The Legal Spine – Who Actually Owns the House?

When you buy a token tied to real estate, you are almost never directly on the title. Instead, you own a slice of a legal entity that owns the property. Getting this spine right is non‑negotiable if you want tokenization to scale and survive regulatory scrutiny.

The Basic Structure: Entity + Tokens

A typical structure looks like this:

A special-purpose vehicle (SPV)—usually an LLC or similar—is formed to acquire and hold a single property.
The SPV holds legal title and signs all contracts: purchase, financing, property management, insurance, utilities.
The SPV’s ownership interests (membership interests, shares, or profit interests) are mapped to digital tokens.
Investors hold tokens that correspond to rights in the SPV: economic (cashflows, appreciation) and sometimes governance (voting).

This separation matters. Land registries and banks understand LLCs and corporations; they do not (yet) understand wallets and smart contracts. The SPV model lets you innovate at the token layer while staying conservative at the property and legal layers.

Key Legal Design Questions

To make tokenized ownership workable, several questions must be explicitly answered in the SPV’s operating agreement and token terms:

What rights does each token represent? Economic rights (rents, sale proceeds) are standard. Governance rights (vote on repairs, refinancing, tenant selection) can vary. Some structures create voting and non‑voting token classes.
Who has fiduciary responsibility? Typically a manager or board is appointed to run the SPV and owes fiduciary duties to token holders. Their powers and limits (e.g., leverage caps, renovation thresholds) must be clearly defined.
How are tokens regulated? In many jurisdictions, these tokens are securities. That means:
- Investor accreditation rules (for private offerings).
- Transfer restrictions to comply with securities laws.
- Reporting and disclosures, especially if there’s a public or quasi‑public market.
How are disputes resolved? The operating agreement should define:
- Governing law and jurisdiction.
- Dispute resolution mechanisms (arbitration, courts).
- Remedies for breach by managers or token holders.

Why the Entity Layer Shapes Everything Above It

The legal entity is where theory hits reality. If it is poorly designed:

Token holders may think they have rights they don’t actually have.
Regulators may classify the structure in a way that blocks liquidity or retail access.
Banks, insurers, and vendors may be unwilling to work with the property.

Conversely, a well‑structured SPV:

Clarifies roles: token holders (capital), managers (execution), occupants (use).
Provides a stable foundation for automation and governance on-chain.
Makes it easier to integrate with existing systems (mortgages, insurance, escrow).

In the next post, we’ll dive into shared ownership: once 500 people own a slice of a $500,000 house, how do they decide who lives there, who pays for what, and who gets to repaint the kitchen?