Typical Tenants In Common Exchange Chart

Tenants In Common STRUCTURE

There are several aspects to the Tenants In Common structure that require a closer look:

1. Special Purpose Entity (SPE)

One thing that you will notice about the ownership structure chart is that there are no individual investors listed as owners. This is because when a real estate owner exchanges into a Tenants In Common structured replacement property, they are often required to form a Special Purpose Entity (SPE), often in the form of a bankrupt remote single-member limited liability company, to purchase and own the Tenants In Common interest. This entity provides an extra layer of liability protection for the individual, the other co-owners and the lender.

2. Tenant-in-Common Agreement

Tenants In Common structured offerings are formed with an in-place Tenants In Common Agreement. This agreement describes the relationship between the investor and all of the other Tenants In Common owners. The rights and obligations of the Tenants-in-Common are governed by this agreement.

In addition to the Tenants In Common Agreement, offerings are structured with an additional document signed by each Tenants In Common owner providing the sponsor with the ability to handle the day-to-day activities of the property. Thus the Tenants In Commons have little required of them in the way of management. This ability is conferred in two ways:

Master Lease—a variety of Tenant-in-Common where the Tenants In Commons act as the landlord, or Master Lessor, of the property, collecting rent from the tenant, or Master Lessee, who then subleases the individual suites to the tenants in the master lease. The sponsor typically oversees the management of the property (leasing, collecting rents, upkeep, etc.) Tenants In Commons are paid a fixed rent according to the master lease, typically with possible annual increases. The Master Lessee typically keeps any property net income over the master lease rent amount.

Management Agreement-a variety of Tenant-in-Common where the Tenants In Commons sign an agreement with the sponsor allowing an affiliate company of the sponsor to manage the property for a predetermined period of time, usually needing to be renewed after one year.  The Tenants In Commons pay the Management Company an annual management fee. Normally, the Tenants In Common owners receive 100% of the property net operating income after debt services.

Call the knowledgeable exchange professionals at All States 1031 at
1-877-395-1031 for a complimentary consultation regarding your specific investment objectives.