What Is a Tenancy in Common (TIC) in Real Estate?

Real estate ownership involves various legal structures, each with distinct implications for property rights, responsibilities, and inheritance. Tenancy in Common (TIC) is a method of co-ownership, allowing multiple parties to hold interests in a single piece of real estate. This article explains TIC’s characteristics, practical uses, and how it differs from other common ownership arrangements.

Understanding Tenancy in Common

Tenancy in Common (TIC) is a legal arrangement where two or more individuals or entities share ownership of a property. Each co-owner possesses an “undivided interest” in the entire property, meaning they own a proportionate share of the whole rather than a specific physical portion. For instance, if two individuals own a property as tenants in common, neither can claim exclusive rights to a particular room or section; both have the right to use and enjoy the entire premises.

Ownership interests in a Tenancy in Common do not have to be equal. One co-owner might hold a 60% interest, while another holds 40%, or any other combination of percentages. This flexibility in ownership percentages distinguishes TIC from some other forms of co-ownership.

Key Features of Tenancy in Common

A defining characteristic of Tenancy in Common is the “unity of possession,” which ensures all co-owners have an equal right to possess and enjoy the entire property. This means no co-owner can legally exclude another from any part of the property, regardless of their individual ownership percentage.

Each co-owner can independently sell, mortgage, or transfer their individual interest without requiring the consent of the other co-owners. This provides a high degree of autonomy, as a co-owner’s share can be conveyed to a third party, who then becomes a tenant in common with the remaining owners. The transferability allows for flexibility in managing individual shares.

Tenancy in Common does not include the “right of survivorship.” Upon the death of a co-owner, their interest does not automatically pass to the surviving co-owners. Instead, the deceased co-owner’s share becomes part of their estate and is distributed according to their will or, if there is no will, by the laws of intestacy to their heirs.

Practical Applications of Tenancy in Common

Tenancy in Common is a flexible ownership structure used in various real-world scenarios. It is frequently employed for investment properties, allowing multiple parties to pool resources for a larger acquisition. For example, investors might form a TIC to purchase a commercial building, with each investor owning an undivided fractional interest.

A common application of TIC in investment contexts is within a 1031 exchange. This allows real estate investors to defer capital gains taxes when selling an investment property by reinvesting the proceeds into a “like-kind” property. A Tenants in Common structure can enable multiple investors to collectively acquire a replacement property for a 1031 exchange, provided certain IRS rules are met, such as limiting the number of co-owners and ensuring proportionate sharing of debt and revenue.

Tenancy in Common is also prevalent in situations involving inherited properties. When multiple heirs receive shares of a single property, such as a family home, they often hold title as tenants in common. Additionally, it is used in joint ventures or among unrelated individuals, like friends or business partners, who wish to co-own real estate without the automatic transfer of ownership upon one party’s death.

Comparing Tenancy in Common to Other Ownership Structures

Understanding Tenancy in Common is enhanced by comparing it to other common forms of co-ownership, primarily Joint Tenancy with Right of Survivorship and Tenancy by the Entirety. A primary distinction lies in the right of survivorship. In a Tenancy in Common, there is no right of survivorship, meaning a deceased owner’s share passes to their heirs. Conversely, in Joint Tenancy and Tenancy by the Entirety, the deceased owner’s interest automatically transfers to the surviving co-owner(s). This difference has significant implications for estate planning and probate.

Another key differentiator is the requirement of “unities.” While Tenancy in Common only requires the “unity of possession” (the right of all co-owners to possess the entire property), Joint Tenancy demands four unities: time, title, interest, and possession. Unity of time means all owners acquire their interests at the same time; unity of title means they acquire interests through the same document; and unity of interest means they hold equal shares. If any of these four unities are broken in a Joint Tenancy, the ownership typically converts into a Tenancy in Common. This makes Tenancy in Common a more flexible option for co-owners who acquire interests at different times or in unequal proportions.

Tenancy by the Entirety is a specific form of co-ownership exclusively available to married couples in many states, offering a right of survivorship and often providing protection against individual creditors. Unlike Tenancy in Common, neither spouse in a Tenancy by the Entirety can sell or transfer their interest without the other’s consent, and they are considered a single legal entity. If a married couple with Tenancy by the Entirety divorces, the ownership typically converts to Tenancy in Common.