Tenants in common

What Is Tenants in Common?

Tenants in common (TIC) is a form of co-ownership of real estate by two or more individuals or entities, where each co-owner holds a distinct, undivided share of the property. This arrangement falls under the broader category of property ownership and real estate law. Unlike other forms of joint ownership, tenants in common do not have a right of survivorship, meaning that upon the death of a tenant in common, their interest in the property passes to their heirs or beneficiaries, rather than automatically to the surviving co-owners. Each tenant in common holds an undivided interest in the entire property, regardless of the size of their ownership share.

History and Origin

The concept of property co-ownership, including arrangements akin to tenants in common, has deep roots in English common law, which heavily influenced the legal systems of the United States. Historically, joint tenancy was the preferred form of concurrent ownership under common law, often presumed unless specific language indicated otherwise. This preference for joint tenancy was largely due to feudal land tenure systems, which valued single, undivided ownership for reasons such as military service and the avoidance of fragmented property control.⁶

However, as societies evolved and the need for more flexible property arrangements grew, the tenancy in common emerged more prominently. Legal scholars like Sir William Blackstone, in his 18th-century "Commentaries on the Laws of England," described tenants in common as requiring only the unity of possession, allowing for distinct interests, titles, and times of acquisition. Over time, particularly in the United States, legislative and judicial developments actively shifted the presumption from joint tenancy to tenancy in common.⁴, ⁵ Many U.S. states have enacted statutes that now presume a conveyance to multiple parties creates a tenancy in common unless a joint tenancy is explicitly stated in the deed or other instrument.³ This shift reflects a modern legal preference for arrangements that allow for greater individual control over property interests, particularly concerning inheritance.

Key Takeaways

• Tenants in common (TIC) allows multiple parties to own a single property, each holding a distinct, undivided interest.
• Unlike joint tenancy, TIC does not include a right of survivorship; a deceased tenant's share passes to their heirs or estate.
• Ownership shares in a tenancy in common can be unequal, reflecting varied contributions or agreements among co-owners.
• Each tenant in common has the right to possess and use the entire property, regardless of their ownership percentage.
• A tenant in common can sell, mortgage, or transfer their interest independently, without requiring the consent of other co-owners.

Interpreting the Tenants in Common

Interpreting a tenancy in common involves understanding its core characteristic: the lack of a right of survivorship. When property is held as tenants in common, each owner's share is treated as a separate financial asset that can be individually transferred, gifted, or bequeathed. This means that if one tenant in common dies, their portion of the property does not automatically pass to the other co-owners. Instead, it becomes part of their estate and is distributed according to their last will and testament or by the laws of intestate succession if no will exists.

Furthermore, unlike other forms of joint ownership, the ownership shares in a tenancy in common do not have to be equal. One co-owner might hold a 60% interest, while another holds 40%. Despite these unequal shares, each tenant in common retains the right to possess and utilize the entire property. This "unity of possession" is fundamental to a tenancy in common. The specific percentage of ownership typically dictates the division of property-related expenses, income, and proceeds from a sale.

Hypothetical Example

Consider four friends, Alice, Bob, Carol, and David, who decide to purchase a vacation home together. They contribute different amounts towards the down payment and agree to varying ownership percentages based on these contributions and their planned usage.

• Alice contributes 40%
• Bob contributes 30%
• Carol contributes 20%
• David contributes 10%

They decide to hold the property as tenants in common. This arrangement means:

1. Ownership Shares: Alice owns 40% of the property, Bob 30%, Carol 20%, and David 10%. These are distinct shares, but they all have an undivided right to use the entire home.
2. Right to Use: All four friends have equal access to and use of the entire vacation home, even though their ownership percentages differ. David, with his 10% share, has the same right to occupy the property as Alice, who owns 40%.
3. Transferability: If Carol later decides she wants to sell her 20% interest, she can do so without needing permission from Alice, Bob, or David. She can sell her share to a new individual, who would then become a tenant in common with the remaining owners.
4. Inheritance: Suppose Bob passes away. His 30% interest in the vacation home would not automatically go to Alice, Carol, or David. Instead, it would pass to his heirs (e.g., his children or as designated in his will), who would then become tenants in common with Alice, Carol, and David. This avoids probate for the surviving co-owners' shares but puts Bob's share through his estate's probate process.

This example highlights the flexibility of a tenancy in common in accommodating varied interests and allowing for individual disposition of property shares.

