What Is Tenancy in Common – TIC?
Tenancy in common is an arrangement where two or more people share ownership rights in a property or parcel of land. The property may be commercial or residential. When a tenant in common dies, the property passes to that tenant's estate. Each independent owner may control an equal or different percentage of the total property. Also, the tenancy in common partner has the right to leave their share of the property to any beneficiary as a portion of their estate. Contract terms for tenants in common are detailed in the deed, title, or other legally binding property ownership documents.
How TIC Works
When two or more people own property as tenants in common, all areas of the property are owned equally by the group. The co-tenants may have a different share of ownership interests. For example, Sarah and Debbie may each own 25% of a property, while Leticia owns 50%. While the percentage owned varies, no individual may claim ownership to any specific part of the property.
Tenancy?in common agreements may be created at any time. So, an individual may develop an interest in a property years after the other members have entered into a tenancy-in-common agreement. Returning to the example above, we could say that Sarah and Leticia originally each owned 50% of the property. At some point, Sarah decided to split her 50% portion with Debbie leaving the group with a 25/25/50 split.
Further, the members of the agreement may independently sell or borrow against their portion of ownership.
- Tenancy in common is an arrangement in which two or more people have ownership interests in a property.
- Tenants in common can own different percentages of the property.
- Tenants in common can bequeath their share of the property to anyone upon their death.
- Tenancy in common significantly differs from a joint tenancy, particularly in terms of survivorship rights and the degree of ownership each tenant has.
Disposing of a TIC
One or more co-tenants may buy out other members to dissolve the tenancy in common. If the co-tenants should develop opposing interests or directions for the property's use, improvement, or want to sell the property, they must come to a joint agreement to move forward. In cases where an understanding cannot be reached, a partition action may take place. The partition action can be voluntary or court-ordered, depending on how well the co-tenants work together.??
In a legal partition proceeding, a court will divide the property among the tenancy in common members allowing each member to move forward separately from other members. Known as a partition in kind it is the most direct way to divide the property and is usually the method used when co-tenants are not adversarial.??
Should the co-tenants refuse to work together, they may consider entering into a partition of the property by sale. Here, the holding is sold and the proceeds are divided among the co-tenants according to their respective interests in the property.??
Property Taxes With TIC Properties
The tenancy in common agreement, guided by applicable law,?usually outlines the implications of shared ownership on a property's taxes. The contract will outline?how tax liability?is contractually distributed to?each owner.?
Because a tenancy in common agreement does not legally divide a parcel of land or property, most taxing 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 tenancy in common agreement imposes joint-and-several liability on the co-tenants. This stipulation means 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.??
Once the property tax is satisfied, co-tenants will deduct that payment from their income tax filings. If the taxing jurisdiction followed joint-and-several liability, each co-tenant might deduct the amount they contributed from personal income tax filings. In the counties that do not follow this procedure, they can deduct a percentage of the total tax up to their level of ownership.??
Tenancy in Common vs Joint Tenancy
Although they sound similar, tenancy in common differs in several ways from a joint tenancy. In a joint tenancy, tenants obtain equal shares of a property with the same deed at the same time.??
One of the primary differences comes with the addition or removal of any member from the agreement. In TIC agreements the change in members does not break the agreement. With a joint tenancy, the agreement is broken if any of the members wish to sell their interest.??
For example, if one or more co-tenants wants to buy out the others, the property technically has to be sold and the proceeds distributed equally among owners. Joint tenancy members may also use the legal partition action to separate the property if the holding is large enough to accommodate this separation.
Death of a Joint Tenant
Another substantial difference occurs in the event of one co-tenant's death. As mentioned earlier, TIC agreements allow the passing of property as a portion of the owner's estate. However, in a joint tenancy agreement, the title of the property passes to the surviving owner.??
In other words, tenants in common have no automatic rights of survivorship. Unless the deceased member's last will specifies that their interest in the property is to be divided among the surviving owners, a deceased tenant in common’s interest belongs to their 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 an additional one-third share of the property.??
Marriage and Property Ownership
Some states set joint tenancy as the default property ownership for married couples, while others use the tenancy in common ownership model. A third model, used in some 25 states and the District of Columbia, is a tenancy by the entirety (TbyE), in which each spouse has an equal and undivided interest in the property.?? ??
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 streamlined if one owner has a greater income or better financial footing than the other members.
Facilitates property purchases
Number of tenants can change
Different degrees of ownership possible
No automatic survivorship rights
All tenants equally liable for debts, taxes
One tenant can force sale of property
However, when mortgaging property as tenants in common, typically all borrowers sign the documents. Since all members sign mortgage documents, in the case of a default, the lender may seize the holdings from all group members. Also, even if one or more borrowers cease giving contributions to the?mortgage payment, the other borrowers must still cover the payments to avoid foreclosure.??
The ability to use a will for designating beneficiaries to the property allows the co-tenant with control over their share. If a co-tenant dies without a will, his interest in the property will go through probate—a costly event both in terms of time and money.??
Also, the remaining co-tenants may find they now own the property with someone they do not know or with whom they do not agree. This new co-tenant may file a partition action, forcing unwilling co-tenants to sell or divide the property.??
Example of Tenancy in Common (TIC)
California allows four types of co-ownership that include community property, partnership, joint tenancy, and tenancy in common. However, TIC is the default form among unmarried parties or individuals who together acquire real property. In California, these owners have the status of tenants in common unless their agreement or contract expressly states otherwise, setting up a partnership or joint tenancy.??
According to SirkinLaw, a San Francisco real estate law firm specializing in co-ownership.
More and more people are turning to tenancies in common… as a way to maximize their buying and selling power. These arrangements lower prices and increase choice for buyers by allowing them to pool resources and buy more real estate than they otherwise could or would.
???In an August 2018 blog post, they write that TIC conversions—the changing of the ownership structure of condominium properties into a tenancy-in-common arrangement—have become particularly popular in the Greater Los Angeles and San Francisco/Oakland metropolitan areas.??