A tenancy in common (TIC) is an arrangement between two or more individuals (the tenants in common) who share ownership rights to a piece of real estate.
A tenant in common can sell their share without the consent of other co-owners because each tenant in common owns a distinct and separate interest in the property. This provision in the TIC arrangement gives owners the right to transfer their ownership interests in the property to anyone they choose. However, the other co-owners may have certain rights, such as the right to purchase the share themselves, or to force a sale of the entire property.
Let’s take a closer look at some scenarios that may arise if a tenant in common doesn’t meet certain obligations and refuses to sell their share.
Can a Tenant in Common Sell Their Share Without Consent?
Each owner, or tenant in common, may control an equal or different percentage of interest in the property. Tenants in common have a right to leave their share to a beneficiary of their choosing as a portion of their estate. They also can sell, trade, or give away their ownership share to anyone they wish.
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 percent of the property, and Owners B and C each own 25 percent of the property. Owner A may have a larger portion of ownership interest, but no co-owner can claim rights to specific parts of the property – the asset is shared equally regardless of ownership percentages.
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 can be a few downsides as well – all tenants are equally liable for any debt liabilities no matter how they were incurred, and all share an equal responsibility to pay property taxes even if ownership percentages are highly skewed in favor of one owner, such as an 80-20 split.
Lastly, it only takes one tenant in common to force the sale of the property.
Tenants in Common Agree to Sell and Buying Out a Tenant in Common
A tenant in common cannot legally sell the entire property without obtaining permission from all other co-owners. If all owners agree to sell, the property can go to market. If it generates a profit, each owner receives a share of sale proceeds that’s equal to their ownership percentage. There’s also the option for the remaining tenants in common to buy out a dissenting 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, a court-ordered action may take place.
Tenant in Common Forced Sale or TIC Partition 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 on the courthouse steps. 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.
Breakups can be tough, but depending on the situation, there may be various options available for tenants in common.
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.
