What is Tenancy in Common (TIC)?
Tenancy in common is a situation in which two or more people have ownership interests in a property. Each owner has the right to leave his share of the property to any beneficiary upon the owner's death. Tenancy in common is different than joint tenancy because the transfer of the property to a beneficiary in the event of an owner's death is different: In a joint tenancy agreement, the title of the property is passed to the surviving owner, while in a tenancy-in-common agreement, the title can be passed to a beneficiary of the owner's choosing.
Breaking Down Tenancy in Common (TIC)
When two or more people own property as tenants in common, all areas of the property are owned equally by the group. For this reason, an individual may not claim ownership to a specific part of the property.
One or more co-tenants may buy out another to dissolve the tenancy in common. A co-tenant may file a partition action if the other co-tenants are unwilling to sell. When the property is sold, the proceeds are divided among the co-tenants according to their interest in the property.
Whereas tenants in common may not claim ownership to an individual part of a property, they may have different ownership interests. For example, Sarah and Debbie may each own 25% of a property, while Leticia owns 50%. Because a tenancy in common may be created anytime, an individual may obtain an interest in a property years after the others entered into a tenancy-in-common ownership.
In contrast, joint tenants obtain equal shares of a property with the same deed at the same time. As with contract terms for tenants in common, terms for joint tenants are detailed in the deed, title or other legally binding property ownership documents. Some states have joint tenancy as the default ownership for married couples, whereas others have tenancy in common. A joint tenancy is broken when one or more tenants sell their interest in the property. For example, one or more co-tenants buy out the others, the property is sold and proceeds distributed equally among the owners, or a partition action is filed, letting an heir sell his stake in the property.
A tenancy in common also differs from a tenancy by the entirety, in which the owners of property are married and each spouse has an equal and undivided interest in the property.
Rights of Survivorship
When an owner dies, the fate of the ownership of the property depends on the type of ownership defined by the contract. Tenants in common have no rights of survivorship. Unless the deceased person’s will specifies his interest in the property is to be divided among surviving owners, a deceased tenant in common’s interest belongs to his estate. Conversely, with joint tenants, the deceased owner’s interest is automatically transferred to the surviving owners. For example, when four joint tenants own a home and one tenant dies, each of the three survivors ends up with a one-third share of the property.
Tenancy in Common Agreements and Taxes
Because a tenancy in common agreement does not legally divide a property, most jurisdictions will not separately assign each owner a property tax bill in proportion to his or her ownership interest; most often, the tenants in common therefore receive a single property tax bill. The tenancy in common agreement, guided by applicable law, usually outlines the implications of shared ownership on a property's taxes, including how tax liability is contractually distributed to each owner.
In many jurisdictions, a tenancy in common agreement imposes joint and several liability on tenants, meaning each owner can be liable up to the full amount of property tax, regardless of stated ownership interests. In this case, the owner is entitled to a deduction equal to the amount he actually paid. Where joint and several liability is not imposed, owners are only able to deduct property tax that is proportional to their ownership interest in the property, no matter the amount they actually paid.
Pros and Cons of a Tenancy in Common
Buying a home with a family member, friend or business partner as tenants in common may help individuals enter the property market more easily. Because deposits and payments are divided, purchasing and maintaining the property may be less expensive than it would be for an individual. Additionally, borrowing capacity may be greater when one individual with a greater income owns a larger percentage of the property than a lower-income borrower. In addition, a co-tenant may use a will for designating which heir receives his interest in the property, giving the co-tenant more control over his share.
However, when mortgaging a property as tenants in common, typically all borrowers sign the documents. That way, the lender may take over the entire property, rather than part of it, in case of default. If one or more borrowers ceases contributions to the mortgage payment, the other borrowers must cover the payments to avoid foreclosure. If a co-tenant dies without a will, his interest in the property goes through probate, a costly event in terms of time and money. In addition, the remaining co-tenants may own the property with someone they do not know. Furthermore, a tenant in common may file a partition action, forcing unwilling co-tenants to sell the property.