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Tenancy In Common, Explained

Patrick Chism4-minute read

August 23, 2022

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“What the heck does tenants in common mean?!” This is probably the most common question people have when they hear this real estate term for the first time. Once understood though, it’s an important option to have on the table when deciding between the various approaches to achieving homeownership.

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

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Understanding The Different Ways To Own Property

When it comes to owning property, there’s no shortage of ways to define it and achieve it. The four most common types of property ownership are tenancy in severalty, tenancy in common, joint tenancy and tenancy by the entirety. Let’s start with basic definitions of each of these.

  • Tenancy In Severalty: Sounds severe, right? Well, the name is a bit deceiving because all this means is that ownership is by one person or a corporation. You might also see this referred to as sole ownership.
  • Tenancy In Common: 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 of the owners dies, their share is conveyed to their heirs, not the other owners who are still alive.
  • Joint Tenancy: For this type of ownership, 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 with the same deed. Unlike tenancy in common, if one owner of a joint tenancy dies, their interest goes to the other owners.
  • Tenancy By Entirety: This form of ownership is only available to married couples and means the property may not be sold without the agreement of both people. In addition, if one of them dies their interest reverts to their spouse.

What Is ‘Tenancy In Common’ In Real Estate?

So, now that you have the basic definitions of the most common types of ownership, let’s dive into what tenants in common really means. As you have learned here already, tenancy in common is an arrangement where two or more people share ownership rights in a property. When one of them dies, the property passes to that tenant's heirs. Furthermore, each co-owner may control an equal or different percentage 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 have a different share of the ownership.

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

Joint Tenants Vs. Tenants In Common

At this point, you may be unclear on the difference between a tenancy in common and joint tenancy. With joint tenancy, when someone dies, the other remaining tenants inherit their interest in the property, 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.

Pros And Cons Of Tenants In Common

One benefit of buying a home with a tenants in common agreement is that it may make it easier for you to get 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. In addition, sometimes the money-borrowing capacity of one person may be different from another and a tenancy in common allows for combining and streamlining that process. Still, there are some drawbacks as well. Let's take a look at a few pros and cons when it comes to a tenancy in common.

Pros

  • It makes it 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 of the people involved 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. As one example, unmarried couples may be good candidates for a tenancy in common.

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Tenants In Common FAQs

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 others and the tenancy in common is dissolved. Or, if the tenants have different visions on how to use the property or whether to sell it, they must work together to agree how to move forward. If they just can't agree, 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 on their own.

What are the responsibilities of tenants in common?

Nothing out of the ordinary is required of tenants in common except for the usual homeowner responsibilities such as property tax, mortgage payments and any other home repairs needed. All tenants in common are responsible for these financial items. If one person tends to pay for these expenses using their own money, they should always be reimbursed from 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 that was owned by the deceased tenant. Their share of the property will go to their heirs.

What are the disadvantages of tenants in common?

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

The Bottom Line

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.

Get approved to buy a home.

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Patrick Chism

Born and raised on a farm in the Ozarks, Patrick has a knack for making the best out of the worst situations. Where others see flooded farmland, he sees lakefront real estate. Where others see an infestation of bees, he sees free pollination and a upstart honey shop. Patrick’s articles will help you make the most out of the least, maximizing your returns while keeping a close eye on the wallet. When he’s not writing for Rocket Mortgage, Patrick likes hiking, gardening, reading and making healthy foods taste like unhealthy foods.