What is Tenancy in Common?

Tenancy in common is a kind of fractional ownership where people share a property title. There can be as few as two owners or as many as you want — there’s no limit to the number of individuals that hold a title.

Understanding tenancy in common

Although “tenant” is a term typically ascribed to renters, tenancy in common (TIC) is all about the ownership of a commercial or residential property. Any number of individuals can be shared owners in a TIC — as few as two people, dozens ... even a hundred or more! Owners can be related or unrelated, but either way, buying as a group empowers co-owners to pool their capital and afford bigger investments. While individual investments may be different, owners share the property equally. No one person or company is in charge. This means that while one owner might have a 50% interest share in the property, they have all the same usage rights as a tenant with 10% ownership. Owning more interest in the home doesn’t necessarily mean you’re entitled to more time, income, or benefits of the property. Some TIC agreements vary, but most are self-managed in this way with undivided property ownership, and their deeds show only their ownership percentages.Selling and inheritance are somewhat unique. Tenants in common do not have survivorship rights, so in the event that a tenant dies, their shares would pass to an heir instead of the remaining co-owners. Example: The Jones, Richmond and Stevens families share a mountain cabin. The Jones family holds 1/2 of the property value, while the Richmond and Stevens families each hold 1/4 ownership. They visit the cabin throughout the years with equal usage rights, and each family plans to pass down their ownership rights to their kids. From there, the heirs can decide to sell the property and distribute the proceeds in line with their ownership interests or keep their shares.

Takeaways

In short, a tenancy in common:

Describes fractional ownership where two or more people hold a title to a property
Allows for different ownership interests — shares can be equal or unequal percentages
Passes to an owner’s heir, should a tenant die
Is undivided and self-managed by the owner group

Individual states regulate real estate differently, so it is always best practice to review state rules and regulations when making real estate decisions.

In more detail:

How do you form a tenancy in common?

Technically, all it takes to form a TIC is for one owner to transfer a deed to a group of co-owners. A “tenancy in common agreement” also outlines what ownership percentage belongs to each tenant.

Can you finance a tenancy in common?

Yes, you can finance a TIC, and you have two options. Either you take out the loan together, or each owner has an individual loan. If you opt to finance as a group, each person signs the mortgage. In that instance, if one person defaults, the rest of the co-owners are on the hook for payments.

How do you transfer your shares in a tenancy in common?

Shares can be bought out by fellow tenants, sold to a new owner or willed to an heir.

What happens if a tenant wants to sell?

Owners can sell or will their shares independently. There are a couple sticking points when one person wants to sell a property and other owners don’t. When a property can’t be divided equally, it leads to a forced sale through a court order called a partition action. Co-tenants can always opt to buy out any owner who wants to sell. If the share is not being sold to an existing tenant, the new buyer must be identified, which could pose a privacy issue.

How do you dissolve a tenancy in common?

Selling a property dissolves the tenancy in common. This happens if all the owners agree to sell and then split proceeds according to ownership interest percentages. If there’s a dispute over whether to sell, one owner can file a partition action so that the investment can be liquidated to the tenants.

How are joint tenancy and tenancy in common different?

Another type of shared ownership is called joint tenancy. Joint tenancy is all about equality. Tenants hold equal percentage ownership, get their deeds at the same time and relinquish their rights to co-owners upon their death (survivorship rights). By contrast, TICs can have equal or unequal interests in their property. They can also come into ownership at varying times in the life of the property and do not have survivorship rights. Instead, their shares are willed to a living heir who joins the existing owner group in their stead.

How does ownership work for Pacaso?

You own 1/8 to 1/2 of your Pacaso with as many as seven other owners. Pacaso offers fully managed LLC co-ownership designed to make second home co-ownership straightforward and turnkey. Pacaso sets up the property-specific LLC, and handles all the maintenance, management and day-to-day updates your home might need. View our luxury home listings and see the benefits of owning a second home with Pacaso.