A tenancy in common (TIC) is an arrangement between two or more individuals where ownership rights are shared. Each owner, or tenant in common, may control an equal share or a different percentage of interest in the property. Tenants in common have a right to leave their share to a beneficiary as a portion of their estate and they can sell, trade, or give their share to anyone they wish.
What happens if a tenant in common doesn’t meet certain obligations and refuses to sell their share? Breakups are tough but depending on the situation, there may be various options available.
How a TIC Works
If there are three co-owners of property in a tenancy in common agreement, all areas of the property are equally owned, however, each tenant in common may own a different percentage of ownership interest. Let’s say Owner A owns 50% of the property while Owner B and Owner C each own 25% of the property. While Owner A may have a larger portion of ownership interest, no co-owner can claim rights to specific parts of the property.
A tenancy in common agreement has several advantages such as :
- Owning rights to the entire property even with a fractional ownership interest
- The right to transfer ownership
- Potential passive income
- Potential asset appreciation
- 1031 exchange eligibility
There are a few downsides such as all tenants are equally liable for debts and property taxes and it only takes one co-owner to force the sale of the property.
Tenant in Common (TIC) Agreeing to Sell
A single tenant in common cannot legally sell the entire property without permission from all co-owners. If all owners agree to sell, the property can go on the market and if it makes a profit, each owner receives a share that’s equal to their ownership share. There’s also the option for the remaining tenants in common to buy out a co-owner. When one co-owner wants to sell but the other owners do not, the TIC can only sell their share of the property, of which they have legal rights.
Co-owners can develop opposing interests as far as the property’s use, development, or if there’s a desire for the entire property to be sold, however, the tenants must come to a joint agreement. If an agreement cannot be reached or if a TIC fails to meet expected obligations, court-ordered action may take place.
TIC Partition or Forced Sale
If a tenant in common refuses to sell, a co-owner can force the sale of the TIC or do a partition. A tenant in common can petition the court to do a forced sale of the entire property. In this situation, the court takes control of the property and the court performs a forced sale. Once the property is sold, proceeds are distributed amongst the tenants according to their ownership interest. The court may also take into account the unequal interests of each tenant in common when disbursing proceeds from a sale.
A TIC can also ask the court to perform a partition of the property. This involves physically splitting the property. This can only happen if it’s possible to divide the property so that each tenant receives a parcel of land of equal value. Once the property is divided and the TIC is dissolved, each tenant receives a deed to their piece of property.
The Investor's Guidebook to TIC's
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