What Is Tenancy in Common (TIC)?
Tenancy in Common (TIC) is a legal arrangement in which two or more parties share ownership rights in a real estate property or parcel of land. Each independent owner may control an equal or different percentage of the total property, whether commercial or residential. The parties are known as tenants in common.
Tenancy in Common is one of three types of shared ownership. The other two types are Joint Tenancy and Tenancy by Entirety. A TIC has no right of survivorship and when a tenant in common dies, their share of the property passes to their estate, where a beneficiary of the share of property may be named.
- Tenancy in Common (TIC) is a legal arrangement in which two or more parties have ownership interests in a real estate property or parcel of land.
- Tenants in common can own different percentages of the property.
- 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, however, each tenant can own a different percentage or proportional financial share of the property.
Tenancy in Common agreements can be created at any time and an individual may 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.
While the percentage of the property owned varies, a tenant in common cannot claim ownership to any specific part of the property.
Dissolving Tenancy in Common
One or more tenants can buy out other members to dissolve the Tenancy in Common in a joint agreement. In cases where an understanding cannot be reached, a partition action may take place that may be voluntary or court-ordered.
In a legal partition proceeding, a court will divide the property as a partition in kind, separating the property into parts that are individually owned and managed by each party without compelling a person to sell his property against his will.
If the tenants refuse to work together, they may consider entering into a partition of the property by sale. In this case, the holding is sold and the proceeds are divided among the tenants according to their respective share of the property.
Property Taxes Under Tenancy in Common
Because a Tenancy in Common agreement does not legally divide a parcel of land or property, most tax jurisdictions will not separately assign each owner a proportional property tax bill based on their ownership percentage. Most often, the tenants in common receive a single property tax bill.
In many jurisdictions, a TIC agreement imposes joint-and-several liability on the tenants 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. If the taxing jurisdiction followed joint-and-several liability, each tenant can deduct the amount they contributed. In counties that do not follow this procedure, they can deduct a percentage of the total tax up to their level of ownership.
Joint Tenancy and Tenancy by Entirety
Besides Tenancy in Common, two additional forms of shared ownership are commonly used: Joint Tenancy and Tenancy by Entirety.
In a Joint Tenancy, tenants obtain equal shares of a property with the same deed at the same time. With two tenants, each owns 50%. If one party would like to buy out the other, the property must be sold and the proceeds distributed equally.
In Tenancy in Common, the ownership portion passes to the individual's estate at death. In Joint Tenancy, the title of the property passes to the surviving owner.
Some states set Joint Tenancy as the default property ownership for married couples, while others use the Tenancy in Common model. A third method, used in some states, is Tenancy by Entirety in which each spouse has an equal and undivided interest in the property.
In Tenants by Entirety, both parties have equal, 100% interest in the property as if each is a full owner. If a married couple is in a TBE agreement, the property is viewed as owned by one entity.
Pros and Cons of Tenancy in Common
Buying a home with a family member or business partner may make it easier to enter the real estate market. Dividing deposits, payments, and maintenance make real estate investment less expensive for an individual buyer.
However, when mortgaging property as tenants in common, all borrowers sign and agree to the loan agreement, and in the case of default, the lender may seize the holdings from all tenants. If one or more borrowers stop paying their share of the mortgage loan payment, the other borrowers are still responsible for the full payment of the loan.
Using a will to designate beneficiaries to the property gives a tenant control over their share. However, the remaining tenants may subsequently own the property with someone they do not know or with whom they do not agree. The heir may file a partition action, forcing unwilling tenants to sell or divide the property.
Facilitates property purchases
Number of tenants can change
Different degrees of ownership possible
No automatic survivorship rights
All tenants equally liable for debt and taxes
One tenant can force 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 individuals who jointly acquired property.
These owners have the status of tenants in common unless their agreement or contract expressly states otherwise as a Partnership or 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. They maintain that 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 either party can sell their share of the property while also reserving the right to pass on their share of the property 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 in accordance with the deceased tenant’s will. Any surviving tenants continue owning and occupying 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 of the property. Maintenance and care are divided evenly despite ownership share. Problems often 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, referred to as tenants in common, share interests 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 of the property. Two other types of ownership agreements are Joint Tenancy and Tenancy by Entirety.