Tenancy in common: How it works and when it’s a good option

As housing prices rise, more people are looking to pool their resources with friends and loved ones to afford bigger and better houses. Tenancy in common (TIC) is a popular choice that lets buyers co-own properties while retaining separate rights.

TIC stands out from other ownership frameworks because of its flexibility and autonomy. This structure allows customized arrangements and independent property interest so owners can manage their share however they like.

Discover how tenancy in common works, how it compares to other types of co-ownership, and why it’s a solid option for many homeowners.

What’s tenancy in common?

Tenancy in common is a legal framework for sharing ownership of a home between multiple parties. It provides each holder a distinct, transferable share they can independently sell, mortgage, or leave as inheritance. Unlike joint tenancy, these ownership shares don’t have to be distributed equally. For example, one person might own 40% while the other owns 60%. 

Each party in a TIC holds an undivided interest in the property, which means they can use and occupy the entire home regardless of their ownership percentage. They have full control and transferability of their shares, whether they’re selling, reassigning, or mortgaging them.

While some shared vesting options are only available to married couples, TICs let co-owners be friends, relatives, or acquaintances. This framework also allows you to add new tenants in the future, while in other models, inviting new owners may break the agreement completely. 

This structure offers no right of survivorship, which means shares aren’t transferred to the surviving owners when one owner dies. Instead, the interest passes directly to the deceased’s heirs once the probate process is complete.

Practical example of tenants in common

TIC is becoming an increasingly common option for shared ownership, especially in areas with high costs of living like the San Francisco Bay Area and New York. Let’s illustrate how tenancy in common works with a scenario set in San Francisco.

Imagine three friends are looking to buy a single-family home. They choose the TIC model because they want full control of their ownership shares and want to be able to transfer interest to their heirs when they pass away.

Now, suppose the home they choose is worth $1.5 million. Two of the co-owners contribute $525,000 each, while the other puts in $450,000. They mutually agree that the first co-owners each have a 35% ownership interest in the home, and the third gets the remaining 30% of the shares. 

Even though the proportions are different, the third co-owner has all the same rights. They can sell, transfer, or bequeath their share in any way they see fit, as long as it’s permitted by the terms of the agreement.

Alternatives to tenancy in common

TIC isn’t the only way to organize home ownership among multiple people. Here are some common options:

— Joint tenancy: This model of joint ownership provides equal shares to all parties. Management is less flexible, and joint tenants can only transfer interest by breaking the tenancy, which automatically converts it into a TIC. This structure includes a right of survivorship, which passes the property to joint owners when a tenant dies.

— Tenancy by entirety: This framework is only available to married couples and treats the two owners as a single entity so both spouses have 100% ownership interest in the property. It isn’t available in every state, and its scope and regulations differ per jurisdiction. This arrangement also includes the right of survivorship.

Dissolving a tenancy in common

Tenants can dissolve a TIC if they no longer want the partnership. The most common method is via mutual agreement, where one owner buys out the other parties or all tenants sell the property and divide the proceeds.

It gets complicated when the other parties aren’t interested. When this happens, the tenants may choose to trigger a partition action, or the court may order one. This is a legal process for resolving disputes between co-owners, typically in one of two ways:

— Partition by sale: The court forces the sale of the property, with the proceeds distributed between the owners based on the percentage of shares they own.

— Partition in kind: The court physically divides the property into partitions wholly owned and managed by each co-owner individually. This process is complex and isn’t always possible. It’s most common with large, undeveloped lots.

It’s best to clarify how to handle dissolution in your TIC agreement. All parties should define and agree to exit options when entering into the partnership so they can avoid conflict and court battles later.

Rights and responsibilities of tenants in common

Tenants in common have the same rights and obligations as any other property owner. They share the responsibility for covering the usual expenses of homeownership, like loan payments, maintenance, and utilities. 

Typically, these costs are estimated by the tenant’s percentage of interest. For example, a holder with 30% ownership would pay $600 of a $2,000 monthly mortgage payment.

Property taxes in tenancy in common

Authorities levy taxes on the property as a whole. If one party doesn’t pay their share, all tenants are responsible, regardless if the other parties have a smaller ownership percentage. Because taxes aren’t legally separate, the TIC agreement is the only way to specify how to divide these costs. 

Draft explicit rules in your terms to avoid disputes and ensure each holder pays their agreed-upon share.

Check your expected property taxes to keep tenants on the same page and plan your payments. While you can calculate them manually, the easiest option is to use a free mortgage calculator.

What are the pros and cons of tenancy in common?

TIC is a great option for co-ownership, but it isn’t for everyone. Let’s start with the advantages of tenants in common:

— Flexibility in ownership shares: Tenants in common can divide shares in any configuration they like. Most people distribute ownership based on financial contribution, so the more you pay the more interest you have. But tenants can adjust this however they like — for instance, one owner may negotiate a larger share by agreeing to take on most management responsibilities.

— Right to transfer shares: With a tenancy in common, tenants are allowed to transfer their shares to anyone they like. This new person becomes co-owner with the original holders and shares the same rights and responsibilities. 

— Ability to add new owners: Tenants in common can take on additional co-owners by simply revising the agreement and redistributing shares.

Here are the possible drawbacks:

— No right of survivorship: Tenants’ shares pass down through a will instead of automatically transferring to the remaining owners after death. This means going through probate, which can delay or complicate ownership transitions.

— Risk of partition action: If disputes arise, any of the co-owners can file a partition action, which may result in selling or dividing up the property against the will of the other tenants.

— Complex financing: Some lenders may view TIC as higher risk because one co-owner’s financial difficulties can affect the entire property. This may make it more complicated to find a favorable loan.

Navigating lenders and securing positive loan terms might seem daunting, but Better makes it a breeze. Browse mortgage options, compare honest rates, and track progress from a convenient digital dashboard. Apply for pre-approval in as little as three minutes and enjoy a seamless home-buying experience.

...in as little as 3 minutes – no credit impact

Simple financing for any ownership structure

TIC is a great choice for buyers who want flexible co-ownership and control over their interest. While this vesting option can be complex, Better can guide you through each step, from finding a favorable loan to signing the closing documents.

Better eases the home buying process with competitive interest rates and a closing process that averages just 32 days, whether you prefer sole ownership, tenancy in common, or joint tenancy. Apply for pre-approval in as little as three minutes to learn your budget and start your joint home buying journey on the right foot.

Discover your dream home with Better.

...in as little as 3 minutes – no credit impact

FAQ

What does “tenants in common” mean on a deed?

A deed marked “tenants in common” means two or more people own the property under a TIC framework. 

What's the difference between tenancy in common and joint tenancy?

Tenancy in common and joint tenancy have three primary differences:

— Joint tenants have a right of survivorship, while tenants in common pass on their shares based on the terms of their will.

— Joint tenants have equal ownership in the property, but tenants in common can allocate unequal shares between the parties.

— Joint tenants can’t transfer their ownership interest to other parties without breaking the joint tenancy. Meanwhile, tenants in common have complete control over managing and transferring their shares.

Is there a tenancy in common with survivorship?

No, TIC never includes a right of survivorship. This framework always uses the owners’ wills to distribute property. If a home buyer wants co-ownership with survivorship, it’s best to pursue joint tenancy.