What Is a Tenancy-in-Common?
TIC (Tenancy-in-Common) structures are one of several options for groups owning real estate together. A TIC arrangement can work well if the co-owners have the same goals and interests guiding their decisions because they each have an undivided share of the property, even if they own an unequal percent.
That means if you have a group of five tenants in common, they can slice the property up in many different ways: one person can own 80% while the other four split the remaining 20%, or each might hold an equal share. One person can own half while the others have other unequal pieces. There can be as few as two or as many as 35 co-owners. Each has equal access to the property, regardless of their share. However, expenses and profits are distributed according to agreed-on terms.
Any one of the TIC participants can sell or otherwise transfer their share to anyone at any time. They can also distribute it as an inheritance. When a new owner has different interests and goals than the previous or existing owners, that can lead to conflicts. The inheritor (or purchaser) gains the rights of the previous owner and can sell or transfer their portion as desired. The instructions of a will can't change the TIC agreement; it can only move the ownership interest of the will's author from that individual to the inheritor.
Some TICs are formed mainly for group use of a property—for example, a family and friends’ group that buys a vacation home intending to share it for their respective use, rather than renting it to others. They may own it in roughly equal shares and split the expenses along equal lines. In contrast, a TIC cohort might buy property for investment goals, rent it out, and allocate costs and income as a ratio according to investment percentage.
How Do TICs Pay Expenses and Share Revenues?
The percentage of ownership should be established when the TIC agreement is made. Each owner is responsible for a pro-rata amount that reflects their percentage ownership. For example, if one investor owns 50% of the property, that individual would pay 50% of the expense and receive 50% of any net income. The TIC agreement should delineate the terms of the agreement.
However, each owner can decide individually to split their interest by selling or giving away all or some of their portion, increasing the number of participants. If one of the original owners sells 30% of their 30% share, the number of owners increases, and the other initial participants can't prevent the action.
A solid TIC agreement is essential for success but still won't guarantee protection from conflict. If the TIC group becomes too conflicted, they may want to dissolve. In that situation, sometimes, one or several of the co-tenants might buy out the remainder, but the others must agree. In extreme circumstances, someone may take legal action to dissolve the agreement, and a court will divide the property. If the parcel can't realistically be partitioned, a forced sale is possible.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. TIC properties may employ professional asset and property management, so while TIC co-owners vote on major issues, they may not have direct say over day-to-day property management situations. The form of ownership may require unanimous consent to sell TIC interests.
