Tenancy In Common: What It Is And How It Works

Tenancy in common and tenants in common might be real estate terms you’ve never heard, even if you’re already a homeowner. Once understood, though, tenancy in common is an important option to consider when deciding between the various approaches to achieving homeownership.

In this article, we’ll explore what tenancy in common (TIC) means, how it works and whether it’s right for you.

Tenancy in common in real estate is an arrangement in which two or more people share ownership rights of a property. When one of them dies, the property passes to that tenant’s beneficiaries or heirs.

Furthermore, each co-owner may control an equal or different percentage, or share, of the total property. When two or more people own property as tenants in common, all areas of the property are owned equally by the group, even if tenants control different shares. So, tenants in common are entitled to use and occupy the entire property regardless of the share size they control.

For example, you and your partner/significant other may both own 25% of a property, while your third roommate may own 50%. So, the percentages of ownership are different, but none of you can claim ownership to any specific part of the property. Each of you enjoys equal access to the whole property.

When it comes to owning property, there’s no shortage of ways to define it and achieve it. Tenancy in common is one of the most common types of property ownership. The others are tenancy in severalty, joint tenancy and tenancy by entirety.

Let’s start with basic definitions of each and how they compare.

Tenancy In Common

As mentioned, this refers to equal or unequal undivided ownership between two or more people. A key characteristic of this type of ownership is that if one owner dies, their share is conveyed to their beneficiaries or heirs, not to the surviving owners.

Tenancy In Severalty

The name may sound harsh, but all it means is ownership of a property by one person or one corporation. “Severalty” comes from the idea that the owner is severed from other owners.

You might also see tenancy in severalty referred to as sole ownership.

Joint Tenancy

For a joint tenancy, four elements need to be present: interest, possession, time and title. To be more specific, each owner must have the same interest in the property, all owners must hold an undivided interest, all owners must receive their interest at the same time and all owners must acquire their interest through the same deed.

Unlike tenancy in common, if one joint tenant dies, their interest goes to the other owners, otherwise known as right of survivorship. It’s important to note that a joint tenancy also allows owners to sell their interests (while living, of course). If one owner sells, the tenancy is converted to a tenancy in common.

Tenancy By Entirety

This form of ownership is available only to married couples. In a tenancy by entirety situation, the property may not be sold without the agreement of both people.

Additionally, if one of them dies, their interest reverts to their spouse.

One benefit of buying a home with a tenancy in common agreement is that it may make it easier for you to purchase a home. Dividing up the necessary deposits and payments while splitting the cost of maintaining the property can make it more cost-effective than just buying property alone.

Additionally, sometimes one person’s money-borrowing capacity may differ from that of another, and a tenancy in common allows for combining and streamlining that process. Still, there are some drawbacks. Let's take a look at a few pros and cons when it comes to a tenancy in common.

Pros

• It’s possible to buy property when other arrangements won’t work.
• The number of people involved can change over time.
• Different people involved can own different shares of the property.

Cons

• All tenants are equally liable for debts and property tax.
• It only takes one tenant to force the sale of the property.
• You don't automatically get the property rights of a fellow tenant when they die.

So, as you review these pros and cons, it becomes clearer who might benefit from buying property this way. For example, unmarried couples may be good candidates for a tenancy in common.

It’s possible this is the first time you’ve looked into tenancy in common or considered being tenants in common. You might still have some questions, and we’re here for you with the answers.

Can tenancy in common be dissolved?

Yes, and it can happen in a number of ways. One or more of the people involved may buy out the others, and the tenancy in common is dissolved. Or, if the tenants can’t agree on how to use the property or whether to sell it, a partition action (dividing up the property and ownership) may be the next step.

This process can be voluntary or court-ordered, depending on how well everyone is getting along. A court will divide the property among all the people involved in a way that allows everyone to move forward separately.

What are the responsibilities of tenants in common?

All tenants in common are responsible for the usual homeowner responsibilities such as property tax, mortgage payments and any other home repairs needed. If one person tends to pay for these expenses using their own money, they should always be reimbursed by the other tenants.

What happens when a tenant dies?

It’s important to note that the other tenants in the agreement do not automatically gain ownership of the property owned by the deceased tenant. The deceased tenant’s share of the property will go to their beneficiaries or heirs.

It’s likely the property will need to go through the probate process, as it’s considered part of the deceased’s estate. Probate court can be expensive and time-consuming, so tenants in common should consider this before entering into a TIC agreement.

What are the disadvantages of tenants in common?

One disadvantage of being tenants in common is that all parties involved are responsible for monthly bills and any other property payments. Another obvious downside is the chance that one tenant will want to sell the property at some point, which can make it difficult for the others involved in the agreement.

Tenancies in common can no doubt be complicated, but having a basic understanding of how they work is useful in case you benefit from this type of living and financial arrangement.

If you’re looking to make a home purchase anytime soon, get preapproved today. You can also give us a call at (833) 326-6018.