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WHAT IS A "FRACTIONAL INTEREST" IN REAL ESTATE?
I was recently approached by a client who was interested in purchasing a ¼ share ownership stake in a vacation property. He had a number of questions about what he would actually be buying. In this series of articles over the upcoming months, I will attempt to explain the structure of this type of ownership.
Depending on the development, the buyer will obtain a ¼, 1/5, 1/6, or 1/10 fee simple interest in the title to the property depending on how many fractions the title has been divided into. Buyers obtain an undivided fractional interest in the property as tenants in common. Despite all the various names that can be commonly used, I will refer to the interest that each owner receives as a fractional interest. Also, because most of the fractional interest developments are currently located in strata developments, the examples used will relate to a strata lot.
Under the various offerings buyers will receive a fraction of the fee simple interest of the title to the property. The fractional interest is generally subject to a lease to the owners association or corporation. By selling a fraction of the title, the offering resembles the style of the original time share offering.
When a number of people own property and intend to share its use, some mechanism must be created in order to determine when each owner is entitled to occupy the unit. Arrangements must also be made for someone to pay expenses such as utilities, taxes, insurance, repairs and maintenance on the property and, if the property is a strata lot, pay the strata fees and vote on behalf of the strata lot at the meetings of the strata corporation.
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