What is Tenancy in Common?

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What You Should Know

  • Tenancy in common is when two or more people own a property together, and have equal rights, but not necessarily equal ownership
  • Tenancy in common makes it easier to purchase a home by splitting the costs of purchasing a home and homeownership with co-owners
  • When a tenant in common passes away, their share of the property goes towards their estate, unlike a joint tenancy with right of survivorship that goes towards the surviving owners
  • All tenants in common are equally responsible for mortgage payments and property tax payments, including for other co-owners

Tenancy in Common Definition

Tenancy in common is a type of home ownership, and more specifically, it is a way that a property’s title can be held. While it might sound like tenants in common are renters, tenants in common are homeowners. Tenancy in common, sometimes called co-tenancy or TIC, refers to a property that is owned by two or more people, and comes with rules called rights and duties.

With tenancy in common, all of the co-owners of the property will have an equal right to the property, but their individual ownership shares of the property might be different. For example, homeowner A might own 70% of the property while homeowner B might own 30% of the property. Their share of the property’s ownership is different, but both co-owners have equal rights to the property.

Tenants in common are co-owners of the property, and they share in the rights and responsibilities associated with the property. Tenants in common don’t have to be related to each other, and they don’t have to even live in the property. That’s because tenancy in common only deals with ownership of the property.

How Tenancy in Common Works

Tenancy in common is only possible if there are two or more owners of a property. A tenancy in common arrangement can be agreed upon in writing. Tenants in common are independent from each other. A tenant in common can sell their share of the property to a third-party at any time. The purchaser of the share will then take the former tenant in common’s place as a co-owner. A tenant in common can also purchase the shares of all of the other co-owners.

However, some tenants in common agreements can require the whole property to be sold instead of allowing individual co-owners to sell out their shares. In some cases, a partition action might be needed through a court order.

Tenancy in Common vs. Joint Tenancy

Joint tenancy with right of survivorship is a common form of home ownership for couples. With joint tenancy, the co-owners will have equal shares of the property, and should one of the co-owners pass away, the deceased co-owner shares will be transferred to the surviving co-owner, skipping the deceased’s will, heirs, and estate. That’s because the co-owner has the right of survivorship.

The main difference between tenancy in common and joint tenancy is that tenancy in common does not have right of survivorship, and so it does not transfer a deceased’s co-owners share of the property to the other co-owner. Instead, a tenant in common can choose to pass their interest in the property to their heirs. This is unlike a joint tenant who is forced to have their interest in the property passed on to the surviving co-owner.

Benefits of Tenancy in Common

The main benefit of tenancy in common is that it makes it easier for individuals to buy a home, as they are able to pool their resources with others. Instead of having to afford a mortgage all by yourself, tenancy in common lets you share the costs of homeownership with co-owners. Tenancy in common is also more flexible compared to joint tenancy, since it doesn’t give other co-owners the right of survivorship. You might also be able to sell your share of the property at any time without needing the approval of all other co-owners.

  • Pool resources to purchase a home
  • More flexible by allowing different ownership percentages
  • Doesn’t overrule a deceased’s will or estate, unlike a joint tenancy

Disadvantages of Tenancy in Common

The main disadvantage of tenancy in common has to do with the responsibilities that come with being a tenant in common. All co-owners are responsible for mortgage payments and property tax. While this might be commonly divided up proportionally to each co-owner’s ownership share of the property, a problem can arise if one or more co-owners don’t pay their fair share.

For example, one co-owner might not make their share of the mortgage payments, but your mortgage lender will still require the mortgage payments to be paid. This means that the rest of the co-owners are also still responsible, and might need to pay more money than they would otherwise have had to contribute. This also applies for other debt associated with the property, along with taxes. Another disadvantage is that one co-owner can unilaterally dissolve the tenancy in common agreement and force the sale of the property.

  • Responsible for other co-owners, such as for missing mortgage or property tax payments
  • No right of survivorship means that surviving co-owners might not receive any of the deceased’s ownership share of the property
  • A tenancy in common agreement can be unilaterally dissolved and cancelled

Example of Tenancy in Common (TIC)

Let’s take a look at Jack and Jill. Jack is looking to purchase a home, but he doesn’t have enough money saved for a down payment and he can’t afford the costs of homeownership either. Jack agrees with Jill to buy a home together as tenants in common (TIC). Jack will own 40% of the home, while Jill will own 60% of the home. While Jack owns only 40% of the property, it doesn’t mean that Jack only gets to use only 40% of it. Instead, both Jack and Jill have the right to use all of the property, no matter their ownership share. This is called an undivided interest, and is also the case for joint tenancy.

If the property is being purchased as a rental property, then Jack will receive 40% while Jill will receive 60% of the property’s rental income. If the property will be owner-occupied, then Jack and Jill can both live in the property, one of them can, or neither of them. You can be tenants in common of a property without living in the property as your home. Any price appreciation will be split according to the co-owner’s share of the property. For example, if the home was eventually sold for $100,000 more than it was purchased for, then Jack would have a $40,000 capital gain, while Jill would have a $60,000 capital gain.

If Jack dies, then Jack’s 40% share of the property will go towards Jack’s estate, not to Jill. Both Jack and Jill are also responsible for costs such as mortgages and property taxes. Costs, such as mortgages, taxes, and maintenance, are split proportionally. If Jack stops contributing towards mortgage and tax payments, Jill will need to pay for Jack’s share in the meantime.

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