Constructive Severance

Constructive Severance Definition

Constructive severance is the process by which a part of real property is separated from real estate and converting said real property to personal property through forming an agreement to establish this type of intent.

 

Explanation

Constructive severance allows an individual or company to separate the value and or ownership of their product or service from their real property and convert it to personal property.

An example would be a farmer who wanted to keep his land for future use and still make profits on his annual crops.

He formed a constructive severance agreement with a friend to establish a separation of the crops from being a part of his real property to agree to making them personal property to be sold to his friend.

This allows the farmer to show the profitability of his property and business which can be used to qualify for financing future projects on the property.

If the farmer was unable to separate his personal property from his real property and he needed to make a profit, he would have to sell his entire farm with the crops.