What is tenancy in common? Is it right for you?

Tenancy in common (TIC) is a type of legal arrangement whereby two or more people share ownership rights in a property – whether commercial or residential. The independent owners (tenants in common) may control the piece of land equally or in different percentages depending on the agreement. 

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Why get into a tenancy in common agreement?

Purchasing a home as tenants in common may make it easier to break into the real estate market. Because deposits and payments are split, the cost of owning and maintaining the property may be cheaper than if it were purchased and maintained by an individual. Additionally, if one co-owner has a good financial standing, borrowing capacity can be more streamlined.

How does tenancy in common work?

When two or more people are tenants in common, they have equal interests and privileges in that property. But, they could have a different share or percentage of ownership. 

Tenancy in common agreements can be made by anyone, at any time. That is to say, an individual may enter an already existing arrangement with other members. 

Let’s take an example. A and B each own 50% of a piece of real estate. A decides at some point to bring in C, splitting their 50% portion. The tenancy in common of ABC would be a 25/50/25 split.

Keep in mind that if any of the co-owner dies, their share of the property passes to their estate or any beneficiary they choose. But if a member dies without a will, their property interest will go through a probate sale.

Interestingly, any of the members can independently borrow money against their portion of ownership.

How to dispose of a tenancy in common?

To dissolve the tenancy in common, one or more co-tenants might buy out the other members. If the members have opposing interests or have different plans for the property’s use or improvement or if one of them wants to sell it, they must all come to a joint agreement.

If they are unable to reach an agreement, they may take a partition action. Depending on how effectively the co-tenants work along, the partition action can be voluntary or court-ordered.

In the case of a legal partition proceeding, the court will divide the real estate among the members according to their share. This decision (partition in-kind) is binding and allows each tenant in common to move forward separately. 

In extreme cases when the co-tenants refuse to work together, they may sell the property and the proceeds may be divided among the co-tenants according to how much property they own.

What happens to TIC in the case of a payment default?

When mortgaging property as tenants in common, all borrowers are required to sign the mortgage agreement and make the required payments on time. In the event of a default, the loan lender has the right to confiscate the members’ assets. If one member stops contributing to the mortgage payment, the remaining borrowers must cover the payments in order to avoid foreclosure.

Property taxes and tenancy in common

Most tax authorities will not give each owner a proportional property tax bill based on their ownership percentage. The reason is that a tenancy in common agreement does not lawfully divide a property. So, the co-tenants usually get a single property tax bill.

In some jurisdictions, the agreement imposes joint-and-several liability on the co-tenants. This means that each of the independent owners will be liable for the property tax – regardless of the level or percentage of ownership. Co-tenants can then deduct the property tax from their income tax returns. 

Tenancy in common vs. joint tenancy

A tenancy in common agreement differs from a joint tenancy where the tenants have equal share and rights to a property – and have the same deed.

Any addition or removal of members may break the agreement. For instance, if any of the members want to sell off their ownership, the agreement ends. Sometimes, if the property is large, joint tenancy members can use the legal partition route to divide the land. 

Another difference is that in the case of a death, while TIC agreements allow the passing of property to the owner’s estate, a joint tenancy agreement makes it mandatory for the title of the property to pass to the surviving owner(s).

For example, if four joint tenants own a piece of land and one tenant dies, the other three survivors end up with the deceased’s share. 

When it comes to marriage, some states follow joint tenancy while others use tenancy in common for property ownership of married couples. 

A few states follow a third model, a tenancy by the entirety, whereby each spouse has an equal interest in the property – as detailed in the deed, title, or other legally binding property ownership documents.

Pros and cons of a tenancy in common

Pros

• Makes buying a home easier. 
• Maintaining a property is cheaper.
• Streamlines the borrowing of funds.
• Different degrees of property ownership are possible.

Cons

• Doesn’t have automatic survivorship rights.
• All members are liable for debt and property taxes.
• Members may disagree regarding the property’s use or improvement.

Read more: Ownership interest in a property

Last thoughts

Tenancy in common is a legal arrangement in which two or more people share ownership of real property, such as a building or a piece of land. Depending on their particular purchase contracts and legal agreements, the specifics of these arrangements would vary from case to case. However, the most important aspect of a TIC is that either party can sell their portion of the property while retaining the ability to pass it on to their heirs.

Read more: Why are split level homes harder to sell

Written by Ramona Sinha. July 24, 2022

Ramona is a content writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. An avid traveler, she’s a digital nomad at heart and an animal lover from the depths of her soul.

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xavier.chavez1@outlook.es(@xavier-chavez1outlook-es)

Never share rent with a person you know has done irresponsible things, no matter how friendly they are.

carolina.rodriguez41@outlook.com(@carolina-rodriguez41outlook-com)

This type of property seems only ideal for direct relatives such as parents, siblings or perhaps stable partners… very very problematic