Tenancy In Common, Explained

“What the heck is a tenancy in common?!” This is probably the most common question people have when they hear this 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. And rest assured, there are a lot of different approaches!

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.

• 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 The 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.

So, now that you have the basic definitions of the most common types of ownership, let’s dive into what a tenancy in common really is. 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 independent owner may control an equal or different percentage of the total property.

So, you might be thinking, “Does that mean I own the backyard and my tenant in common owns the front yard? And which bathroom is mine?” Well, it doesn’t exactly work that way. 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 (or perhaps third wheel?) might own 50%. So, the percentages of ownership are different, but none of you can claim ownership to any specific part of the property. Sorry, the documents you used when buying your home can’t be referenced when settling who owns control of the TV remote.

Tenancy In Common Versus Joint Tenancy

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. 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.

One benefit of buying a home as tenants in common is that it may make it easier for you to get a home. Dividing up the necessary deposits and payments and 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

• 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 amounts 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.

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.

Tenancies in common can no doubt be complicated but, depending on your situation, having a basic understanding of how they work is useful in case you can benefit from this type of arrangement. If you think there’s a possibility that a tenancy in common might be right for you, the best course of action is to investigate more by visiting online resources like the Rocket Mortgage^® Learning Center.