What is tenancy in common?

Contrary to what the name might imply, tenancy in common doesn’t have anything to do with living together. Rather, it is a legal arrangement, a type of co-ownership in real estate or land. Often abbreviated to TIC, tenancy in common allows multiple people to simultaneously own shares in the same property and bequeath that ownership stake to an heir. These people, and sometimes the entire arrangement, are known as tenants in common.

In many places, tenancy in common is the predominant method of jointly owning real estate. For example, “in California, tenancy in common is the default way to hold property,” says Sacramento attorney Elizabeth Carlsen. It may even be the default assumption that multiple owners are in a TIC agreement when they purchase a home or other property together, unless their contract specifically states otherwise. Read on to learn more about tenancy in common and how it works.

What is tenancy in common?

Tenancy in common is a form of “concurrent estate” — in other words, it’s a way to allow more than one person to co-own a specific property. The exact way TIC works differs by state, but it usually involves certain key elements:

• There must be at least two parties involved, but there is no maximum limit to the number of people who can own the property together. Of course, there is an inverse relationship between the number of owners and the percentage of ownership available to each party. The more people included, the smaller the slice of real estate pie for each person.
• All TIC parties don’t necessarily have the same degree of ownership. For example, one party may own 25 percent of a property while the other owns 75 percent.
• The arrangement doesn’t have to be permanent. “This type of ownership can be dissolved or changed, usually by the agreement of all parties,” Carlsen says.

The terms of a TIC agreement may also vary on a case-by-case basis. Under some TIC contracts, you can sell your share of the property without permission from the other parties involved, while other contracts may include language that says you can’t sell your interest without the approval of the other owners. If it’s the latter, having a large number of owners could become quite a headache.

Likewise, some TIC agreements allow all parties to access the property at any time, while others may place restrictions on how and when owners can enter and/or use the property. Your rights and responsibilities will come down to how you choose to word the legal contract, so make sure a real estate attorney reviews it before you sign on the dotted line.

One more unique feature of tenancy in common: the distribution of the shares upon the death of one of the parties. “When one tenant dies, their ownership interest does not dissolve,” Carlsen says. “Therefore, if you own one-quarter of a house with three other friends, you can leave your quarter interest to someone else upon your death.” However, as Carlsen warns, “Bringing in a new owner may require changing the original ownership scheme. Tenancy in common can be a mess when new individuals hold the property.”

Other types of shared property ownership

Aside from tenancy in common, there are two other primary ways for multiple parties to own a residential property.

Joint tenancy

There are three main differences between TIC and joint tenancy.

1. In a joint tenancy agreement, all parties take equal shares: If there are five owners, each party owns 20 percent of the property, for example. A tenancy in common arrangement does not require this.
2. All owners in a joint tenancy must take possession of the property deed at the same time. In a TIC, some owners may buy in or take control of a share at a later date.
3. Joint-tenancy shares can’t be bequeathed to another person. “A joint tenant’s interest cannot be passed to someone other than the other owner(s) upon death,” Carlsen says. “For example, if two sisters own property as joint tenants, and one sister dies, the living sister now owns the entire property.”

Tenancy in entirety

Also called tenancy by the entirety, this type of ownership is usually exclusive to married couples. Each spouse has equal rights to occupy the property, and if one dies, the interest automatically transfers to the other. (This is often called “right of survivorship.”) Tenants in entirety can’t transfer their ownership without consent from the other tenant.

Pros and cons of tenancy in common

There are potential advantages and disadvantages related to TIC agreements. Here are a few things to keep in mind if you’re considering this type of shared ownership.

Pros

• It can make property ownership possible if you can’t afford a home on your own.
• It’s possible to bequeath your share to someone else upon your death.
• You share liabilities and property taxes with your co-owners.

Cons

• If another tenant bequeaths their shares, you may wind up co-owning with someone you don’t know (or care for).
• You may not be able to sell your shares without the consent of the other owners.
• You can’t claim ownership to specific parts of the property, even if you own a majority percentage.