What Is Tenancy In Severalty?
"Tenancy in Severalty" (sometimes simply referred to as "Severalty") pertains to the ownership of property by a single individual or legal entity. Here's a more detailed breakdown:
Key Characteristics of Tenancy in Severalty:
Single Ownership: The property is owned by one person or a single legal entity, such as a corporation, trust, or LLC. There are no co-owners in this form of ownership.
Full Control: The sole owner has complete control over the property, which includes the rights to use, lease, sell, bequeath, or encumber the property without needing consent from anyone else.
Transfer of Interest: The owner can freely transfer their interest in the property without restrictions imposed by co-owners, as there aren't any in this form of ownership.
Death of the Owner: Upon the death of the owner, the property will be transferred according to the owner's will or, in the absence of a will, based on the intestate laws of the state. There is no automatic right of survivorship as there would be with joint forms of ownership like joint tenancy.
Liability: Since there's only one owner, liability related to the property falls solely on that owner. This is different from co-ownership structures where multiple owners might share liability.
In essence, "tenancy in severalty" is the simplest form of property ownership in terms of the number of parties involved. It provides the owner with maximum control but also places all responsibilities and liabilities on that single owner.
What Is An Example Of Tenancy In Severalty?
Example:
Ms. Clara Bennett, an accomplished software engineer, decides to invest in a vacation home in the scenic mountains of Colorado. After thorough research and several visits, she finds the perfect cabin overlooking a serene lake.
She proceeds to purchase the cabin:
Single Ownership: Clara buys the property solely in her name. There are no co-buyers or partners involved in this purchase. The deed to the cabin is registered solely under "Clara Bennett."
Full Control: Since Clara is the sole owner, she renovates the cabin to her taste, rents it out occasionally on Airbnb, and uses it for her personal vacations whenever she wishes. She does all this without needing consent or agreement from anyone else.
Transfer of Interest: A few years later, Clara gets a job offer in Europe. She decides to sell the cabin. She lists the property on the market, finds a buyer, and sells it. The entire process is streamlined because there are no other owners to consult or get approvals from.
Death of the Owner: Fast forward many years, Clara, in her old age, drafts a will. In her will, she bequeaths the cabin (among her other assets) to her niece, Lydia. Upon Clara's eventual passing, the property is transferred to Lydia as per the stipulations of the will, without any complications arising from co-ownership.
Liability: During her ownership, a visitor slips on the icy steps of the cabin and sustains an injury. Since Clara is the sole owner, she is the one who deals with the subsequent legal claim and is responsible for any liabilities arising from the incident.
In this example, Clara's ownership of the cabin exemplifies "tenancy in severalty." She enjoys the freedoms it offers but also shoulders all responsibilities and liabilities associated with the property.
What Are The Disadvantages Of Severalty?
While tenancy in severalty offers the simplicity and autonomy of sole ownership, it does come with its own set of disadvantages. Here are some of the primary drawbacks:
Liability:
One of the most significant disadvantages is that the sole owner bears all the liability associated with the property. If someone gets injured on the property or if there's a legal dispute, the sole owner is the only one responsible. Unlike shared ownership structures where liability might be divided, in severalty, it falls squarely on one individual or entity.
Lack of Survivorship:
Unlike forms of joint ownership like joint tenancy, there's no automatic right of survivorship with tenancy in severalty. This means that if the owner dies without a will, the property doesn't automatically go to a surviving co-owner; instead, it's distributed based on the state's intestacy laws, which might not align with the deceased's wishes.
Potential for Loneliness in Decision-Making:
While having full control can be seen as an advantage, it can also be a burden. The sole owner has to make all decisions, big or small, without the input or support of co-owners. This can be daunting, especially when facing challenging or complex issues related to the property.
Financial Burden:
All financial responsibilities related to the property—such as maintenance costs, mortgage payments, taxes, and insurance—fall on the single owner. There's no option to share these costs with co-owners.
Potential for Less Flexibility in Financing:
Some lenders might offer specific mortgage products or terms that are more favorable for co-owned properties, especially if all co-owners have strong credit profiles. A sole owner might not have access to these products or might not qualify on their own.
Potential for Higher Taxes:
In some jurisdictions, tax benefits or breaks might be available for properties with multiple owners, especially if they're primary residences for multiple families. A sole owner might not be eligible for these benefits.
While tenancy in severalty offers clear decision-making authority and control, it's essential to weigh these advantages against the potential disadvantages to determine the best ownership structure for a given situation.
Is Tenancy In Severalty Right For Me?
Tenancy in severalty, or sole ownership of property, presents both unique advantages and challenges. This ownership structure offers complete control over a property but also comes with singular responsibilities and potential liabilities.
One of the best ways to navigate this decision is to work with a Certified Public Accountant (CPA). Contact us today if you’re ready to get started!
