When it comes to real estate ownership, there are several ways that individuals can take title to a property. One of these ways is as tenants in common (TIC). In this article, we will explore what it means to be a tenant in common, the advantages and disadvantages of TIC ownership, and how to navigate TIC transactions.
What is Tenancy in Common?
Tenancy in common refers to a type of joint ownership of real property where two or more individuals own undivided interests in the same property. Each owner has the right to possess and use the property, and these rights are not exclusive to any one owner. In other words, all owners have equal rights to the entire property.
Advantages of Tenancy in Common
- Flexibility in Ownership: Tenancy in common allows multiple owners to have different ownership shares in the property. The ownership percentages do not have to be equal and can be divided according to each individual’s contribution to the purchase price, down payment, or ongoing expenses related to the property.
- Shared Responsibility for Expenses: As multiple owners share the responsibilities of owning the property, expenses such as property taxes, mortgage payments, and maintenance costs are also shared. This can make owning a property more financially feasible for some individuals who may not be able to bear the costs of ownership alone.
- Easy Transfer of Ownership: Tenancy in common allows for easy transfer of ownership interests. Owners can sell their interest or gift it to someone else without affecting the ownership rights of the other tenants in common.
Disadvantages of Tenancy in Common
- Shared Decision Making: As all owners have equal rights to the property, decisions regarding the property must be made jointly. This can lead to disagreements and disputes among owners, especially if they have different ideas about how the property should be used.
- Liability Exposure: Each tenant in common is personally liable for any debts or obligations related to the property. If one of the owners defaults on their mortgage or incurs a debt related to the property, creditors can go after the other owners’ assets to recover the debt.
- Difficulty Financing: Obtaining financing for a TIC property can be more difficult than traditional real estate ownership. Lenders may require all owners to sign on the loan, and if one owner defaults, it could affect the entire group’s ability to secure future loans.
How to Navigate Tenancy in Common Transactions
- Create a TIC Agreement: Before purchasing a property as tenants in common, it is essential to create a TIC agreement that outlines each owner’s responsibilities, rights, and ownership interests. This agreement should also address how decisions will be made, how expenses will be shared, and how any disputes will be resolved.
- Conduct Due Diligence: It is crucial to conduct thorough due diligence before purchasing a TIC property. This includes inspecting the property, reviewing financial records, and researching any liens or encumbrances on the property.
- Hire an Attorney: Given the complexities of TIC transactions, it is highly recommended that buyers and sellers hire an attorney who specializes in TIC agreements. The attorney can review the TIC agreement, provide legal advice, and ensure that the transaction complies with all applicable laws and regulations.
Conclusion
Tenancy in common is a unique type of real estate ownership that has its advantages and disadvantages. It offers flexibility in ownership, shared responsibility for expenses, and easy transfer of ownership interests. However, it also requires shared decision-making, exposes owners to liability, and may pose challenges in obtaining financing. By creating a detailed TIC agreement, conducting due diligence, and hiring an attorney, individuals can successfully navigate TIC transactions and achieve their real estate ownership goals.