What Is Tenancy in Common? Tenancy In Common, Explained

What Is Tenancy in Common? Tenancy In Common, Explained

We are familiar with the term tenants. You are a tenant when you don’t completely own property but live in it. But what exactly do tenants in common mean?

When it comes to real estate and property, the terms and conditions used in general can be quite confusing to a layman. It is not just the way the documents are written or the language used that makes it difficult to understand at one read; it is also the terms they use for various parties.

What Is Tenancy In Common (TIC) In Real Estate?

First, let’s understand what is tenancy. When you hold the title to a property for a particular period, it means you have the tenancy over the property. It is different from that of an owner. You have possession of the property for a fixed period as per your tenancy agreement.

A person who lives in a property or uses the property after obtaining it by a tenancy agreement is called a tenant. A tenant has a right to the property until his agreement expires. What he can do with the property or to what extent his holding extends depends on the type of tenancy and agreement details.

Types Of Tenancy

When you discuss tenancy in real estate, you have four major types of property ownership. These types help demarcate each tenant’s right to the property and the ownership duration.

They are:

Tenancy In Common

In this type of tenancy, two or more parties are involved when it comes to ownership of the property. They need not necessarily own the property equally. Different parties may have different percentages of ownership of the property.

Each owner can decide what to do with their share of their property, upon their death or in case of insolvency. The owners also have the right to sell part of their share to anyone of their choice, even when they are in good health.

If you are not too sure about how to draw a tenancy in a common agreement, ask your legal advisor to show you a tenants in common deed example. It will not only define tenants in common in detail but will also help clear up any doubts.

In the meanwhile, let’s break it down with a tenancy in common example for better understanding:

  • Property ABC has two owners – X and Y. Both of them could have inherited or bought the property. Let’s assume they have equal ownership of the property, i.e., 50% each.
  • Now X has decided to sell 50% of their share to Z for some personal reasons. After this sale, the owners will have (X- 25%, Y- 50%, Z-25%).
  • Later Y decides to sell their entire share to P, Q, R, and S. So, not the share will be – X-25%, Z-25%, P-12.5%, Q-12.5%, R-12.5%, S- 12.5%. One of the original owners – Y, is no longer an owner, but the ownership agreement continues.
  • Now, there are 6 owners with different % of interest in the property. Now, this is a property held in common, and the tenants in common have complete right to do anything with their shares. They can borrow against their share or sell it. The loans for tenants depend upon the total property value and their shareholding.

Changes In Ownership For Tenants In Common

It is common knowledge that ownership in real estate properties undergoes change with various events such as mortgage, death, or marriage. So, how does tenancy in common change with different events?

  • Owner’s Death

In general, when a property owner dies, their ownership will pass on to their survivor. It can be their children or spouse. It depends on the owner’s will executed before his death.

In the case of tenancy in common, the surviving owners will get an equal share of the property. For example – if there are 4 owners of a property and one dies, the other 3 will get an equal share of the deceased owner’s property. So, it will be 25% + 1/3rd of 25% of the property.

  • Marriage

An unmarried couple can get into a tenancy in a common agreement. Once they marry each other, there are other laws related to marriage that will have an impact on these tenants in common deed. The changes vary from state to state.

  • Some states set joint ownership as the default ownership for married couples, meaning both spouses have an equal right to each other’s properties. Each property will be owned 50-50 by both spouses. This model is called the joint tenancy.
  • Some states adopt the tenancy in its entirety. As per this model, the ownership will remain with the original owner. After their demise, the entire property transfers to the surviving spouse, with all the rights and responsibilities.

Tenancy In Common – The Good And The Bad

There are several advantages and disadvantages when you decide to enter into tenants in a common agreement.

Tenancy In Common Advantages

Some of the notable advantages are:

  • You can buy a property quickly. You don’t have to wait for loans or big funds as the total cost is shared between owners. It is easier to buy a property this way with friends or family.
  • Maintaining the joint property is also easy as you are not solely responsible for everything. You can split responsibilities.
  • You can choose to bring in more owners in case of financial issues.
  • You can have different degrees of ownership depending on each person’s financial capabilities or investment interests.
Tenancy In Common Disadvantages

Some of the tenants common disadvantages are:

  • In case of the owner’s demise, there is no automatic survivorship. The remaining owners will receive an equal percentage of the property.
  • In the case of tenants in common mortgage, all owners are equally liable. Even if only one doesn’t pay their share, the remaining owners will have to pay up to avoid a foreclosure.
  • An owner can sell his share to a third party. The rest of the owners who bought the property with known people will now have an unknown person as one among the common tenants.

Ending Tenancy In Common Ownership

When the property owners want to dispose of the tenants in common agreement, they have the following options:

  1. Decide among themselves and sell all their shares to one single person. The new owner will hold 100% of the property. All tenants in common have to sign away their share. The payment can be decided as a whole and divided among the owners as per their percentage of ownership in the tenants in common deed.
  2. One of the owners can buy out other owners and transfer the full property ownership to their name.
  3. If the tenants in common are unable to come to a conclusion about the new owner or rate of the property, they can go to court. The court will split the single property among the tenants and give them permission to carry forward with their own properties. Now, they become individual owners and can do anything with their own share.

Tenancy In Severalty

Severalty in real estate does not mean several owners. Ownership in severalty is nothing but sole ownership. Either a single person or a single entity owns property in full.

The owner has full control of the property. They can do anything they want with the property and do not need the permission or acceptance of others. Even when they die, the property will pass on to their survivors.

Joint Tenancy

Joint tenancy is where the owners have equal rights to and part in the property. There is no difference in their shareholdings, like in tenancy in common. Similarly, in the case of property mortgage, sale or appreciation, all owners get an equal share.

If one of the owners dies, their share will be equally split among the surviving owners. It does not pass on to the surviving family member.

Tenancy By Entirety

A type of ownership in real estate that is exclusively designed and reserved for married couples. According to some states, when a couple marries, they become the legal survivor of one another.

So, in case of the demise of a spouse, all their properties are automatically transferred to their spouse (all of it, without having to share anything). Not all states allow tenancy by the entirety. So, if you and your partner are picking a property or are tenants in common and are planning to marry, check the provisions in your state.

Which Is Better

When it comes to owning a property, each of the mentioned above agreements has its own set of tenancy in common advantages and tenancy in common disadvantages. For convenience’s sake, tenancy in common is a great advantage for those who want to buy a property with friends or family.

You can buy a property and even sell it without any complications. You can sell it to other owners or someone completely new. It can be a good investment option for those who want to invest in properties but do not have sufficient funds or do not want to take the total risk.

Conclusion

Buying a property can be a long-standing dream for many. While some may have the funds and knowledge to do so easily, many may not know how to go about it. Knowing the different types of ownership options can open your doors to a variety of real estate investments. You can also move your investments around at a later date if you have a good understanding of the ownership details.

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