Severance in Real Estate: Definition, Types & Examples

Severance in real estate is a concept that plays a crucial role in property law, particularly when it comes to altering ownership rights in joint properties. This term might initially sound complex, but its understanding is essential for real estate professionals, as it can significantly impact property transactions and ownership structures. 

In this guide, we’ll dive deep into the definition of severance, how it operates in real estate, and the key legal implications. By the end of this article, you should have a clear understanding. Completed with practical examples to help illustrate the concept.

What is severance in real estate?

It refers to the process of changing joint ownership into separate ownership. In other words, it is the act of separating a shared ownership interest into individual portions. This usually occurs in joint tenancy arrangements, where the rights of survivorship are dissolved, resulting in each party holding an individual share of the property as tenants in common.

What severance ultimately affects is the bundle of rights, the rights to possess, control, enjoy, exclude others from, and dispose of property. When a joint tenancy is severed, the right of survivorship is eliminated and each owner gains independent disposition rights. When a fixture is severed, the right of possession shifts from the real property owner to whoever removes the item. Understanding severance requires understanding which rights are being separated.

The basics of joint tenancy and tenancy in common

To fully grasp severance, it’s important to understand two common forms of property ownership: joint tenancy and tenancy in common.

• Joint Tenancy: In a joint tenancy, multiple parties own a property together with equal shares, and each joint tenant has the right of survivorship. This means that if one of the joint tenants passes away, their share automatically transfers to the surviving tenants. Joint tenancy is often used in cases of family ownership or by spouses who wish to ensure that the property remains within the family without probate.
• Tenancy in Common: In a tenancy in common, the co-owners each have a distinct, undivided share of the property, which can be of different sizes (e.g., 50-50, 70-30). There is no right of survivorship in a tenancy in common. If one of the tenants dies, their share is passed on according to their will or estate plan. Each tenant has the freedom to sell or transfer their share without needing the consent of other co-owners.

Severance primarily affects joint tenancies by converting them into tenancies in common, thereby eliminating the right of survivorship. This distinction is vital for real estate professionals to understand when advising clients on property co-ownership options.

How severance works in real estate: A deeper look

This division or separation can occur in several ways, and the method chosen will depend on the property’s ownership structure and the co-owners’ intentions. Here are some of the primary methods:

1. Severance by written notice

The most straightforward method is to serve a written notice of intent to sever to the other joint tenants. This notice must clearly express the intent to sever the joint tenancy immediately. Once served, it cannot be withdrawn unless agreed upon by all parties. This method is often employed when one joint tenant wishes to create distinct shares in the property without affecting the overall ownership.

Example: Let’s say John and Mary own a piece of land as joint tenants. If John wants to sever the joint tenancy, he can send a written notice to Mary stating his intention to sever. This changes the ownership structure into a tenancy in common. John and Mary still co-own the same property, but each now holds a separate undivided ownership interest without the right of survivorship.

Important exam note: A will alone generally does not sever a joint tenancy. Because joint tenancy includes the right of survivorship, the deceased owner’s interest usually passes automatically to the surviving joint tenant or tenants at death. If a joint tenant wants their share to pass through a will, the joint tenancy typically must be severed during that owner’s lifetime.

2. Severance by mutual agreement

A joint tenancy can be severed if all joint tenants agree to convert the property ownership into a tenancy in common. This mutual agreement does not require a formal written document but must clearly show the intent of all parties involved.

Example: Three friends, Sarah, Luke, and Tom, own a vacation home as joint tenants. After some discussion, they decide that they want to be able to pass their shares to their children instead of each other. They mutually agree to sever the joint tenancy and become tenants in common.

3. Severance by selling or transferring an interest

If one of the joint tenants decides to sell or transfer their share to an outsider, it automatically severs the joint tenancy. The new owner becomes a tenant in common with the remaining original owners.

Example: If John sells his interest in a property owned with Mary to a third party, the new owner and Mary will hold the property as tenants in common.

4. Severance by court order

In certain situations, such as serious disputes between co-owners, a court may become involved. When the owners cannot agree on how to handle the property, one of them may seek a partition action, which is a legal proceeding used to end or reorganize co-ownership.

Depending on the governing state law and the nature of the property, the court may order:

• Partition in kind: A physical division of the property into separate parcels
• Partition by sale: A sale of the property, followed by division of the proceeds among the co-owners

A partition action is related to severance, but it is not the same thing. Severance often changes the ownership form, such as turning joint tenancy into tenancy in common. Partition goes further by resolving the co-ownership dispute through a court-supervised division or sale.

In Nevada, one of only 9 community property states, severance is especially complex because courts treat joint tenancy property the same as community property in divorce proceedings (NRS 125.150). The Nevada real estate broker exam tests the interplay between joint tenancy severance and community property classification. Georgia tests similar ownership severance scenarios on the Georgia real estate broker exam, though without the community property overlay.

