What Is Tenancy in Common (TIC)?
Tenancy in common (TIC) is a legal arrangement in which two or more parties share ownership rights to real property. It comes with what might be a significant drawback, however: A TIC carries no rights of survivorship. Each independent owner can control an equal or different percentage of the total property during their lifetimes.
Tenancy in common is one of three types of shared ownership. The others are joint tenancy and tenancy by entirety.
Key Takeaways
- Tenancy in common (TIC) is a legal arrangement in which two or more parties have ownership interests in a real estate property or a parcel of land.
- Tenants in common can own different percentages of the property.
- A tenancy in common doesn't carry survivorship rights.
- Tenants in common can bequeath their share of the property to a named beneficiary upon their death.
- Joint tenancy and tenancy by entirety are two other types of ownership agreements.
How Tenancy in Common (TIC) Works
Owners as tenants in common share interests and privileges in all areas of the property but each tenant can own a different percentage or proportional financial share.
Tenancyin common agreements can be created at any time. An additional individual can join as an interest in a property after the other members have already entered into a TIC arrangement. Each tenant can also independently sell or borrow against their portion of ownership.
A tenant in common can't claim ownership to any specific part of the property even though the percentage of the property owned can vary.
A deceased tenant's or co-owner's share of the property passes to their estate when they die rather than to the other tenants or owners because this type of ownership doesn't include rights of survivorship. The tenant can name their co-owners as their estate beneficiaries for the property, however.
Dissolving Tenancy in Common
One or more tenants can buy out the other tenants to dissolve the tenancy in common by entering into a joint legal agreement. A partition action may take place that might be voluntary or court-ordered in cases where an understanding can't be reached.
A court will divide the property as a partition in kind in a legal proceeding, separating the property into parts that are individually owned and managed by each party. The court won't compel any of the tenants to sell their share of the property against their will.
The tenants may consider entering into a partition of the property by sale if they can't agree to work together. The holding is sold in this case and the proceeds are divided among the tenants according to their respective shares of the property.
Property Taxes Under Tenancy in Common
A tenancy in common agreement doesn't legally divide a parcel of land or property so most tax jurisdictionswon't separately assign each owner a proportional property tax bill based on their ownership percentage. The tenants in common typically receive a single property tax bill.
A TIC agreement imposes joint-and-several liability on the tenants in many jurisdictions where each of the independent owners may be liable for the property tax up to the full amount of the assessment. The liability applies to each owner regardless of the level or percentage of ownership.
Tenants can deduct payments from their income tax filings. Each tenant can deduct the amount they contributed if the taxing jurisdiction follows joint-and-several liability. They can deduct a percentage of the total tax up to their level of ownership in counties that don't follow this procedure.
Other Forms of Tenancy
Two other forms of shared ownership are commonly used instead of tenancies in common: joint tenancy and tenancy by entirety.
Joint Tenancy
Tenants obtain equal shares of a property in a joint tenancy with the same deed at the same time. Each owns 50% if there are two tenants. The property must be sold and the proceeds distributed equally if one party wants to buy out the other.
The ownership portion passes to the individual's estate at death in a tenancy in common. The title of the property passes to the surviving owner in a joint tenancy. This type of ownership comes with rights of survivorship.
Some states set joint tenancy as the default property ownership for married couples. Others use the tenancy in common model.
Tenancy by Entirety
A third method that's used in some states is tenancy by entirety (TBE). The property is viewed as owned by one entity. Each spouse has an equal and undivided interest in the property under this legal arrangement if a married couple is in a TBE agreement.
Unmarried parties both have equal 100% interest in the property as if each is a full owner.
Contract terms for tenancies in common are detailed in the deed, title, or other legally binding property ownership documents.
Pros and Cons ofTenancyin Common
Buying a home with a family member or a business partner can make it easier to enter the real estate market. Dividing deposits, payments, and maintenance make real estate investment less expensive.
All borrowers sign and agree to the loan agreement when mortgaging property as tenants in common, however. The lender may seize the holdings from all tenants in the case of default. The other borrowers are still responsible for the full payment of the loan if one or more borrowers stop paying their share of themortgage loan payment.
Using a will or other estate plan to designate beneficiaries to the property gives a tenant control over their share but the remaining tenants may subsequently own the property with someone they don't know or with whom they don't agree. The heir may file a partition action, forcing the unwilling tenants to sell or divide the property.
Pros
Facilitates property purchases
The number of tenants can change
Different degrees of ownership are possible
Cons
No automatic survivorship rights
All tenants are equally liable for debt and taxes
One tenant can force the sale of property
Example of Tenancy in Common
California allows four types of ownership that include community property, partnership, joint tenancy, and tenancy in common. TIC is the default form among unmarried parties or other individuals who jointly acquire property. These owners have the status of tenants in common unless their agreement or contract expressly otherwise states that the arrangement is a partnership or a joint tenancy.
TIC is one of the most common types of homeownership in San Francisco, according to SirkinLaw, a San Francisco real estate law firm specializing in co-ownership. TIC conversions have become increasingly popular in other parts of California, too, including Oakland, Berkeley, Santa Monica, Hollywood, Laguna Beach, San Diego, and throughout Marin and Sonoma counties.
What Benefit Does Tenancy in Common Provide?
Tenancy in common (TIC) is a legal arrangement in which two or more parties jointly own a piece of real property such as a building or parcel of land. The key feature of a TIC is that a party can sell their share of the property while also reserving the right to pass on their share to their heirs.
What Happens When One of the Tenants in Common Dies?
The ownership share of the deceased tenant is passed on to that tenant’s estate and handled according to provisions in the deceased tenant’s will or other estate plan. Any surviving tenants would continue owning and occupying their shares of the property.
What Is a Common Dispute Among Tenants In Common?
TIC tenants share equal rights to use the entire property regardless of their ownership percentage. Maintenance and care are divided evenly despite ownership share. Problems can arise when a minority owner overuses or misuses the property.
The Bottom Line
Tenancy in Common is one of three types of ownership where two or more parties share interest in real estate or land.Owners as tenants in common share interests and privileges in all areas of the property regardless of each tenant's financial or proportional share. A tenancy in common doesn't carry rights of survivorship so one tenant's ownership doesn't automatically pass to the other tenants if one of them dies.
