What is the difference between Fractional Ownership, Timeshare, and Tenants in Common?
The main distinction between timeshare and fractional ownership is that with a timeshare you buy the right to use a property, but with fractional ownership, you are buying real estate. ... A fractional share gives the owners certain privileges, such as a number of days or weeks when they can use the property. A tenancy in common is a specific type of ownership of real property by two or more parties. It is similar to a joint venture; however, a joint venture usually is recognized as a business entity that has been established to accomplish a specific purpose. Additionally, in a joint tenancy, the joint owners have a right of survivorship, while tenants in common can bequeath their property to whomever they choose. A tenancy in common gives each owner a fractional interest in the whole property, meaning that each party's percentage of ownership is a fraction of the value of the property. Each fractional owner shares in the income, as well as the expenses, relative to the percentage of ownership—a cost-sharing arrangement.
With a tenancy in common, each owner has an undivided interest in the purchased property, which gives each tenant in common an equal right to use the property, even if the fractional or percentages of interests are not equal among the owners. An example of an undivided interest would be purchasing a one-tenth undivided interest in 100 acres. The owner has not purchased 10 acres but one-tenth of the entire 100 acres. This entitles the co-owner to use the entire 100 acres; however, it also entitles the other owners to use the same 100 acres. In other words, each owner co-owns the entire physical property rather than controlling a specific part of it.
An obvious advantage to ownership as tenants in common is that it allows an owner to exchange his or her interest in a small property for a fractional ownership interest in a much larger property without having to recognize gain on the sale. On the other hand, if someone owns a large property and has trouble finding a qualified buyer, offering fractional interests in the property would open the playing field to groups of buyers that would be interested and qualified.
With a tenancy in common, the sale, lease, development, or mortgage of the property as a whole can be done only if all the co-owners agree. However, each individual owner can sell, lease, or mortgage his or her individual interest independently of a group decision, and a new owner would become the new tenant in common. The only qualifier for the individual owner to fear is that, in practice, lenders are unlikely to accept a share in co-owned property as collateral.
Make sure to have your client counsel with a qualified Attorney and/or Accountant before choosing to participate in this type of ownership.