Tenancy in Common refers to a legal agreement that involves two or multiple parties sharing the rights of ownership of a real estate property or a piece of land, whether commercial or residential; every individual party may hold the same or different percentage of the entire property.
While the process is Tenancy in Common, the parties are Tenants in Common.
Tenant in common is one among the three categories of shared ownership, the other two being Joint Tenancy and Tenancy by Entirety. A tenant in common does not serve the right of survivorship, which means, upon the death of any tenant in common, the share of their property passes to their estate, where the property share gains the name of a beneficiary.
Points To Remember
- TIC refers to a legal arrangement involving two or multiple parties that share the ownership of a real estate property or a piece of land.
- A tenant in common may or may not share the same percentage of the property.
- Upon the death of a tenant in common, their part of the property passes over to a chosen beneficiary.
- Tenancy by Entirety and Joint Tenancy are the other two types of tenancies alongside Tenancy in Common.
Example Of A Tenant In Common
As mentioned above, a Tenant in Common is one of the common owners that share the right to the same property with other individuals. Their ownership shares may be the same or different, and they have the freedom to sell off their shares anytime they want.
If this is daunting for you to understand, let me just simplify it more with an easy example.
Let’s say Lewis, Karl, and Perry have bought a property as friends and decide to enter into a tenant in common agreement. Lewis owns 25%, Karl gets 25%, and Perry takes 50% of it, but they are able to use the entire property.
After five years had passed, Lewis decided to sell off his shares to Karl. Now both Karl and Perry own equal shares of the property.
Advantages Of Tenant In Common
Before you get into a TIC agreement, you just have to be aware of the advantages and disadvantages that it serves.
Here are the advantages of a tenant in common agreement:
- Every individual involved in a tenancy in a common agreement is not obliged to invest in equal shares. They have the benefit of having different percentages of property shares and utilizing them accordingly.
- Due to its flexibility, the number of owners involved in the agreement may increase or decrease with time.
Disadvantages Of A Tenant In Common
Everything that has advantages will be contradicted by disadvantages as well.
Here are some of the disadvantages of a tenant in common agreement:
- An owner can sell their part of the share without having to consult with the other owners.
- A TIC lacks survivorship rights; therefore, the rights of the property do not pass over to the other owner upon the demise of any one of the owners.
- Despite having different shares of the property, each owner is equally liable for property tax or associated debts.
- As the property is treated as a single entity, the splitting of liabilities becomes a complex process.
How Does A Tenant In Common Work?
The members of a tenant in a common arrangement share common interests and privileges in every area of the property; however, individual owners may share the same or different portions of the property.
You may create a Tenancy in Common anytime, and a member has the freedom to join as an interest after all the members initially joined. Members may also sell or borrow against their part of the ownership independently.
Although the laws regarding a tenant in common agreement may vary from one state to the other, some common rules include the following:
- Tenants in common may or may not be related. However, an existing relationship will make no such difference.
- It is not compulsory for a tenant in common to live in the property, and no tenant in common has the right to exclude other owners for the same.
- On the demise of a tenant, the rights of their share will pass on to their heirs. This means if Lewis dies, Karl would still have his 25%, and Perry would retain his 50%, but Lewis’ 25% would pass to whoever is the nominee, or to his family, according to law.
- For loan purposes, most of the lenders’ signatures of all parties that hold a part in the TIC property. In simple words, all the property owners must take out the loan together. In case only one party takes the loan, only the portion of that member will act as a security. Hence, the lender will have no rights to seize the entire property in case of an event of default.
Dissolving A Tenant In Common Agreement
One or more members in TIC buy out the other members to disband Tenancy in Common in a joint agreement.
In cases where the members cannot reach an agreement, a voluntary or court-commanded partition action may take place.
In case of legal partition process, the court will divide the property as partition in kind. This will divide the property into parts. Then, it will be individually owned and managed by each party without compelling an individual to sell his part unwillingly.
If the tenants in common refuse to operate together, they have to enter into a partition of property by sale. In such a case, the holdings are sold. Then the proceeds are accordingly divided among the tenants based on their respective property shares.
What Benefit Do You Get From A Tenant In Common Arrangement?
As you know, tenancy in common is an arrangement where multiple owners hold property rights for the same property or land.
A TIC benefits the owner by letting them sell shares according to their comfort without having to consult other owners. It also guarantees that the property share will pass down to their heirs in case of their demise.
The Bottom Line
Tenant in common agreement is one of the three types of ownerships where two or multiple parties share interests in the same property.
The owners share common privileges and interests throughout the property regardless of the financial or proportional share of each member. This was all that I had to provide to you through this article. However, feel free to drop a comment below if you have any more queries. I will be happy to help.