Tenancy In Common (TIC) In Real Estate Explained

You’ve heard the term tenants in common thrown around in a conversation before, but you weren’t really sure what it meant. Tenant in common is a real estate term, and today we’ll explain what they mean, so next time it comes up, you’ll have a better idea of what the situation entails and add this real estate jargon to your dictionary.

What is Tenancy in Common (TIC)?

Tenancy in Common (TIC) refers to a legal arrangement for which two or more parties share ownership rights in a real estate property or parcel of land without a right of survivorship. Each independent owner may control an equal or different percentage of the total property, whether commercial or residential.

These parties are referred to as tenants in common. Tenants in common will allow each co-owner to choose who will inherit ownership interest upon death. When a common tenant dies, their share of the property passes to their estate, where a beneficiary of the percentage of the parcel may be named.

How Does Tenancy in Common (TIC) Work?

Tenants in common will share the interests and privileges in all areas of the property. But, each tenant can own a percentage or proportional financial share of the property. You and your spouse own 25% of the property, equaling 50%, and your roomie owns 50%.

Tenancy in Common agreements can be executed at any time. An additional individual can join as an interest in a property after the other members have previously entered into a tenancy in common (TIC) arrangement. Each tenant can separately sell or borrow against their portion of ownership if they wish to do so.

What Are Some Pros & Cons of Tenancy in Common (TIC)?

If you’re looking for a way to buy a house but can’t afford it or qualify alone, tenants in common would be ideal. Essentially you’d split the cost of everything, such as deposits and monthly mortgage payments, and when you factor in the cost of maintaining the property (upkeep), which can also make it more budget-friendly than purchasing the property on your own.

Another perk to considering if you should agree to tenancy in common is that, sometimes, one person's money-borrowing power and approval ability for a loan may differ from the other parties involved.

Even though these are some significant advantages, the tenancy in common agreement does have a few disadvantages. For example, all tenants in common will sign and agree to the loan agreement on the property, and in the case of default, the lender may seize the holdings of all tenants. If one or more tenants stop paying their share of the mortgage loan, the other tenants are still responsible for the entire loan payment.

Here’s a list of tenancy in common (TIC) pros and cons:

Pros of tenancy in common include:

• Expands the possibility of buying a property when other arrangements don’t work.
• The number of parties in the tenancy in common agreement could change.
• Multiple parties can own different property shares (split percentages).

Cons of tenancy in common include:

• All tenants are equally liable for debts and property tax.
• One of the tenants in common has the power to force the sale of the property.
• Property rights will not automatically go to you if one of the tenants in common is deceased while under the agreement.
• If one of the tenants stops contributing their share of debt or property tax, the other tenants in common must make up the difference and are held liable for the balance owed.

What Happens if One of the Tenants in Common Were to Die?

If one of the tenants in common dies, the deceased tenant’s ownership of their share would be passed on to that tenant’s estate and handled by the deceased tenant’s will or testament. Any surviving tenants in common would continue own and occupy the property.

Can Tenants in Common Transfer Their Property Interests to Other Parties?

Absolutely! Tenants in common can transfer their property interests to another individual at any time during the tenant's life. Transfers can be done in a variety of ways, such as:

• Through a sale
• Gifted
• Passed down through a last will

But, in most cases, a tenant in common can’t transfer another tenant’s property of interest.

What are Common Disputes Among Tenants in Common?

Here's a list of potential conflicts that are likely to arise with tenants in common:

• Parking rights
• Use of common areas for storage
• Quiet hours and other nuisance-related issues include noise complaints, light interference, etc.
• Inequitable financing
• Choosing to sell one’s fractional share in the underlying property
• Selling one’s fractional share to a purchaser that some of the other co-tenants do not approve
• (precisely, situations where the co-tenants do not support the sale despite having any reasonable justification for selling)
• Disputes over the right to rent a dwelling unit to a given tenant
• Conflicts over the decisions made by the authorized manager of the property

Now that you’ve seen the good, the bad, and the ugly parts of a tenant in common agreement, let’s cover the amount you should know in case you get stuck in a sticky situation like a dispute with your tenant in common.

Can a Tenancy In Common (TIC) be Dissolved or Terminated?

The quick answer is yes! And believe it or not, a common tenancy can be dissolved or terminated in many different ways. Keep in mind that tenancy in common laws will vary by state, but you can dissolve your current tenancy in common in one of the following ways:

1. By an agreement between all tenants in common
2. By a court-ordered partition, which is either a physical division of the land or a partition by sale
3. By ouster, meaning any act which unlawfully deprives a tenant in common of their share of the property.

These processes can be voluntary or court-ordered, depending on how well everyone is getting along. If the tenants in common 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.

Would I Need to Speak to a Lawyer about Disputes with Tenants in Common?

You’ll be relieved to hear the answer is yes. Receiving assistance from an experienced property lawyer for tenancy in common disputes would be a good idea. Suppose you have questions regarding tenancy in common rules or regulations. A lawyer can help during the tenancy in common process, even before the agreement is made.

Property lawyers can assist in drafting the agreement, handle the distribution of property shares, and represent you in court should any disputes arise from the contract with the other tenants in common. Are you considering selling or gifting your common interest? Your lawyer can also help you with that transaction and walk you through the process of judicial partition or ouster and will ensure you receive your share when your tenancy in common is terminated.

Tenancy in Common Final Thoughts:

We’re living in a time when inflation is the highest in sixty years. So in some cases, it would make sense to proceed with a tenant in common agreement from a financial aspect. Are you looking to go into business with a business partner? Tenants in common contract could also be beneficial for both parties. Make sure it’s something you’re sure of, and continue to educate yourself so you don’t get stuck in a pickle. If you do, just know that a tenancy in common can be dissolved, and your future can still be bright!

If you’re considering refinancing or buying a property, scope out these resources before you do!

• Mortgage Recasting Explained: Why You Might Want to Do It
• Best First-Time Home Buyer Tips of 2023
• Tap Into Your Home’s Equity With a Cash-Out Refinance or a Home Equity Line of Credit (HELOC) and Get Money for the Things You Need