Tenancy in common

Tenancy in common is a form of concurrent property ownership where two or more individuals hold an undivided interest in a property. This structure is a fundamental concept in real estate law, allowing multiple parties to own a single property simultaneously, without the "right of survivorship" that characterizes other forms of co-ownership. Unlike some other arrangements, tenants in common can hold unequal shares of the property, and their interests do not automatically pass to the other owners upon their death; instead, their share becomes part of their estate and is subject to their will or laws of inheritance. Each tenant in common has the right to possess and use the entire property, regardless of their ownership percentage.

History and Origin

The concept of tenancy in common emerged from English common law, evolving as a distinct form of concurrent ownership alongside joint tenancy and tenancy by the entirety. While early common law often favored joint tenancies due to feudal exigencies, requiring specific language to create a tenancy in common, its principles have been well-developed for centuries.¹⁰, ¹¹ The foundational idea is that while co-owners share an undivided right to possession of the entire property, their ownership interests themselves are distinct and severable.⁹ This historical framework allowed for more flexible arrangements in property devolution, contrasting with the more rigid "four unities" (time, title, interest, and possession) required for a joint tenancy. Modern statutes in the United States generally presume a tenancy in common when multiple parties acquire property unless the instrument explicitly states otherwise, reflecting a shift from the common law's traditional preference for joint tenancies.⁸

Key Takeaways

• Tenancy in common allows multiple individuals to own undivided interests in a single property.
• Owners can hold unequal shares, and their ownership percentages do not dictate their right to use the entire property.
• There is no right of survivorship; a deceased tenant's interest passes to their heirs or beneficiaries, not to the other co-owners.
• Each tenant in common has the right to sell, mortgage, or transfer their individual share independently.
• It is a common arrangement for investment properties, inherited properties, or business partnerships.

Interpreting the Tenancy in Common

Understanding tenancy in common involves recognizing that while multiple parties share a property, their ownership interests are distinct. Each tenant in common possesses an undivided interest, meaning they have the right to occupy and use the entire property, not just a specific portion corresponding to their ownership percentage. For example, if two individuals own a house as tenants in common with 70% and 30% shares respectively, both have full access to the entire house. This undivided right to possession is a hallmark of the arrangement. The individual nature of each interest also means that a tenant in common can sell or encumber their share without the consent of the other co-owners, although such an action might impact the salability of the entire property. This flexibility is a key aspect of how tenancy in common is applied in real-world scenarios, particularly in complex co-ownership structures.

Hypothetical Example

Consider siblings Alice, Ben, and Carol who inherit a vacation home from their parents. Instead of selling it, they decide to keep it as a shared family asset under a tenancy in common arrangement. Alice wants to own 50% since she contributed more to family care, while Ben and Carol each take 25%.

The deed for the property specifies "Alice, Ben, and Carol as tenants in common, with Alice holding a 50% interest, Ben a 25% interest, and Carol a 25% interest."

Months later, Carol decides she needs cash for a down payment on her own home. She can sell her 25% undivided interest to a new party, David, without needing Alice's or Ben's permission. David would then become a tenant in common with Alice and Ben, holding a 25% interest in the vacation home. If Carol were to pass away, her 25% interest would pass to her designated beneficiaries as per her will, not automatically to Alice and Ben. This contrasts sharply with joint tenancy, where her share would automatically transfer to the surviving co-owners.

Practical Applications

Tenancy in common is frequently used in various financial and legal contexts due to its flexibility:

• Investment Partnerships: Investors often use tenancy in common when pooling resources to acquire real estate for rental income or appreciation, as it allows for unequal contributions and independent transfer of interests.
• Inherited Property: When multiple heirs receive property through inheritance, it often defaults to a tenancy in common, allowing each heir to manage or dispose of their share individually without affecting the others' ownership.
• Unmarried Couples: Couples who are not married may opt for tenancy in common to clearly define their individual ownership stakes in a shared property, especially if contributions to the purchase price or maintenance are unequal.
• Estate Planning: It serves as a tool in estate planning to ensure that a deceased owner's share passes to their intended heirs rather than to surviving co-owners.
• Resolving Disputes: In cases where co-owners cannot agree on the management or sale of a property, a tenant in common can initiate a "partition action" to legally force the sale of the property and divide the proceeds according to ownership shares. This legal process provides a mechanism to resolve intractable disputes.⁶, ⁷

Limitations and Criticisms

Despite its flexibility, tenancy in common carries certain limitations and potential criticisms:

• Disputes over Use and Management: While each tenant has the right to possess the entire property, disagreements can arise over its use, maintenance costs, or major decisions. Without a clear co-ownership agreement, these disputes can lead to legal action, such as a partition action to force the sale of the property.⁵
• Difficulty in Selling Individual Shares: While a tenant can sell their individual equity share, finding a buyer willing to purchase an undivided interest in a property, especially one with existing co-owners, can be challenging. Most buyers prefer full, unencumbered title.
• Liability for Shared Expenses: All tenants in common are generally responsible for property taxes, mortgages, and maintenance. If one co-owner fails to contribute, the others may be burdened with covering their share, potentially leading to financial strain or the placement of liens on the property.
• Tax Basis and Capital Gains: Upon the death of a tenant in common, their share receives a "stepped-up basis" for tax purposes, which can be advantageous for heirs by reducing potential capital gains if the property is later sold.⁴ However, navigating the tax implications of inherited property, especially for multiple beneficiaries, can still be complex and requires careful consideration of IRS guidelines.², ³
• Probate: The absence of a right of survivorship means that a deceased tenant's interest must go through probate, which can be a time-consuming and costly legal process before the property share is transferred to the heirs.

Tenancy in Common vs. Joint Tenancy

Tenancy in common and joint tenancy are both forms of concurrent property ownership, but they differ significantly, primarily in the presence of the "right of survivorship."

The key point of confusion often arises because both allow multiple parties to own property simultaneously. However, the presence or absence of the right of survivorship is the defining distinction.¹ For joint tenancy, this means avoiding probate, as the property automatically transfers. For tenancy in common, the owner's interest is a distinct asset that can be bequeathed.

FAQs

What does "undivided interest" mean in tenancy in common?

An "undivided interest" means that each co-owner has the right to use and possess the entire property, not just a specific part of it, even if their ownership percentage is less than 100%. For instance, two tenants in common, regardless of their individual stake, can both use all rooms in a house.

Can a tenant in common sell their share without the other owners' consent?

Generally, yes. A tenant in common is free to sell, mortgage, or otherwise transfer their individual ownership share without requiring permission from the other co-owners. However, finding a buyer for a partial, undivided interest can be difficult, as it may not grant the new owner exclusive rights to any specific portion of the property.

What happens if a tenant in common dies?

If a tenant in common dies, their share of the property does not automatically transfer to the other co-owners. Instead, it becomes part of their estate and will be distributed according to their will or, if they have no will, by the laws of intestacy in their jurisdiction. This process usually involves probate.

Is tenancy in common only for real estate?

While most commonly associated with real estate, tenancy in common can apply to other forms of property, such as personal property or intellectual property, where multiple parties hold undivided interests.

What are the main advantages of tenancy in common?

The primary advantages include flexibility in ownership shares (they can be unequal), the ability for each owner to freely transfer their interest without the consent of others, and the absence of a right of survivorship, which ensures that an owner's share can be passed down to their chosen heirs as part of their estate planning.