Michelle Napoli is editor of TIC Monthly, from which this article is excerpted.

Helena, MT—Bills with implications for the tenant-in-common industry have been proposed in Montana and Oregon, and those familiar with the proposals say an effort is underway to introduce similar legislation in Idaho.

In Montana, Rep. Bob Lake sponsored a bill that was introduced to the House of Representatives on Jan. 9 that would revise the state's real estate laws regarding tenancies-in-common. As proposed, HB256 would add to the state's definition of real estate "an interest in an undivided fractionalized long-term estate in real property" and would add the following: "Undivided fractionalized long-term estate in real property means an ownership interest in real property that: (a) is a tenancy in common or any other undivided estate, including but not limited to a fee or life estate; (b) consists of two to 35 owners; and (c) if the real property is subject to a management agreement, the management agreement permits a majority of the owners to not renew or to terminate the agreement at the earlier of the end of the term of the agreement or 180 days after the date on which the majority of the owners give notice of termination." The bill would also exclude real estate from its definition of a security.

The bill was referred to the House Judiciary Committee, which held a public hearing on it on Jan. 26. Among those who spoke at the hearing was Tenant-in-Common Association president Patricia DelRosso, who opposes the law and has since drafted an alert on the topic that will be distributed to TICA's membership. DelRosso tells TIC Monthly that the law "basically says that tenant-in-common programs would be real estate and, therefore, under the regulatory authority of the department of real estate in Montana. They would be turning their back on their securities commission."

DelRosso notes, as TIC Monthly has reported, that the National Association of Realtors has been working with the Securities and Exchange Commission in an effort to create some arrangement whereby both real estate and securities licensees could be compensated for advising clients investing in TIC transactions. That would be "a win-win situation for everyone," DelRosso says. Further, if the various federal and state securities and real estate authorities can agree to such a scheme that would apply nationwide, that would be preferable to having different laws passed piecemeal state by state, she suggests.

One of TICA's paramount goals is to protect investors, DelRosso says. "We believe the securities format does that." DelRosso is also president of Inland Real Estate Exchange Corp., an Oak Brook, IL-based securitized TIC sponsor. There have been signals in the past that TICA could evolve into an association that more specifically represents the securitized TIC industry, and from DelRosso's comments it does appear that's where the association is heading. She says the TICA board is currently working on a position that would essentially say TICs should be sold as securities. "You will probably see us in the near future come out with a position paper." She hastens to add that the belief is Realtors are still vital to TIC transactions, since among their roles is to sell properties to TIC sponsors and ultimately selling them on for disposition for the TIC investors.

TICA has likewise verbally opposed a bill before the Oregon Senate, and DelRosso indicated that opposition will be followed up in written form. SB449 was introduced by Sen. Rick Metsger on Jan. 22, and a week later was referred to the Senate's Business, Transportation and Workforce Development Committee, of which Metsger is chairman. No hearings have been scheduled as yet.

As it is currently proposed, SB449 would change the state's definition of real estate to include "an ownership interest in real property when (A)The interest is a tenancy in common or other undivided estate, including but not limited to a fee or life estate; (B)Interests in the real property are owned by at least two but not more than 35 owners; and (C)An agreement, if any, for the management of rental real property subject to the interests, including an agreement for the management of a master lease that governs leases or subleases, permits a majority of owners of the interests not to renew the agreement at the end of the term of the agreement or to terminate the agreement after giving 180 days' notice of termination." Further, real estate would be excluded from the state's definition of a security under the proposed bill.

Both bills follow in the footsteps of Utah's SB64, which became law in March 2005 essentially excluding tenant-in-common transactions from the state's definition of securities, though it was amended last year to allow TIC interest securities in Utah properties to be sold without a real estate license under certain conditions.

"I think it's great that states are starting to take a proactive stance on the tenant-in-common issue where real estate is concerned," says Peter A. Johnson, VP of marketing for Boise, ID-based Spectrus Real Estate Group, which sells non-securitized TICs. "Where's the line between securities TICs and real estate TICs? That's all this bill proposes to do--draw that line," he says, adding that he hopes more states will "define a line so real estate professionals know, what's securities and what's real estate."

Spectrus' general counsel, Jeff Warr, was among those who spoke in favor of the Montana bill at its House Judiciary Committee hearing. Johnson tells TIC Monthly that his company and the TIC Real Estate Association, of which he is a board member, are among those who have "been involved in both lobbying and drafting legislation" in Oregon as well as his home state of Idaho and in Montana. "We are not trying to abolish securitized TICs…We're not trying to take anybody's business away, we're just trying to support the fact that there can be real estate TICs," Johnson adds, "We are going into these states trying to craft legislation that works for both sides…All we're interested in is not even the structure, but that real estate tenants-in-common is protected--to protect and preserve the rights of real estate professionals."

The concept has not reached the stage of a proposed bill in Idaho, adds Johnson, who is also a member of the TICA. "This process is starting slow, and then we hope it will gain ground," Johnson says.

In Idaho, a potential bill "is being negotiated right now with several of the government bodies that are involved," he reports. "We hope within the next year we would have something proposed."

Instant Insights /

Montana, Oregon Consider TIC Bills

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