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Considerations in Buying a "Fraction Interest" in Real Estate (PAGE 1 of 2)


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CONSIDERATIONS IN BUYING A "FRACTION INTEREST" IN REAL ESTATE

Last month I wrote about what a fractional interest in real estate is and how the owners’ corporation is typically organized.  In this month’s article, I will touch briefly on leases, subleases, costs and other considerations for buyers.

For a resort or condominium complex with fractional interests, the developer will generally lease the property to the owner’s association or corporation for an extended period of time, such as 100 years or more, in order to provide the owners’ association or corporation with control over and possession of the property.  The head lease is registered against the title to the property prior to the transfer of the fractional interests to the buyers. 

As a result of the head lease, the owner’s association or corporation becomes the tenant of the property. The owner’s association or corporation then subleases the property to each of the buyers.  The sublease establishes the buyer’s rights to the use of the property and the obligations of each buyer regarding the payment of expenses. Each buyer will then be permitted to use the property for some period of time (usually one week) once every four, five, six or ten weeks, depending on the total number of fractional interests in their unit.

Some fractional interest property developers either require buyers to enter into a rental management agreement at the time of purchase. The rental management agreement provides that if the owner chooses to rent the strata lot, the owner will be required to use a particular rental management firm.  Other time share developments prohibit rentals, but permit the owners to make the property available to an unaccompanied guest on a rent-free basis.

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