Severance in Real Estate: Definition and Legal Implications

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.

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 transforms the ownership structure into a tenancy in common, where John and Mary now each own a separate parcel of land.

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 disputes or legal issues, a court may order the severance of a joint tenancy. This typically happens when one party wants to exit the joint ownership arrangement, but the other party refuses to agree.

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.

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.

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.

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.

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.

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