Tenancy in Common (TIC)

What Is Tenancy in Common (TIC)?

Tenancy in common (TIC) is an arrangement in which two or more people share ownership rights in a property or parcel of land. Each independent owner may control an equal or different percentage of the total property, which can be commercial or residential. When a tenant in common dies, their share of the property passes to their estate; they have the right to leave it to any beneficiary they choose.

How Tenancy in Common (TIC) Works

When two or more people own property as tenants in common (TIC), they all have equitable interests and privileges in all areas of that property. However, the co-tenants can have a different share of ownership interests. For example, Sarah and Debbie may each own 25% of a property, while Leticia owns 50%.

Tenancy in common agreements can 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 arrangement. 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 bring Debbie into the arrangement, splitting her 50% portion with her. That created a group of TICs with a 25/25/50 split.

The members of the agreement can also independently sell or borrow against their portion of ownership.

While the percentage the property owned varies, a tenant in common cannot claim ownership to any specific part of the property.

Disposing of a Tenancy in Common

One or more co-tenants can buy out other members to dissolve the tenancy in common. If the co-tenants develop opposing interests or directions for the property's use or improvement, or they 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.

If the co-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 co-tenants according to their respective interests in the property.

Property Taxes With Tenancy in Common (TIC)

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 taxbill.

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 paid, co-tenants can deduct that payment from their income tax filings. If the taxing jurisdiction followed joint-and-several liability, each co-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.

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, and additions or removals of any member of the group are much more significant. 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 want to buy out the others, the property technically has to be sold and the proceeds distributed equally among owners. Joint tenancy members can 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, in which each spouse has an equal and undivided interest in the property.

Contract terms for tenants in common are detailed in the deed, title, or other legally binding property ownership documents.

Pros and Cons of a Tenancy in Common (TIC)

Buying a home with a family member, friend or business partner as tenants in common may make it easier to enter the real estate market. 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.

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 gives the co-tenant control over their share. If a co-tenant dies without a will, their 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 property. In California, these owners have the status of tenants in common unless their agreement or contract expressly states otherwise, such as setting up a partnership or joint tenancy.

A 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 — the changing of the ownership structure of condominium properties into a tenancy-in-common arrangement — 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 Does Tenancy in Common (TIC) Mean?

Tenancy in common (TIC) refers to 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 details of these parties’ arrangement would differ from one case to the next, depending on their individual purchase contracts and legal agreements. But 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 Is the Difference Between a TIC and Joint Tenancy?

A TIC and a joint tenancy are similar concepts, in that they both refer to situations in which two or more parties wish to own property together. The main difference between them is in how the parties handle a situation in which one party needs to sell their share of ownership. In a TIC, either party can sell their share at any time, but in a joint tenancy situation, the sale would lead to the end of the agreement.

What Happens When One of the Tenants in Common Dies?

One of the advantages of a TIC is that it is able to withstand a scenario in which one of the tenants dies. In that situation, the ownership stake of the now-deceased tenant would be passed on to that tenant’s estate. It would then be handled in accordance with the deceased tenant’s will. In the meantime, any surviving tenants would be free to continue owning and occupying the property. By contrast, if a co-tenant's death were to occur in a joint tenancy arrangement, the surviving tenant or tenants would automatically inherit the ownership stake of the deceased.