be resolved in court.
Joint tenancy is often a good option when people want to co-own commercial property. If the parties can maintain their relationship and obligations, it can work.
Why have a joint tenancy?
Joint tenancy can be used so that each tenant, upon a sale of the property, has the option to use his, her or its proceeds of the sale in a “1031 tax deferred exchange” and they all do not want to do the same thing. Since the entity which sells the property must be the purchaser of the exchange property, it will have had to be in title on the original property. Having the joint tenancy allows one or more sellers to do a 1031 exchange using their share of the proceed and others to retain the proceeds and realize the capital gains on their tax returns.