Joint ownership of real property through a Tenants in Common (TIC) arrangement has become increasingly popular among investors looking to co-own real estate. TIC offers flexibility for family members inheriting property, business partners co-investing, and unrelated investors pooling resources. However, it can also raise legal and privacy concerns.
Common questions include:
Can a TIC co-owner file a complaint about privacy violations in the property's common spaces?
Yes, it is possible to file a lawsuit, but the process is complex. Let’s dive into this.
The Definition of Real Estate Property Ownership as a Tenant In Common (TIC)
Under a TIC arrangement, two or more people jointly own one real estate property and have an undivided percentage of asset ownership. That means:
- All TIC owners retain unrestricted access to the entire property and the right to use the area.
- Each owner receives a different percentage of the property ownership, but no owner can prevent any other owner from accessing any part of the property.
- The ownership rights under TIC can be transferred to new owners or passed down to beneficiaries through inheritance, subject to any operating agreement terms.
Real estate investors commonly use TIC ownership structures, and the property is a suitable replacement under Section 1031. However, TICs often involve greater management complexity, unanimous decision-making requirements, and limited liquidity compared to Delaware Statutory Trusts (DSTs).
What About Privacy?
Residential or mixed-use TICs, where some owners live on the property, can present privacy challenges. Common issues include:
- Surveillance cameras being installed throughout shared hallways without consulting other co-owners.
- Unilateral access to shared storage areas or basements without permission.
- Unannounced guests or contractors visiting the property without prior notice to other co-owners.
Since all TIC owners have equal rights to occupy and use the entire property, there is no legal privacy protection for common areas. However, if an owner installs continuous surveillance or enters private spaces like bedrooms without consent, legal boundaries may be crossed.
Can a TIC owner take legal action against another co-owner?
Yes, under certain circumstances. A TIC owner can pursue legal remedies if another co-owner:
- Disrupts their quiet enjoyment of the property
- Violates state privacy laws
- Harasses or invades their privacy
- Limits their ability to access or use their property beyond what is typical for common areas
However, courts typically avoid intervening in property disputes unless the actions of a co-owner are extreme, persistent, and well-documented.
Practical Solutions: Agreements and Communication
TIC arrangements typically operate without official structures, so it is crucial to establish the following:
- A written co-ownership agreement should define shared space usage rules, privacy requirements, and dispute resolution procedures.
- To minimize litigation expenses, arbitration or mediation provisions should be established.
- Establish communication with co-owners before implementing modifications that impact communal property areas.
An Alternative for Passive Investors: DSTs
Realized professionals assist clients in transferring TIC properties into Delaware Statutory Trusts (DSTs) because DSTs provide fractional property ownership with professional management. DSTs operate as passive investments, which professionals manage while delivering benefits for investors who need income and diversification, while simplifying their 1031 Exchange processes. While DSTs are structured as passive investments, they are not suitable for all investors, and their performance depends on property, tenant, and market conditions.
Managing TIC ownership issues can present challenges. If you’re seeking a structure that may better support your privacy, income objectives, and estate planning goals, we welcome the opportunity to discuss options with you.
The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
