3.5 Partial Interests and Forms of Ownership
Key Takeaways
Joint tenancy requires the four unities of time, title, interest, and possession and carries a right of survivorship; tenancy in common allows unequal undivided shares with no survivorship.
A joint tenant who conveys his or her share breaks the joint tenancy for that share, and the buyer becomes a tenant in common with the remaining owners.
Condominium owners hold fee simple title to a unit plus an undivided interest in the common elements, while cooperative owners hold shares in a corporation and a proprietary lease.
USPAP SR 1-2(e)(v) requires identifying whether the subject is a fractional interest, physical segment, or partial holding, and the appraiser is not required to value the whole.
A fractional undivided interest is usually worth less than its pro rata share of the whole because of lack of control, limited marketability, and the cost and delay of partition.
3.5 Partial Interests and Forms of Ownership
Note
Section 3.1 covered the estates in land (fee simple, leased fee, leasehold, life estates). This section covers who holds those estates and how much of them: concurrent ownership, condominium and cooperative interests, entity ownership, and the valuation of partial and fractional interests. The 2026 Exam Content Outline lists "partial interest" and "types of ownership (e.g., joint tenancy, tenants in common)" under Property Description.
1. Concurrent Ownership
When two or more people own the same real estate at the same time, the deed and state law determine the form of ownership:
| Form | Key Features | What Happens When an Owner Dies or Sells |
|---|---|---|
| Tenancy in severalty | One owner (an individual or an entity) holds the entire interest | Passes by will or inheritance |
| Joint tenancy | Requires the four unities: time, title, interest, and possession; shares are equal | Right of survivorship: a deceased owner's share passes to the surviving joint tenants. A joint tenant who conveys a share severs the joint tenancy for that share |
| Tenancy in common | Undivided interests that may be unequal (for example, 60/40); each owner may use the whole property | No survivorship; each share passes by will or inheritance and may be sold or mortgaged separately; any co-owner can seek partition |
| Tenancy by the entirety | Recognized in some states for married couples; treated as one ownership unit | Survivorship; neither spouse can convey or encumber alone, and many states shield the property from one spouse's individual creditors |
| Community property | In nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), property acquired during marriage is generally owned equally by the spouses | Governed by state community property law |
Tip
Exam Pattern: Three investors own a building as joint tenants. If one investor sells her interest, the buyer does not become a joint tenant, because the buyer's title arose at a different time from a different deed. The buyer holds a one-third interest as a tenant in common, and the two original owners remain joint tenants with each other as to the other two-thirds.
2. Condominiums, Cooperatives, and Timeshares
- Condominium: each owner holds fee simple title to a unit (a defined airspace) plus an undivided interest in the common elements (land, structure, lobbies, parking), all created by a recorded declaration. Commercial condominiums are common for medical office, small industrial, and retail units. Appraisers compare unit sales on a price-per-square-foot basis and account for association dues, special assessments, and use restrictions in the declaration.
- Cooperative: a corporation owns the building, and each occupant owns shares in the corporation plus a proprietary lease for a unit. The interest is personal property (stock) tied to a lease, the building usually carries one blanket mortgage, and the co-op board typically approves transfers, which can limit marketability.
- Timeshare: a right to use a unit for a period each year, held either as a deeded fee interest in an interval or as a contractual right-to-use.
3. Entity and Investment Ownership
Much commercial real estate is held through general or limited partnerships, limited liability companies (LLCs), real estate investment trusts (REITs), tenancy-in-common investment structures, and Delaware statutory trusts. The real property owned by the entity is still real estate, but an interest in the entity (a membership share, a partnership unit, or REIT stock) is an intangible business interest. A real property appraiser can value the underlying real estate; valuing the entity interest itself is a business appraisal under Standard 9 and requires that competency.
4. Partial Interests in Real Property
Partial interests fall into two broad groups:
- Physical partial interests: subsurface and mineral rights, air rights, and physical segments of a parcel (for example, the frontage strip in a partial taking).
- Legal and economic partial interests: leased fee, leasehold, and subleasehold (a "sandwich" position between a landlord and a subtenant) estates; life estates and remainders; easements; transferable development rights; and fractional undivided interests held by co-owners.
USPAP addresses partial interests directly:
- SR 1-2(e)(v) requires the appraiser to identify whether the subject is a fractional interest, physical segment, or partial holding. The Comment adds that the appraiser is not required to value the whole when the subject is one of these.
- SR 1-4(e) requires the appraiser, when analyzing an assemblage of estates or component parts, to analyze the effect of the assemblage and to refrain from valuing the whole solely by adding together the values of the parts. The whole may be worth more than, less than, or the same as the sum of the parts.
5. Valuing a Fractional Undivided Interest
A pro rata share of the whole is only the starting point. Buyers of a minority undivided interest typically pay less because they cannot control leasing, financing, or sale; the pool of buyers is thin and lenders rarely finance a fractional interest (lack of marketability); and forcing a sale through partition takes time and money.
Worked Example: Partition Analysis
A multi-tenant retail building has a fee simple market value of $8,000,000. The subject is a 25% tenancy-in-common interest.
- Pro rata share: $8,000,000 × 0.25 = $2,000,000.
- A buyer of the interest expects that a partition action would take about two years and that legal, court, and sale costs would consume 8% of the proceeds.
- Expected net proceeds at the end of year 2: $2,000,000 × (1 - 0.08) = $1,840,000.
- Discounted at a 12% rate reflecting the risk of the litigation: $1,840,000 ÷ (1.12 × 1.12) = $1,840,000 ÷ 1.2544 ≈ $1,466,800.
The indicated value of the 25% interest is about $1,467,000, roughly 27% below its pro rata share. The appraiser would test this against any available sales of fractional interests and interviews with investors who buy them. The partition analysis ignores the cash flow the owner receives while the case is pending; adding the present value of the owner's share of net income over those two years would narrow the discount.
Important
Sum-of-the-parts reasoning cuts both ways. Four 25% undivided interests, each worth $1,467,000, total about $5.9 million, far less than the $8,000,000 fee simple value of the whole. Assembling them into one owner can unlock that difference, which is why SR 1-4(e) prohibits valuing a whole solely by adding its parts.
Three investors own a warehouse as joint tenants with right of survivorship. One investor sells her interest to an outside buyer. What is the ownership after the sale?
All four parties become joint tenants with equal one-quarter interests
The buyer is a tenant in common as to one-third; the other two remain joint tenants as to two-thirds
The sale is void, because joint tenants cannot convey their interests without the unanimous written consent of all co-owners
The buyer takes a life estate, and the other two hold the remainder
A property has a fee simple market value of $5,000,000. Market evidence shows that buyers of minority undivided interests apply a combined 20% discount for lack of control and marketability. What is the indicated value of a 40% undivided interest?
$2,000,000, the pro rata share of the whole
$1,000,000, after a 20% discount on the whole
$2,400,000, after adding a 20% control premium
$1,600,000, after discounting the pro rata share
An appraiser is asked to value a 30% tenancy-in-common interest in a shopping center. Which statement reflects USPAP Standards Rule 1-2(e)(v) and SR 1-4(e)?
Identify the subject as a fractional interest; the whole need not be valued, and parts need not sum to it
Value the whole center first and multiply by 30%, because a fractional interest is always its pro rata share
Decline the assignment, because USPAP does not permit appraisals of fractional interests
Treat the interest as a leasehold, because co-owners lease the center from each other
Sections you finish are checked off in the contents.