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Tenancy In Common: Defined And Explained

4-Minute Read
Published on August 5, 2020
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Property can be owned in a variety of ways. Some examples include sole ownership, joint tenancy or even community property. There are different ways of owning property because the parties involved in the purchase of land may want it owned in a specific way at the time of purchase or because they inherited it that way.

Each type of ownership has very exacting legal ramifications and rights. Understanding exactly what a property owner owns and what can be done with their share of the property will help avoid confusion and headaches. In this post, we’ll help you understand what tenancy in common is and the rights of each person who owns a property with 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.

Tenancy In Common Vs. Joint Tenancy

TIC is different from joint tenancy, although the two are often confused with each other. Joint tenants of a property all own equal shares. This means that if there are two owners of a property, they would both own 50%, if there are three owners, each would own 33.33%, and so on.

Another difference between TIC and joint tenancy is estate taxes. Under joint tenancy, if Person A and Person B own a home together and Person A dies, Person B would automatically inherit Person A’s interest in the home without any estate tax owed. In TIC, if Person A dies, Person B doesn’t have automatic rights to Person A’s share of the property. Person A can create a will to give it to a descendant, or their heirs will inherit the property.

For example, let’s say a couple gets married and chooses to purchase a home together. Most married couples purchase homes as joint tenants because they both intend to live a long, happy life together and want to own 50% of the property. They’ll also benefit from joint tenancy because when one person dies, the other will automatically inherit the other’s half of the property. They likely wouldn’t want to have TIC because if one person dies, they’d be able to leave their half of the property to someone else. Joint tenancy is helpful in estate planning because it’s an easy way to transfer ownership of the property and helps to avoid any estate taxes.

In another example, let’s assume that Person A and Person B are friends and decide to purchase a vacation home together. They decide that it’s best if they both own 50% of the property. They can choose to purchase the property as joint tenants or as tenants in common. The benefits of purchasing the property as joint tenants would be that when one dies, the other will automatically own the entire property. However, if Person A and Person B have families who want to use the vacation home for years to come, then they might choose to have a TIC. This will allow them to leave their interest in the property to a descendant.

What Happens In The Case Of Disputes Between Tenants?

It’s not uncommon for tenants to have disagreements over a property. While many people try to build any foreseeable conflicts in their tenancy agreement, not every disagreement can be prevented. If someone wants to leave a TIC agreement, tenants in common can go to court to ask for a partition in kind of the property, which means the property will be split by the wishes of the tenants and the tenancy dissolved.

There are a few ways that this kind of situation may resolve. For example, a court can partition the property following the parties’ wishes if they can agree. This might mean that one of the owners chooses to sell their portion of the property.

If they can’t find a common ground and own the property as tenants in common, the court can order the partition by sale. This means that the property would be sold and the proceeds split according to the percentage of interest held by each owner. In other words, if the property was owned evenly by two parties and it was sold, both people would receive 50% of the sale price of the property upon its sale.

It’s important to note that joint tenants can’t seek partition. If two parties in joint tenancy have an unresolvable situation, the only way for a joint tenant to get out of owning the property is for the property to be sold. This is often the case in divorces, as the house or property will be sold and both owners receive their equal portion of the sale price.

Summary: Know Your Ownership Rights

TIC and joint tenancy are often confused because they have many similarities. It’s important to understand the differences between them before entering either kind of ownership. This will help to protect you in the case of any future disputes.

If you’re interested in learning more about property ownership, be sure to check out the Learning Center. There, you’ll find more about buying and selling homes as well as information on home loans, qualifications and more.

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