Practical Applications

Tenants in common is a versatile form of property ownership used in various scenarios:

• Estate Planning: It is a common strategy in estate planning when individuals want to pass their share of a property to specific heirs, rather than having it automatically transfer to other co-owners. This allows for individual control over inheritance through a will or trusts. The Internal Revenue Service (IRS) outlines rules for determining the basis of inherited property, which is crucial for calculating potential capital gains upon a future sale. For property inherited through a tenancy in common, the beneficiary generally receives a "step-up in basis" to the fair market value of the property on the date of the decedent's death for the inherited portion.²

• Investment Partnerships: Unrelated investors often use tenancy in common to purchase investment properties, such as commercial buildings or rental units. This allows each investor to own a specific percentage, reflecting their capital contribution, and provides flexibility to sell or mortgage their individual interest. This structure can facilitate debt financing as each tenant's interest can potentially be used as collateral.

• Multi-Generational Ownership: Families may use tenancy in common to own vacation homes or shared family properties across generations. This structure ensures that a family member's share can be passed down to their children, maintaining family ownership while providing individual control over each branch's interest.

• Unmarried Partners: Unmarried couples who purchase property together may opt for tenancy in common, as it allows for unequal ownership interests and ensures that each partner's share can be individually designated to their chosen beneficiaries, unlike joint tenancy which typically favors the surviving co-owner.

• Default Ownership: In many jurisdictions, if a property is conveyed to two or more individuals without specifying the form of ownership, it is legally presumed to be a tenancy in common. The Maryland People's Law Library notes that explicit language is necessary to create a joint tenancy, and without it, tenancy in common is presumed.¹

Limitations and Criticisms

While offering flexibility, tenancy in common arrangements also present potential limitations and criticisms:

• Lack of Survivorship: The absence of a right of survivorship means that a deceased tenant's interest goes through probate. This process can be time-consuming, expensive, and public, potentially complicating the transfer of the deceased's share. In contrast, properties held with a right of survivorship, such as in joint tenancy, bypass probate. States that have adopted the Uniform Probate Code aim to simplify the probate process, but it still applies to assets like tenancy in common interests that do not automatically transfer.

• Potential for Disputes: The undivided nature of the property, combined with potentially disparate interests and goals among co-owners, can lead to disagreements. Disputes may arise over property management, maintenance costs, use of the property, or whether to sell. If co-owners cannot agree, one may initiate a "partition action" to legally divide the property or force its sale. Such legal actions can be costly and contentious.

• Liability: While each tenant in common owns a distinct share, they typically have shared liability for the property's expenses, such as property taxes, mortgage payments (if applicable to the entire property), and maintenance. If one co-owner fails to contribute their share, the other co-owners may be responsible for covering the shortfall to prevent default or foreclosure, potentially leading to financial strain or legal action to recover contributions.

• Marketability of Fractional Interests: Selling an individual, fractional interest in a property held as tenants in common can sometimes be more challenging than selling the entire property. Potential buyers for a fractional interest may be limited, and the value of a partial interest might be discounted compared to a proportional share of the whole property's equity.

Tenants in Common vs. Joint Tenancy

The primary distinction between tenants in common and joint tenancy lies in the right of survivorship.

While both involve joint ownership, the choice between tenants in common and joint tenancy largely depends on the co-owners' intentions regarding inheritance, control, and the potential for future changes in ownership.

FAQs

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

Yes, a tenant in common generally has the right to sell or transfer their individual share of the property without needing the consent of the other co-owners. This contrasts with other forms of ownership that may restrict such unilateral actions.

What happens if a tenant in common dies?

If a tenant in common dies, their interest in the property does not automatically pass to the surviving co-owners. Instead, it becomes part of their estate and is distributed according to their will or, if there is no will, by the laws of intestate succession to their legal heirs. The new owner then becomes a tenant in common with the existing owners. This process is distinct from the right of survivorship found in joint tenancy.

Are tenants in common responsible for equal shares of expenses?

Not necessarily. While each tenant in common has an undivided interest in the entire property, their financial responsibility for expenses like property taxes, mortgage payments, and maintenance is typically proportional to their ownership percentage. For example, if one tenant owns 70% and another 30%, they would generally be responsible for 70% and 30% of the expenses, respectively.

Can a tenancy in common be converted to a joint tenancy?

Yes, it is possible to convert a tenancy in common to a joint tenancy, but it typically requires a new deed or legal instrument explicitly stating the intent to create a joint tenancy. All co-owners must agree to this change, and it usually involves satisfying the "four unities" (time, title, interest, and possession) characteristic of a joint tenancy. This process often involves legal assistance to ensure it is executed correctly.