There are many methods you can use to become a homeowner, which include tenancy in common and joint tenancy. While both types of ownership have their similarities, there are also some key differences that you should know about before going forward with buying a home. Under the joint tenancy guidelines, both tenants need to obtain their share in the property at the same time. It must also be an equal share with an equal right to the entire property.
In comparison, tenants in common obtain their interest in the property at completely different times and might receive their share of the property from different sources. While it’s possible for tenants in common to have equal shares in the property, they can also have completely different shares.
One benefit that’s solely available with the tenancy in common scenario is the ability for tenants to provide their share of the property to beneficiaries. When considering both of these options for owning a home, you should first understand how these forms of tenancy work and how they differ from one another.
What Is Tenancy in Common (TIC)?
Tenancy in common is a kind of legal arrangement that occurs when at least two parties have ownership rights in a piece of land or real estate property. All independent owners will need to have a different or equal percentage of the property, which can be a commercial or residential structure. These parties are referred to as tenants in common.
This is one of the three primary shared ownership types, the other two of which include tenancy by entirety and joint tenancy. In the event that a tenant in common dies, a right to survivorship isn’t available, which means that their share of this property will pass directly to their estate. Once their share of the property enters their estate, it becomes possible to name a beneficiary who will receive this share.
How Tenancy in Common (TIC) Works
Tenants in common share privileges and interests in every aspect of the property. Keep in mind, however, that all tenants are able to own a proportional financial share that doesn’t need to be the same. If there are two tenants, their share of the property could be split at a ratio of 70/30, which might be necessary if one of the tenants invested more money to purchase the property.
You can create a tenancy in common agreement at any time and are able to join one of these agreements even after it’s been made. All tenants are given the ability to independently borrow against their share of ownership or sell their share to another interested party.
Dissolving Tenancy in Common
It’s possible to dissolve a tenancy in common if one or more of the tenants buys out the share of another tenant with all parties coming to an agreement. If an agreement can’t be made, a voluntary or court-ordered partition action might occur that dissolves the tenancy in common.
When it comes to a legal partition proceeding, the court will focus on dividing the property via a partition in kind, which means that the property will be separated into individual parts that are owned by different parties as opposed to being managed together by each party.
When tenants are unable to work together, they could enter into a partition of the home by a sale. When the property is sold, the profits are divided according to the share that each tenant had.
Property Taxes Under Tenancy in Common
Since this type of agreement doesn’t divide a piece of land or property, the majority of tax jurisdictions don’t provide each owner with a property tax bill that’s proportional to the ownership percentage they have. In most cases, the tenants are given a single tax bill that they must pay by the due date.
In some jurisdictions, the tenancy in common agreement will include a joint-and-several type of liability, which means that each owner will be liable for the full amount of the tax bill. Even if one owner only has a 10% share of the property, they’ll be liable for as much as 100% of the tax bill.
Tenants may deduct these payments from their annual income taxes. In jurisdictions that use the joint-and-several liability, all tenants can deduct the exact amount that they contributed. If the tenants live in a county that doesn’t adhere to this principal, it’s possible to deduct up to the level of ownership that each tenant has.
Joint Tenants vs. Tenants in Common
When a joint tenant dies, the remaining tenants will immediately inherit the entirety of their interest in the residential or commercial property, which is referred to as right of survivorship.
Joint tenancies also provide tenants with the ability to sell the interests they have while they are alive. If an owner sells, the tenancy will be changed to a tenancy in common. As mentioned previously, a tenancy in common doesn’t include the right of survivorship, which means that an owner’s share in the property can be passed on to a beneficiary when they die.
Pros and Cons of Tenancy in Common
If you’re searching for a way to own a home, there are many benefits associated with the tenancy in common ownership structure, the primary of which is that it could be easier for you to enter the market. Dividing payments, maintenance costs, and deposits makes investing in real estate more affordable for individual buyers.
Keep in mind, however, that every borrower will sign the loan agreement, which means that your lender can gain control of the entire property if a default occurs. In the event that one of the owners stops paying the share of the mortgage payment that they owe, all borrowers will be responsible for making the full payment each month.
Pros of Tenancy in Common
The main benefits of the tenancy in common structure include:
- It becomes possible to buy a home when you’re unable to do so through conventional means
- The number of people who are involved in the tenancy in common can change with time
- Each party can own a different share of the home
Cons of Tenancy in Common
The primary downsides to the tenancy in common structure include:
- There aren’t any automatic survivorship rights
- It’s possible for just one of the tenants to force a sale of the property
- Every tenant is equally liable for property taxes and debts
Tenants In Common FAQs
There are some common questions that potential buyers have about the tenancy in common structure, which are answered below.
Can Tenancy in Common Be Dissolved?
Yes, it’s possible for a tenancy in common to be dissolved. In fact, there are several methods that can be used to dissolve this structure. For instance, at least one of the tenants can buy out the shares of the other tenants, which dissolves the ownership structure.
It’s also possible that each tenant has a different vision on how the property will be used or if the property will be sold. If all parties are unable to come to an agreement, a partition action could be started.
What are the Responsibilities of Tenants in Common?
There are no unique requirements that tenants must adhere to when involved in a tenancy in common. The standard homeowner responsibilities that tenants must pay attention to include home repairs, property taxes, and mortgage payments. In the event that one of the tenants pays all of the property taxes when they are owed, they need to be reimbursed from all other tenants.
What Happens When a Tenant Dies?
Unlike a joint tenancy, the other tenants involve in this agreement won’t immediately receive ownership of the portion of the home that was owned by the recently deceased tenant. The decedent’s share will be given to their heirs. Other owners might receive the decedent’s share in the property if they didn’t have any heirs.
What are the Disadvantages of Tenants in Common?
There are several issues associated with the tenancy in common ownership structure, the primary of which is that all parties hold full responsibility for the monthly bills that are expected when owning a home. If one of the owners wants to place the property on the market in the near future, there isn’t much that the other tenants will be able to do to avoid selling the property.
As discussed previously, there are three forms of joint ownership that you can enter into when you purchase a home, which include tenants in common, tenancy by entirety, and joint tenancy. The ownership structure you prefer largely depends on how you want the percentage of ownership to be structured.
Tenancy in common agreements give you another option when you’re looking for ways to own a home. Even though you won’t be a sole owner of the property, a tenancy in common situation provides you with many of the same benefits that a homeowner has access to. Consider all of the pros and cons before signing one of these agreements.