What Is Shared Ownership?
Shared ownership (also known as fractional ownership) is a percentage share of an expensive asset where shares are sold to individual owners. A fractional owner enjoys all the benefits of ownership while dramatically reducing the cost of acquisition and subsequent maintenance.
Simply put, shared ownership means the division of any asset into portions or shares. If ths asset is a property, the title or deed can be legally divided into shares. The most effective strategy for achieving this is by creating a "mezzanine structure" – creating a company which owns the property then allowing multiple owners or investors to own shares in the company. Those shares can then be purchased and owned by more than one individual. There are many benefits of a mezzanine structure including the fact that they allow transfer of shares without the need to reflect changes on the title or deed to the property. Yet another benefit is the reduction in risk for the individuals who as owners of a Company are afforded a legal shield in the case of a lawsuit. Still, the most valuable aspect of this technique is the dramatic reduction in cost.
Shared ownership of the property and its deed will also entitle shareholders to certain usage rights, usually in the form of weeks. Conceptually, shared ownership is not the same as timeshare. Shared ownership affords much of the freedom and usage benefits offered in timeshare, however, the fundamental difference with fractional ownership is that the purchaser owns part of the title (as opposed to units of "time"). Therefore, if the property appreciates in value, then so do the shares. As with whole ownership, fractional owners can sell whenever they deem necessary or prudent, releasing the capital.
Shared ownership has been used most predominantly in aviation. A typical arrangement could offer an individual or company the option to purchase as little as 1/16 of an aircraft. The most common amounts purchased usually range from about 1/8 to 1/4 (approximately 200 flight hours per year) of an aircraft. Though the owner takes title of the portion of their investment, many of these arrangements did not assign the owner to a dedicated aircraft for usage. Instead, they were given access to a pool of similar aircraft, and therefore, theoretically, an owner might never actually fly on their titled jet. Co-owners of a fractional program''s aircraft are required to pay a percentage of the aircraft’s purchase price that is proportionate to the amount of hours they wish to fly per year, for the duration of their contract – typically 5 years.
In addition to the price, there are fees charged for all occupied flight hours (that fluctuate with changes in fuel prices), as well as monthly fixed-management fees that cover maintenance and administration of the program. In return, the customer receives a predetermined number of hours in the aircraft of their choice, based on the owner’s needs and the amount they are willing to pay. Fractional owners are guaranteed that this aircraft, or another aircraft of the same model or comparable aircraft type, will be available 24 hours a day, 365 days per year, with as little as four hours notice. In addition, the management company provides all scheduling, flight planning, staffing, catering, maintenance, communications, and insurance services. A fractional owner simply picks up the phone, calls a dispatcher, requests a flight, and drives to the airport.
The term fractional ownership originally became popular for business jets. The shared-ownership concept has since been extended to smaller aircraft and has now become common for single-engine piston aircraft which are beyond the financial means of many private pilots. The same concepts apply, except that the management company may not provide flight crews nor reposition the aircraft.
Many pilots get together to buy light aircraft in a privately bought and managed fractional ownership, this is often known as group flying. Fractional ownership has played a significant role in revitalizing the general aviation manufacturing industry since the late 1990s, and most manufacturers actively support fractional ownership programs.
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