Tenancy in common: Definition, pros, cons and responsibilities
Quick Insights
- Tenancy in common (TIC) allows two or more people to own a property together while holding different ownership percentages.
- TIC co-owners generally have the flexibility to transfer their ownership interests, although agreements and mortgage requirements may place restrictions on transfers.
- Tenancy in common offers flexible co-ownership, but buyers should understand how ownership rights, financial responsibilities and transfers work before choosing this arrangement. Alternatives include joint tenancy and tenancy by entirety.
In real estate, tenancy in common is defined as split ownership of a property between two or more people. It’s a common structure when multiple people invest to purchase a home together.
In this article, we’ll look at how this works in practice, co-owner responsibilities, and the pros and cons. We’ll also cover potential alternatives worth considering.
What is tenancy in common?
Tenancy in common (TIC) is an agreement that divides property ownership. Partners entering the agreement can be referred to as co-owners or tenants. Rules vary by state and by situation, but typically a TIC agreement requires at least two co-owners. In many cases, there isn’t a specific legal limit on how many co-owners can join.
There are practical limits, however. As more co-owners are involved in crafting the agreement, the more complicated things can become.
How tenancy in common works
TIC agreements divide ownership stakes of a property into percentages. These percentages control how home equity is allocated.
For example, two co-owners entering a TIC agreement could split ownership into equal 50% stakes, but equal shares aren’t required. One partner could own 20% while the other owns 80%, or any other agreed-upon split.
In many states, tenancy in common owners generally have the right to use and possess the whole property, regardless of their ownership percentage. However, a written agreement or court order may allocate use of the property differently.
Co-owner responsibilities
Under a TIC agreement, co-owners share the responsibilities of homeownership. These are some of the most important ones:
- Mortgage payments
- Property taxes
- Home insurance
- Repairs and maintenance
Mortgage and property tax responsibilities depend on several factors. If multiple people sign the mortgage note, they may be jointly responsible for repayment, regardless of their ownership percentages. Property tax responsibility can vary based on state and local rules, and unpaid property taxes can lead to liens and other consequences.
Tenancy in common pros and cons
Here are some advantages and disadvantages of TIC arrangements worth considering before entering one.
Pros
- More buying power: Co-owners can purchase a more expensive property by pooling their resources.
- Flexible ownership stake: Percentages don’t have to be divided equally. State law often doesn’t set a specific maximum number of co-owners, but practical and financing limits may apply, including lender or loan-program requirements.
- Individual control: Co-owners generally have flexibility to sell or transfer their ownership interest without approval from the other co-owner(s). However, a tenancy in common agreement may restrict transfers. If there’s a mortgage, transferring an ownership interest could also have loan implications, so review your loan documents and speak with your mortgage lender or servicer.
- Estate planning: A co-owner can help ensure their stake of the property passes to their heirs through a will or trust.
Cons
- Equal liability: All co-owners are equally liable for debts and property taxes, regardless of how small their ownership stake is.
- Potential conflicts: Multiple parties can have different opinions regarding property management and whether to sell or lease the property. This can create stressful situations and damage relationships.
- Lack of control: If a co-owner wants to sell their stake, they’re free to do so unless prohibited by the agreement. This could bring in an unknown co-owner.
- Partition by sale risk: In disputes where voluntary agreements can’t be reached between co-owners, a court can mandate the property be sold and proceeds divided between the co-owners.
- No right of survivorship: If one co-owner dies, their share doesn’t automatically revert to the other co-owner(s). If there’s no will, the probate process will determine what happens with their share.
Alternatives to tenancy in common
TIC agreements aren’t the only way for multiple parties to co-own property. Here are some other popular structures.
Joint tenancy
Joint tenancy is similar to TIC but with some key differences. First, the ownership stakes must be an equal percentage. Co-owners must also take ownership of the property at the same time. If one of the co-owners dies, their share passes to the surviving co-owner(s) through the right of survivorship.
Selling the property is also slightly different. A co-owner can sell their share, but the agreement will then be converted to a TIC agreement. Also, the right of survivorship only applies to the original agreement, including the original co-owners.
Tenancy by entirety
Tenancy by entirety is only available for married couples. The agreement creates right of survivorship between the spouses. If one spouse dies, the surviving spouse receives full ownership of the property. However, survivorship rights can be affected by how an ownership interest is transferred and how title is held after the transfer, and the rules vary by state.
Each spouse has full legal rights to the property, and they must agree on how to manage it. One spouse can’t decide to sell without the approval of the other.
Dissolving a tenancy in common agreement
When the time comes to dissolve a TIC agreement, there are a few different ways it can end.
- Buy-out: One co-owner can buy out the others to become the sole owner of the property.
- Property sale: The co-owners can sell the property and divide the profits based on their shares.
- Partition in kind: A court divides the property into pieces that are individually owned and managed by the co-owners. Co-owners aren’t required to sell their portion.
- Partition by sale: A court mandates that the property be sold. Each co-owner will receive a percentage of the proceeds based on their ownership stake.
In summary
TIC agreements can be a great way to buy into property, especially if you can’t afford to purchase a home on your own. Just be mindful of how the mechanics are structured, and understand that you’ll be equally liable for the mortgage and property taxes, regardless of your ownership stake. Before entering a binding legal agreement, it might be helpful to consult a real estate professional or title company.
If you want to purchase a home and implement a TIC agreement, a smart next step would be to speak with a home lending advisor. They can also help you figure out what type of loan works for you.
Tenancy in common FAQs
What happens if one owner wants to sell?
They have the right to do so, even without the approval of the other co-owner(s). Whoever purchases their share would enter into a TIC agreement with the remaining co-owner(s).
Does tenancy in common work for investment properties?
Yes, TIC agreements can be used for investment properties. It’s a common practice, allowing multiple investors to spread out the expense of purchasing a property.
Is tenancy in common better than joint tenancy?
TIC agreements offer more flexibility. Specifically, co-owners can buy into the property at different times and own different percentages. They can also pass their shares to relatives through a will or trust.
What happens if a co-owner doesn’t pay their share of the mortgage?
All co-owners share equal liability for the mortgage and property taxes. The co-owner(s) could either cover the shortfall for the other co-owner or risk foreclosure if the debts aren’t paid. Failure to pay the mortgage would also likely hurt the co-owners' credit scores.
