A Tenancy in Common (TIC) arrangement allows multiple individuals to share ownership rights to a property. While a TIC arrangement may allow you to own high-quality real estate for less start-up capital, complications can arise when you decide to sell the shared property.
Explore the TIC arrangement and learn your options for selling a home with a tenants in common agreement.
Tenants-In-Common Structure
When two or more parties share ownership rights to a real estate property or piece of land, they are considered tenants in common. Tenancy in Common (TIC) is one of three legal shared ownership arrangements, along with Joint Tenancy (JT) and Tenancy by Entirety (TBE).
Tenants-in-common may own or control differing percentages of the property, which may be residential or commercial. While a tenant cannot claim ownership of a specific portion of the property, each tenant in a TIC arrangement can independently sell or borrow against their specific ownership portion.
A TIC agreement does not legally divide a property; therefore, most jurisdictions send a single property tax bill to the tenants in common rather than individual bills based on ownership percentage.
A tenant can dissolve the TIC in a joint agreement by buying out the other tenants.
Tenants-In-Common and Right of Survivorship
The three legal shared ownership arrangements differ regarding what happens after a tenant dies.
JT and TBE arrangements possess the right of survivorship. This means that when one tenant dies, their interest in the property disappears entirely, and the shares of the other tenants increase proportionally.
A TIC has no right of survivorship. When one of the tenants dies, their portion of the property passes to their estate. The tenant may name a beneficiary to whom they leave their share of ownership in the property.
Selling a House with Tenants-in-Common
In a TIC arrangement, no one tenant can legally sell the entire property, such as a house, unless all the other tenants give permission. If all the tenants agree to sell the property, you can place it on the market. If it sells for a profit, you and the other tenants each receive a share of the money that corresponds to your ownership percentage.
If only one tenant wants to sell, the other TICs can buy out that share of the property. The tenant who wishes to sell can also sell their share of the property to a third party. For example, tenant A owns 25%, tenant B owns 40%, and tenant C owns 35%. If tenant B wants to sell, tenants A and C can buy the 40% that belongs to tenant B. Tenant B can also sell the 40% of their ownership to a new buyer.
In some cases, a tenant refuses to sell their share of the property, despite all the other tenants wanting to put the house on the market. If this occurs, the TICs who wish to sell can petition the court for a forced sale of the whole property. The court will take control of the property, sell it, and distribute the proceeds amongst all the tenants based on ownership percentage.
The tenants-in-common can ask the court to partition (physically split) the shared property. A partition is only an option if it’s physically possible to divide the property into equal-value parcels. If the division occurs, the TIC dissolves, and each tenant receives a deed for their new property.
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. It should also not be construed as advice meeting the particular investment needs of any investor.
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.
Examples are hypothetical and for illustrative purposes only.
