Can Tenants-in-Common Evict Each Other?

Can Tenants-in-Common Evict Each Other?

Posted by on Nov 13, 2021

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According to the Merriam-Webster dictionary, the definition of eviction is “the dispossession of a tenant of leased property by force or especially by legal process.” Thus, eviction is typically a process in which the landlord (owner) of a property removes a tenant (residential or commercial) from the premises, either for nonpayment of rent or to achieve some other purpose. For residential rentals, various states have laws that govern how evictions may be handled, and during the Covid-19 pandemic, landlords have also been required to navigate through federal moratoriums.

However, despite the name, Tenants-in-Common (TICs) don't typically share occupancy of the property they own as a group. Instead, a TIC arrangement allows investors to pool resources to purchase property that they could not afford individually. Specifically, a group of up to 35  investors uses a 1031 exchange process to purchase undivided individual interests in property. The co-owned shares do not have to be equal, and they may be bought and sold separately and at different times. The actual tenants lease the property from the TIC owners.

The owners pay expenses and receive income based on their share of the ownership. For example, if a TIC group consists of 10 equal owners, each would pay an equal amount of costs and receive an equal ratio of returns. But if one person held half of the shares, that person would pay and receive a fifty percent share, while the others participated according to their invested interest.

What are the Rules Governing TIC Arrangements?

  •       There can be up to 35 co-owners.
  •       All owners must unanimously approve all consequential decisions.
  •       Owners can bequeath their portion to an heir of their choosing upon death.
  •       Owners can sell their share at will.

Is a TIC the same as Joint Tenants in Common?

There are key differences between a TIC and a Joint Tenancy-in-Common. Joint tenancy is more likely to be used for a small group planning to use a property together or buy a vacation home to both enjoy and rent out, for example. Some of the differences to note include:

  •       Each owner has the same equal and undivided right of possession.
  •       All interests are acquired simultaneously, and all names are on the deed.
  •       Each partner has rights of survivorship (you inherit a portion of the share of a partner who dies, and you can't bequeath your percentage to someone else).
  •       Finally, all partners must agree to sell.

So What's The Bottom Line on Exiting From a TIC Group?

As an individual investor in a TIC arrangement, you have control over your participation, to the extent that you can dispose of your share at any time, as you wish. Keep in mind that there will probably be tax consequences that you should plan for, but you are not obligated to seek approval of the TIC group to sell, and they have no say over the entity to whom you sell. The same is true if you leave your interest to someone in your will.

On the other hand, it may be challenging to find a buyer for your shares. One reason is that TIC structures can be cumbersome, and the unanimous approval of the owners regarding substantive decisions (like property sales) may deter some potential buyers.

 

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. Like any investment in real estate, if a TIC property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. All real estate investments have the potential to lose value during the life of the investment. TIC properties typically employ professional asset and property management, so while TIC co-owners vote on major issues, they do not have direct say over day-to-day property management situations.

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