By Andrew S. Bennett
Given Florida’s favorable geography, climate, and tax laws, it can be easy to understand why investors, both in out of the state, seek to acquire investment property in Florida. However, for an investor, the decision to acquire Florida property can be relatively easy compared to the decision as to how he or she should take title to the property. This article will provide a brief summary of several common methods for taking title to property, and some considerations associated with each.
Methods of Ownership
Personal Ownership. The most basic form of ownership is for the purchaser to simply take title to the property in his or her own name. However, personal ownership exposes the owner to a higher degree of personal liability. Property ownership brings many inherent liability risks, such as someone being harmed by a condition or event occurring on the property. This potential for liability can be compounded by the infrequency with which investors, particularly those living out-of-state; can visit their property and stay apprised of its condition. When a judgment is issued in a claim where property is titled in the name of individuals, the personal assets of the owners (i.e., the property and other assets of the owner) may be sought to satisfy the judgment. As such, investors should consider utilizing other methods of ownership.
Ownership through a Revocable Trust. There are good reasons to take title to real property (other than primary residences) in the name of a Revocable Trust or Land Trust; however, limiting liability is not one of them. Holding property in trust can be beneficial from an estate planning perspective, particularly in helping the property to avoid having to pass through probate at death, however, from a liability standpoint, holding property in trust is practically indistinguishable from personal ownership. There are other types of Trusts that may shield the underlying owner from liability; however, these trusts typically are complex and require the person to give up a substantial amount of control.
Limited Liability Company. Another option is to take title in the name of a business entity, such as a limited liability company (“LLC”). The most obvious benefit to doing so, as the name implies, is limited liability. Typically, if a judgment is issued against a business entity, rather than being able to pursue the personal assets of the entity owners, the creditor can only pursue the assets titled in the name of the entity to satisfy the judgment. One not so insignificant side note is that a multi-member LLC can be taxed as a partnership or as a corporation (including a subchapter S corporation) and a single-member LLC can be either taxed as a disregarded entity for tax purposes (i.e., reported on the owner’s personal return) or as a corporation (including a subchapter S corporation). This makes the LLC far more flexible than its business entity counterparts. Its management structure can likewise take on the form of other types of business entities (e.g., has a board of directors and officers like a corporation).
As an additional note, before acquiring property in the name of business entity, it is important to consider its state of registration. For various reasons, investors may wish to organize the entity in a state
other than Florida. Or perhaps they already have an existing entity they wish to use which is organized in another state. While Florida law permits property to be purchased in the name of a foreign entity, that is, the entity is organized in a state other than Florida, a foreign entity may not “transact business” in Florida without a certificate of authority from the Florida Department of State Division of Corporations. Under Florida law, merely owning property in the state, without anything more, is not “transacting business.” However, if an investor intends to do anything further with the property, for example lease it, the entity will need to obtain a certificate of authority from the state by completing a foreign registration. The application is available from the Florida Department of State Division of Corporations (available under the “forms” tab at http://www.sunbiz.org/). Note that an original certificate existence (not a copy), no more than 90 days old, from the entity’s state of organization, is also necessary. It is advisable that you consult with counsel before preparing or filing any of these forms.
While there are several methods by which investors may take title to property in Florida, when it comes to limiting liability, the best option usually is to take title through a business entity or possibly a combination of methods (e.g., property owned in a Land Trust which has a business entity as its sole member, or, a property owned by an LLC, where the membership interests are owned by the member’s respective trusts).
This Article does not constitute legal advice and may not be relied upon as such. Each individual’s facts and circumstances are different. If you have any questions regarding your particular situation, please consult with legal counsel.
Andrew S. Bennett
Real Property Law
Professional Activities and Experience:
Member: Florida Bar Association,
Member: Collier County Bar Association
(Young Lawyers Section)
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