Introduction
Co-ownership in real estate allows two or more people to share rights to a single property. Among the various structures, tenancy in common (TIC) stands out for its flexibility. Whether you’re co-buying with friends, pooling funds as investors, inheriting property as heirs, or studying property law, understanding TIC is essential for informed decision-making.
What Is Tenancy in Common (TIC)?
Definition and Key Characteristics
- Separate but undivided ownership interests: Each owner holds a defined percentage (e.g., 25%, 50%) yet has rights to use the entire property.
- No right of survivorship: When an owner dies, their share passes to heirs under their will or state probate laws, not automatically to co-owners.
- Flexibility of unequal shares: Ownership percentages can differ and are specified in the deed or TIC agreement.
When and Why Investors or Co-Buyers Choose TIC
- Ability to pool capital for high-cost markets without equal contributions
- Independent control over selling or mortgaging one’s own share
- Estate-planning advantages: passing your share to chosen beneficiaries
Tenancy in Common vs. Other Forms of Co-Ownership
Joint Tenancy vs. Tenancy in Common
- Right of survivorship vs. inheritance by will: Joint tenants see shares vest in surviving owners; tenants in common leave shares to heirs.
- Unity of time and title: Joint tenants must acquire interests simultaneously; TIC owners may acquire shares at different times.
Tenancy by the Entirety vs. Tenancy in Common
- Spousal protections and limitations: Only married couples qualify for tenancy by the entirety, shielding property from individual creditors.
- Impact on creditors: TIC interests can be seized by a creditor of one owner, whereas tenancy by the entirety offers greater protection.
Rights and Obligations of TIC Co-Owners
Right to Possession and Use
All tenants in common have equal rights to occupy and use the entire property, regardless of percentage interest.
Right to Lease, Mortgage or Sell Your Share
Each co-owner may independently lease, finance, or sell their share without needing co-owner approval, though new owners step into the TIC arrangement.
Responsibility for Taxes, Maintenance & Expenses
Owners typically share property taxes, insurance, mortgage payments and upkeep proportionally to their ownership percentage, unless otherwise agreed.
Defining and Recording Ownership Shares
Equal vs. Unequal Percentage Interests
- Parties may split shares evenly (e.g., two 50/50 owners) or in custom ratios (e.g., 60/40, 75/25).
- Unequal shares reflect varying capital contributions or usage rights.
How to Reflect Shares on the Deed or Title
Ownership percentages must be clearly stated in the deed or in an accompanying TIC agreement recorded with the county recorder’s office.
Transferring Your TIC Interest
Gifting or Selling Your Share During Life
An owner may gift or sell their interest at any time; the transferee becomes a new tenant in common.
Inheritance: Passing Your TIC Interest by Will or Trust
Absence of survivorship rights means your share passes through your estate plan. A trust can streamline transfer and avoid probate delays.
No Right of Survivorship—What Heirs Need to Know
Heirs inherit the decedent’s percentage and step into the co-ownership, potentially changing the dynamic or prompting buy-outs.
Exiting a Tenancy in Common
Voluntary Buy-Out Agreements
Co-owners may agree in advance on formulas and timelines for buying out an exiting party’s share.
Partition Actions and Court-Ordered Sales
If no agreement exists, a co-owner can file a partition action to force a sale or physical division of the property.
Resolving Disputes Among Co-Owners
Well-drafted TIC agreements often include mediation or arbitration clauses to handle disagreements without litigation.
Financing and Mortgaging Your TIC Interest
How Lenders View Tenancy in Common
Lenders typically underwrite TIC loans on individual shares; they assess creditworthiness of each borrower separately.
Obtaining a Mortgage on an Individual Share
Several banks offer fractional loans tailored to TIC buyers, securing only the individual’s percentage interest.
What Happens If One Co-Owner Defaults?
A defaulting co-owner’s share may be foreclosed upon, but unaffected co-owners retain their interests.
Tax and Liability Considerations
Income Tax on Rental or Sale Proceeds
Each owner reports rental income and capital gains proportionate to their ownership share on personal tax returns.
Property Tax Allocation Among Co-Owners
Local tax authorities may bill jointly or issue separate bills; co-owners must coordinate payment or face liens.
Liability Exposure for Co-Owner Actions
Creditors can pursue an individual’s TIC interest for liabilities arising from that owner’s actions, not from co-owners’ conduct.
State Law Variations and Drafting a TIC Agreement
Jurisdictional Differences in TIC Recognition
While most states recognize tenancy in common, recording requirements and partition procedures vary—check local statutes.
Essential Provisions in a Co-Ownership or TIC Agreement
- Ownership percentages, capital contributions and expense sharing
- Usage schedules, maintenance protocols and dispute-resolution clauses
- Buy-out formulas, transfer restrictions and inheritance planning
Frequently Asked Questions (FAQ)
Can I Will My Share to Anyone?
Yes. Unlike joint tenancy, you may bequeath your interest to any beneficiary via will or trust.
Must All Owners Hold Equal Shares?
No. TIC allows unequal interests so long as percentages are specified in the deed.
How Does a Partition Sale Work?
A partition action asks the court to divide or sell property when co-owners can’t agree on terms.
Can I Force a Co-Owner to Contribute to Mortgage or Repairs?
Only if your TIC agreement or local law imposes cost-sharing obligations; otherwise, you must negotiate or litigate.
How Do Title Companies and Lenders Treat TIC?
They often require a detailed TIC agreement and may offer specialized fractional financing to individual co-owners.
Real World Application
Scenario 1: Siblings Purchasing a Vacation Home
- Two siblings split 50/50 shares of a mountain cabin.
- They draft a TIC agreement outlining usage schedules, expense sharing and buy-out terms.
- Exit strategy: either sibling can trigger a buy-out formula or partition sale after a set period.
Scenario 2: Heirs Inheriting a Rental Property
- Three heirs inherit equal shares of a rental house with no survivorship rights.
- They decide to jointly manage it as landlords, sharing income and expenses proportionally.
- If one heir wants out, they use the pre-agreed buy-out mechanism rather than forcing a sale.
Conclusion
Tenancy in common offers a flexible, estate-friendly way for multiple parties to co-own real estate with unequal shares and independent control. Key considerations include drafted agreements, clear percentage allocations, and understanding state-specific rules. Before entering a TIC arrangement, consult real estate attorneys, financial advisors, and tax professionals to tailor an agreement that protects each co-owner’s interests.
Additional Resources
- Sample TIC agreement templates (PDF)
- Links to state-by-state TIC statutes
- Recommended reading on property co-ownership
