Tenancy In Common: What Is TIC And How Does It Work?
When you buy a home or other type of real property, you’ll need to decide how you want to own it.
If you’re buying a property on your own, this is fairly simple, as you’ll be the sole owner and sole title holder. But if you’re buying a property with another person (or a group of people), you’ll need to decide how your legal ownership of the property will be structured.
One way that co-owners, especially unmarried couples or groups of people, can hold title is called tenancy in common.
What Is Tenancy In Common (TIC)?
Tenancy in common (TIC) is one type of property ownership. The two or more owners of a property enjoy equal rights to the property and can dispose of or will their individual ownership. Tenants in common have undivided access to all areas of the property, even if they own different percentages of the property.
For example, let’s say that a property has three owners with TIC. Person A owns 50% of the property, Person B owns 25% and Person C owns the final 25%. All three owners can use all parts of the property equally. They can also dispose of their ownership, borrow against the equity they have in their percentage of the property and bequeath their property share. Therefore, Person C could sell their 25% of a property to Person D and Person A and Person B would not have a say in Person C’s decision.
What Is Tenancy In Common?
Tenancy in common is a way for two or more co-owners of a property to hold title. It’s a type of concurrent estate or co-ownership.
“Title” is a legal concept that refers to the rights surrounding the ownership and use of a property. When you hold title on a property, you own that property.
There are a few different ways you can co-own a property with one or more people, and which one is right for you depends on your goals and needs.
With tenancy in common, all co-owners enjoy equal rights to the property and have the right to dispose of or will their individual ownership shares. Tenants in common have full access to all areas of the property, even if their ownership percentages are unequal.
Other types of co-ownership include: joint tenancy, where two or more people own equal shares of a property; tenancy by the entirety, which is a type of ownership utilized by married couples in some states that allows them both to hold 100% interest in the property as a single legal entity; and community property, which is a type of ownership utilized by married couples in states that have community property laws, which dictate that any property purchased by one spouse during a marriage belongs equally to both spouses.
Unlike some other types of co-ownership, tenancy in common doesn’t include right of survivorship, which means that when you die, your ownership share will go to your estate and be passed on to your heirs, rather than being passed to the surviving co-owners.
How A Tenants In Common Agreement Works
Let’s go over what this type of ownership looks like, how it works and what to do when it doesn’t work out.
Becoming Tenants In Common
Tenancy in common is, well, common among unmarried couples and other folks who want to purchase property together – for example, a group of friends splitting the cost to buy a lake house they’ll all share.
Having multiple people buying together can be helpful during the mortgage approval process, where you can use your combined incomes and assets to help you qualify and make a sufficient down payment.
Tenants in common must decide how their ownership interest will be split up. If they all contribute equally to the purchase, they might each have equal shares. For example, if four friends buy a house together, they could each take a 25% share in the property. Alternatively, they might have unequal shares if one person contributed more to the purchase than another. So, one friend might have a 50% share, another a 30% share while the other two both take a 10% share.
Living As Tenants In Common
Once the property is purchased, regardless of the size of their individual shares, each co-owner has the right to occupy the entire property.
So, if you and your partner own your home as tenants in common and both have a 50% share in the property, you both still have a right to the full property; you don’t have to physically split up the home and determine who gets the northern half of the house and who gets the southern half. Your ownership interest just means that when you sell the home, you’re both entitled to 50% of the proceeds.
As tenants in common, you both also have the right to do as you wish with your interest in the home. You can sell or gift it to someone else or bequeath it to whomever you’d like in your will.
Keep in mind, however, that when it comes to certain debts and obligations, such as property taxes, your individual ownership interest doesn’t protect you from default, and all tenants in common may be fully liable if one person stops paying.
Consider this example: three people buy a home together, all signing on as co-borrowers on the mortgage. Mary has a 50% share in the property, while John and Jane both have 25% shares. If Mary decides to skip town and stop paying her part of the mortgage, John and Jane will still be fully liable for the loan, and if they don’t make their monthly payments in full, the house could be foreclosed on and their credit would likely suffer. When it comes time to pay property taxes, they’re responsible for that full bill as well.
Dissolving A TIC Agreement
Sometimes, co-owning a property with others can be fraught and differences can be irreconcilable. If you and your co-owners can’t agree on what to do with a property, you may find yourself needing to get out of your tenancy in common.
If you want to terminate or leave your tenancy in common, you’ll typically need to either sell your share (either to the remaining co-owners or to someone who will then replace you in the tenancy in common) or sell the home.
If your co-owners don’t agree to selling the home, you can file a partition action, which asks the court to divide the property up among the co-owners. If you’re trying to divide property that can’t be physically split up (such as a home), the court will order the sale of the property and the proceeds will be divided according to ownership interest.
For example: Kate, Hannah and Polly co-own their home together. Polly has decided that she’d like to move out and take the cash associated with her share in the home to purchase another home on her own. However, Kate and Hannah like living together and don’t want to sell their home.
Kate and Hannah might consider buying out Polly’s share. So, if she has a 50% share on a $200,000 home, they’ll pay her $100,000 to buy out her interest in the property.
Unfortunately, Kate and Hannah don’t have enough cash to buy Polly out, and Polly is anxious to leave. Polly tries to find someone who will buy her share and take over her ownership interest – meaning that this new person would become co-owners with Kate and Hannah – but no one is interested.
Kate and Hannah refuse to put the home up for sale, so Polly files a partition action, asking the court to force the sale of the property.
Alternately, let’s say that Polly decides she wants to continue living in the home, but by herself as the sole owner. Kate and Hannah agree to sell Polly their shares, and Polly becomes the sole owner of the property.
Tenancy In Common Vs. Joint Tenancy
Tenancy in common is similar to joint tenancy, though there are some key differences.
Joint tenancy allows co-ownership between two or more people. Unlike tenancy in common, however, joint tenancy requires that each co-owner’s shares are equal.
Joint tenancy includes a right of survivorship, meaning that when one co-owner dies, their interest is automatically passed to the remaining co-owner(s). Because of this, this type of ownership is popular with married couples. However, if you’d rather your ownership interest go to your heirs, a tenancy in common would likely be a better choice for you.
Pros And Cons Of Tenancy In Common
- Freedom to sell or gift your share as you like
- Control over who inherits your ownership interest
- Allows different ownership percentages
- Each owner has full rights to the entire property, regardless of ownership percentage
- Allows you to split the cost of property ownership among multiple owners
- Sale of the property can be forced without your approval
- Co-owners’ interest can be sold, potentially forcing you to be a co-owner with someone you don’t know
- Lack of right of survivorship
Is Tenancy In Common For You?
Whether tenancy in common makes sense for you as a property owner will depend on your goals and how comfortable you are with the flexibility it allows.
While you may like that you have the ability to sell your share as you see fit, you may like that flexibility a lot less when your co-owner decides to sell their share to someone you don’t want to co-own a home with. And being able to will your share to an heir might seem great initially, until your co-owner passes before you do and their heir wants to sell the home and collect the proceeds. It can be a double-edged sword.
The Bottom Line: Not All Concurrent Estates Are Equal
Whether you’re an unmarried couple, a married couple, a group of investors or a group of friends looking to purchase a property together, it’s important to understand the different ways to hold title and how each type impacts your ability to sell, gift or will your ownership interest on a property.
If you’re ready to begin the home buying process, you can get started online with Rocket Mortgage®.