What is Tenancy in Common?

Tenancy in common (TIC) is a form of property ownership where two or more parties hold a title to a property and share ownership rights.  The difference between tenancy in common and a join tenancy is the way ownership gets passed along when one owner dies.

With joint tenancy agreements, property ownership passes to the surviving owner or owners, and in a tenancy in common the ownership of the dead party goes into their estate. The other difference is that a tenancy in common relationship allows for unequal shares in the property.  And good news, tenancy in common agreements are easy to make legal.  You just need to have all parties sign and notarize the agreement.

The ease of a tenancy in common is one of the reasons it is a popular way to get into real estate investing or to buy a vacation home.  Another is that you split the costs of buying the property and ownership making a tenancy in common less risky than paying for everything on your own.  But you also split the rewards.  And the ownership can be easily transferred or borrowed against.  

Tenants in common can be as small as two people (like a married couple) and as many people as you want to make it.  As a tenant in common, you have rights to the property regardless of how large or small your ownership stake is. Your ownership rights include the ability to access the property whenever you like, and that you can sell/transfer your ownership without consulting the other tenants in common. 

Another advantage to a tenancy in common agreement is that you can split property maintenance costs and taxes.  And last, but not least, because your costs to purchase the property are reduced, you likely won’t have to go through the long and stressful process of taking a large loan to finance the property.  And as we mentioned above, there are some risks to think about before entering a tenancy in common agreement.

The first negative with tenancy in common is that it only takes one owner to force the sale of the property.  And all owners are also equally liable for debts, property taxes, and maintaining the property.  You also can end up with co-tenants you didn’t want if one of the owners sells their stake.  This can strain friendships and business relationships.  But good news, it is easy to end a tenancy in common, so you don’t have to lose your relationships if things turn sour.

Three ways to end a tenancy in common agreement:

• The owners buy each other out (which dissolves the tenancy in common)
• A partition action (dividing up the property and ownership)
• A partition sale (ownership is sold and the proceeds divided among the owners)

Whether you’re looking to buy a vacation property or start your career in real estate investing, a tenancy in common agreement is a good way to do this without having to spend a ton of money or take on a larger financial risk.  If you’d like more real estate tips like these, subscribe to our newsletter below.