When structured correctly, tenancy-in-common agreements (or TICs) can offer a path to flexible real estate ownership. Understanding how TIC agreements operate also requires knowing what needs to be in writing. And one of the questions about “in writing” requirements rests on whether TIC agreements need to be recorded.
An Overview: TIC Agreements
A tenancy-in-common is a legally binding agreement in which you and at least one other individual jointly own a property. You own a separate, defined percentage of the property through this arrangement. One advantage of a TIC is that you can sell, borrow against, or pass on your property share without obtaining approval from the other TIC members.
However, one downside of TIC ownership is the lack of a right of survivorship. In other words, if one of your partners dies, you don’t automatically receive their share of the property. Instead, that share passes to beneficiaries, which could generate disputes about how the property is used.
When making a TIC agreement official, everything must be outlined. The agreement must also include the signatures of all parties involved. While not always necessary, notarizing the agreement can add a layer of legal protection.
Furthermore, if you want to record that agreement with your local jurisdiction, notarization is a must.
But Is Recording Required?
Recording real estate ownership refers to filing property-related documents with the county where the property is located. Recording a property helps:
- Establish ownership rights
- Creates a traceable chain of title
- Resolves disputes should competing property claims arise
However, recording a TIC agreement is not required. It’s considered a bi-lateral agreement between co-owners and is legally valid as long as it’s signed and witnessed.
Just because a TIC might not need to be recorded doesn’t mean that you and your partner co-owners shouldn’t consider it. Reasons for recording a TIC agreement include the following:
- Financing. Some lenders require a recorded TIC agreement to protect the lender's interests if funding or refinancing the property.
- Regulations. Some state agencies or local municipalities might have rules requiring TIC agreements to be recorded. If you co-own a large commercial property or affordable housing project, this might happen.
- Legal proof. Recording the agreement places ownership rights in the public record. This can help enhance transparency for future buyers and sellers and provide legal backing should issues arise.
To Record, or Not to Record . . .
Recording a TIC agreement isn’t always necessary. TIC owners might avoid the process to keep the ownership structure private. But, recording can also provide clarity and protection to the co-owners.
Talk with the other co-owners when deciding whether recording a TIC agreement is in your best interest. Also, be sure to work with a real estate attorney who can help create a binding TIC agreement and provide advice on recording.
If you’re considering using a 1031 exchange to exchange a property you own into a TIC to potentially defer capital gains taxes, contact the experts at Realized 1031. Realized 1031 has a deep bench of knowledgeable professionals who can advise and guide the process, resulting in a workable tax-advantaged strategy.
For more information, visit the website at realized1031.com.
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.