When a seller severs fixtures and sells them separately from the real property, the buyer may need a package mortgage if they want to finance both the property and the personal property items. Conversely, if a seller removes valuable fixtures (like a commercial kitchen or built-in sound system) before closing, the property’s appraised value may decrease, potentially causing financing issues for the buyer if the appraisal no longer supports the loan amount.

Attachments and severance

Understanding attachments is crucial to the severance process. Attachments are items that were once considered personal property but are now attached to real estate in such a way that they become part of the property (real property). Examples include built-in appliances, chandeliers, and custom-made fixtures.

In some developments, deed restrictions may limit a homeowner’s ability to sever certain fixtures. For example, HOA covenants in a gated community might prohibit removing exterior lighting, fencing, or landscaping features that maintain the neighborhood’s aesthetic standards. A seller who severs these items in violation of deed restrictions could face enforcement action from the HOA — even after the sale closes.

When selling a property, the purchase agreement should clearly specify which fixtures stay and which the seller intends to sever and take. This distinction is part of the bilateral contract, the purchase agreement where both buyer and seller make binding promises. If the contract doesn’t address a particular item (like a chandelier or built-in shelving), disputes arise over whether it was a fixture that conveys with the property or personal property the seller can remove.

Severance in this context refers to the process of removing these attachments, thereby converting them back into personal property. If you’ve ever seen a house being sold without appliances that were once attached (like a built-in refrigerator or light fixtures being removed), that’s a practical example of severance, as she is converting the fixture (real property) back into personal property. North Dakota takes fixture severance to another level, in the Bakken oil region, mineral rights are routinely severed from surface rights, creating separate estates on thousands of parcels. When a ND farmer sells the surface but retains the mineral rights, that’s severance of real property into two independent ownership interests. The free North Dakota real estate practice exam tests both fixture severance and mineral rights severance. New Mexico’s traditional adobe construction adds unique fixture classification questions, are vigas (exposed ceiling beams) and kiva fireplaces fixtures that convey with the property, or removable personal property? The answer depends on how they were attached and the parties’ intent. The free New Mexico real estate practice exam covers these NM-specific fixture scenarios.

When mineral rights are severed from the surface estate, utility companies and energy operators often hold easements in gross that allow them to access the subsurface resources — even if the surface owner objects. These easements run with the mineral rights, not the land surface, which means the surface owner may have limited control over drilling access, pipeline routes, or equipment placement on their property.

Example: Jane owns a home with a custom wooden deck attached to the back. If she decides to remove the deck before selling the property, this would be an example of severance, as she is converting the fixture (real property) back into personal property.

Severance rights in real estate

Beyond joint tenancy and fixtures, severance can also refer to the separation of one property interest from another. A common example is the division of surface rights from mineral rights. When a property owner sells the land surface but keeps the minerals underneath, or sells the mineral rights separately, those rights have been severed from the surface estate.

This creates what is known as a split estate. One person may own the surface of the land, while another owns the right to explore for or extract minerals below it. This distinction matters because the mineral estate and surface estate can carry different ownership rights, access rights, and transfer rules.

A practical example would be a landowner who sells a ranch but reserves the oil and gas rights. The buyer owns the surface, but the seller keeps the mineral estate. In that case, the mineral rights have been severed from the land.

Some deeds use language that clarifies whether co-owners intend to hold title as joint tenants or tenants in common. These phrases are sometimes called words of severance because they show an intent to create separate ownership shares rather than survivorship ownership. Examples may include wording such as “as tenants in common,” “in equal shares,” or “share and share alike.” The legal effect of deed language depends on state law, which is why exam questions may ask how specific wording changes the form of co-ownership.

Deed severance vs. severance of property rights

It’s important to differentiate between deed severance and severance of property rights:

• Deed severance involves altering the property’s ownership structure, typically converting a joint tenancy into a tenancy in common.
• Severance of property rights relates more to changing the status of a fixture (real property) into personal property.

How severance affects property transactions

It can significantly impact property transactions, especially when it comes to financing and selling. When a joint tenancy is severed, the nature of the ownership changes, and this can affect the property’s title. For instance, if the property is being used as collateral for a loan, severance might complicate the legal status of the mortgage.

Similarly, when a fixture is severed from real property and turned into personal property, it can impact the value of the home during a sale. Buyers and sellers need to be clear on what’s included in the sale to avoid misunderstandings.

Severance vs. severalty

Severance and severalty sound similar, but they mean different things in real estate. Severance is the act of separating a property interest, such as ending a joint tenancy or removing a fixture from real property. Ownership in severalty means that one person or one legal entity owns the property alone, with no co-owner. A property held in severalty has no joint tenancy or tenancy in common to sever.

Summary

Severance is a legal concept that involves separating a unified property or ownership structure into distinct parts. It commonly occurs in joint tenancies, turning them into tenancies in common or by changing a fixture (real property) into personal property. Understanding this is crucial for real estate professionals, as it can impact property rights, ownership, and the legal status of property transactions.

Severance, joint tenancy, tenancy in common, and fixture conversions are all tested on the real estate licensing exam. Our real estate exam prep covers every ownership and property concept your state exam tests.