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Open Tenancies-in-Common


Bradley T. Borden


Brooklyn Law School

May 1, 2009

Seton Hall Law Review, Vol. 39, 387, 2009
CLEA 2008 Meetings Paper

Abstract:     
Tax law (section 1031 in particular) has spawned a new investment vehicle-open tenancies in common. Tax law allows property owners to exchange into like-kind real property tax free, but finding suitable replacement property can be difficult. Real estate syndicators, recognizing a demand for ready-access replacement property, began offering undivided interests in large multi-million-dollar properties to individual investors exchanging out of smaller properties. Those offerings were the first open tenancies in common. Open tenancies in common are distinguished from traditional or close tenancies in common by the size of coowned property, the coowners' mutual lack of acquaintance, and the separation of ownership and management of the property. Open tenancies in common raise issues from several disciplines, including tax; property, business, contract, and, securities law; and economics. To provide the tax benefits investors seek, interests in open tenancies in common must be real property for federal tax purposes. That implicates the tax entity classification rules, which the IRS has addressed with published guidance. Numerous investors coowning a single property raises property law issues, such as rights of possession, rights to revenue, obligations for expenses, and rights to partition. The coowners' lack of acquaintance and disparate background raise business law issues. For example, the coowners may wish to restrict transferability of interests, have governance agreements, and create standards for third-parties who manage the property. Finally, open tenancies in common raise economic concerns and appear to come within the jurisdiction of the securities laws. This Article introduces open tenancies in common to the academic literature, analyzes them, and recommends modifications to the IRS guidance based on property law, business law, and economic and tax theory.

Number of Pages in PDF File: 59

Keywords: tenancy in common, open corporation, close corporation, section 1031, separation of ownership and management

JEL Classification: A12, D21, D23, H24, H25, J33, K11, K12, K22, K34, L14, L22, L85, M52

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Date posted: January 15, 2009 ; Last revised: May 26, 2009

Suggested Citation

Borden, Bradley T., Open Tenancies-in-Common (May 1, 2009). Seton Hall Law Review, Vol. 39, 387, 2009; CLEA 2008 Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1327086

Contact Information

Bradley T. Borden (Contact Author)
Brooklyn Law School ( email )
250 Joralemon Street
Brooklyn, NY 11201
United States

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