A tenants-in-common agreement is a type of shared property ownership. If you’re a co-tenant in a TIC arrangement, you own a specific percentage of a specific property (or properties), along with other co-tenants, or owners.
And, as a co-tenant in a TIC arrangement, you probably already figured out that a great deal of paperwork is tied to that ownership.
One of the more important documents among the paperwork is a TIC deed, or agreement. Even if your TIC’s co-tenants consist of trusted relatives or friends, that agreement ensures that all owners know, understand, and accept obligations affiliated with TIC ownership.
Agreement? Or Deed?
Before outlining the “must-haves” in a TIC deed, it’s a good idea to define the differences between a deed and agreement.
A deed, sometimes known as a warranty deed, indicates that an individual or entity owns a particular property, and that said owner has the legal right to sell the property, or transfer the title to another entity under certain, outlined conditions. Meanwhile, a TIC agreement specifies requirements and mandates pertaining to property ownership.
While agreement and deed definitions might differ from state to state, both are legally binding documents, setting out certain rights and requirements involved with TIC ownership. And, it’s important that this document outlines what you, and your fellow co-tenants, can and cannot do under this type of ownership.
Issues to Consider
While tenant-in-common deeds or agreements can differ, depending on the entities or properties involved, effective ones can include the following information.
Property description. This might outline, in detail, the specific property owned by you and your co-tenants. The description could include the address, lot and building size, and property lines. The description might also specify the type of property, such as industrial, retail, or residential.
Co-tenant relationships. This section might indicate that you and your co-tenants are co-owners, rather than joint-venture partners under the TIC arrangement. This is an important distinction when it comes to tax time, as it means you could be required to report the pro-rated gain or loss pertaining to your property share on your income tax forms.
Income and liabilities. This might specify that each of you is responsible for certain prorated expenses (such as taxes, maintenance, property management, and other fees), as well payment deadlines. This section could also include how often you receive proceeds from the TIC investment.
Right of first offer/refusal. If one of the co-tenants wants to sell his or her property share/s, the right of first offer or refusal could be structured to allow the remaining co-tenants the opportunity to make an offer to buy the share/s.
Transfer restrictions. A transfer restriction might be in place to prevent a co-tenant from transferring property shares without agreement from the other TIC owners. This could prevent shares from being sold or gifted to an individual or entity that might not be in agreement with the other co-tenants.
Bringing in the Professionals
No matter what your background or experience -- and no matter how much you might trust your fellow co-tenants -- it’s important that a trained real estate lawyer examine this agreement before you sign it. It’s also a very good idea to talk to your financial advisor and/or tax expert to determine what liabilities might be in store if you enter into a TIC arrangement.
As is the case with any other investment, you should have a full understanding of any tenants-in-common arrangement before signing on the dotted line to become a co-tenant. A TIC deed, or agreement, puts this full understanding in writing, allowing you to determine the risks and rewards of this particular deal.