If you want to sell a tenancy in common interest, you are generally selling your undivided ownership interest in the property rather than selling the entire property. The first steps are to confirm exactly what you own, review the deed and co-ownership agreement, identify any lender or transfer restrictions, establish a defensible value, and determine whether you intend to complete a 1031 exchange.
Selling your individual TIC interest is different from arranging a sale of the entire property. It is also different from having another co-owner buy you out. Understanding those distinctions before negotiating with a buyer can prevent title, financing, tax, and closing problems.
Key point: A tenant in common generally owns a separate, transferable interest in the property. However, the deed, TIC agreement, loan documents, applicable state law, and, in some syndicated offerings, securities requirements can affect how that interest may be transferred.
Can a Tenant in Common Sell Their Share Without the Other Owners?
A tenant in common owns an undivided interest in the whole property. A 25 percent owner, for example, generally owns a 25 percent interest in the entire property rather than a particular room, floor, parcel, or tenant space.
That distinction is important when an owner wants to sell.
IRS Revenue Procedure 2002-22 provides advance-ruling guidelines for certain tenancy-in-common arrangements. One of those conditions states that, in general, each co-owner should have the right to transfer, partition, and encumber that co-owner’s undivided interest without another person’s agreement or approval. The procedure permits certain restrictions required by lenders under customary commercial lending practices.
Selling the property itself is different. Under the same ruling guidelines, a sale or other disposition of the property as a whole requires unanimous approval of the co-owners.
These IRS guidelines do not replace state property law or the parties’ contracts, and Revenue Procedure 2002-22 expressly states that its guidelines are not substantive rules for every TIC arrangement. Before relying on a transfer right, review the recorded deed, TIC agreement, amendments, loan documents, and applicable state law.
First Confirm What You Actually Own
Before marketing anything for sale, confirm the legal nature of the interest.
A direct tenancy-in-common interest normally means the owner holds a deeded, undivided interest in real property. That is different from owning:
- a membership interest in an LLC that owns real estate
- a partnership interest
- a beneficial interest in a Delaware Statutory Trust
- shares in a REIT
- another fractional investment that does not convey direct ownership of the underlying real property
This distinction can affect transfer rights, securities requirements, financing, and eligibility for a 1031 exchange.
Some sponsored or syndicated TIC arrangements can also raise securities-law questions. Review our explanation of whether a TIC interest is a security when the interest was acquired through a structured investment offering.
How to Sell a TIC Interest in 7 Steps
1. Review the Deed and TIC Agreement
Start with the recorded deed, current title report, TIC agreement, amendments, property-management agreement, leases, and any other document governing the ownership structure.
Look specifically for provisions addressing transfer rights, notice requirements, rights of first offer or first refusal, buyer qualifications, valuation procedures, approval rights, default provisions, partition rights, and restrictions imposed by a lender.
Do not assume that the rules for selling the entire property also govern a transfer of only your individual interest.
2. Review the Loan Documents
A transfer of ownership does not automatically release a seller from a mortgage note, guaranty, or other debt obligation.
If the property is subject to a blanket loan, the lender may require notice, underwriting of the new owner, consent to the transfer, an assumption agreement, revised guaranties, a refinance, or another modification.
Resolve the debt issue before signing a sale agreement that assumes the transfer can close.
3. Determine How the Interest Will Be Sold
A TIC owner may have several potential exit paths.
| Exit Method | What Happens | Important Considerations |
|---|---|---|
| Sale to an outside buyer | Buyer acquires the seller’s undivided TIC interest | Agreement restrictions, lender requirements, buyer qualifications, valuation |
| Sale to another co-owner | Existing co-owner purchases the interest | Price negotiation, financing, debt allocation, buyout provisions |
| Sale of the entire property | All owners sell the underlying property | Co-owner approval, property-level debt, allocation of proceeds |
| Partition or court-supervised resolution | State-law process divides or sells property | Legal cost, timing, state law, uncertain outcome |
If another current owner is the buyer, see our separate guide to buying out a tenant in common. That article covers the additional issues involved when the ownership percentages of the remaining co-owners change.
4. Establish the Value of the TIC Interest
Do not automatically assume that a 20 percent ownership interest is worth exactly 20 percent of the property’s market value.
The property’s total value is an important starting point, but the value of a particular fractional interest may also be affected by the governing agreement, transferability, financing, property performance, leases, capital requirements, control rights, and the market for the specific interest.
The agreement itself may specify an appraisal method or valuation formula. An independent appraiser, attorney, broker, and tax professional can help determine which valuation standard is appropriate for the transaction.
Hypothetical Example
Assume an investment property is valued at $2.4 million and one investor owns a 25 percent TIC interest.
The investor’s simple pro rata share of the property’s gross value is $600,000.
That calculation is a starting point, not necessarily the market value of the TIC interest. The actual negotiated or appraised value may differ depending on the agreement, debt, transfer restrictions, property economics, and buyer demand.
If the property also has $800,000 of blanket debt, the seller and buyer must determine how the seller’s obligations relating to that debt will be handled. A deed alone does not release the seller from a promissory note or guaranty.
5. Identify the Buyer and Complete Due Diligence
A buyer of a TIC interest is becoming a co-owner with the remaining owners. That can make the transaction more complex than an ordinary sale of an entire property.
A prospective buyer may want to review:
- the deed and title report
- the TIC agreement and amendments
- leases and rent rolls
- property operating statements
- loan documents
- property-management agreements
- insurance
- reserves
- pending repairs or capital projects
- environmental or property-condition reports
- litigation or disputes involving the property
- transfer restrictions and voting rights
If the TIC interest is part of a syndicated investment or securities offering, the seller should also determine whether securities laws, offering documents, or broker-dealer requirements affect the resale.
6. Decide on a 1031 Exchange Before Closing
A direct undivided interest in qualifying business or investment real property may potentially be relinquished as part of a Section 1031 exchange. That does not mean every fractional investment or every TIC arrangement automatically qualifies.
The federal tax characterization of the ownership arrangement matters. An interest in a partnership or multi-member LLC, for example, is not automatically treated the same as a direct interest in the underlying real estate.
If you plan to use a qualified intermediary, involve the QI before the sale closes and before you receive or control the sale proceeds.
For a standard deferred exchange, the replacement property generally must be identified within 45 days after the relinquished property is transferred and received by the earlier of 180 days after the transfer or the due date of the applicable tax return, including extensions.
The exchange is reported on Form 8824. The IRS Instructions for Form 8824 provide additional information about reporting requirements and exchange deadlines.
Review the Revenue Procedure 2002-22 TIC conditions for more detail about the IRS ruling framework for qualifying co-ownership arrangements.
A qualified intermediary facilitates the exchange mechanics and holds exchange proceeds under the exchange agreement. The QI does not determine whether a TIC interest qualifies as real property, calculate the seller’s tax liability, interpret state property law, or determine whether a securities transaction is permissible. Those questions should be addressed with the appropriate tax and legal professionals.
7. Document and Close the Transfer
The purchase agreement should clearly identify the interest being sold and address the purchase price, deposit, due diligence, financing, title requirements, closing date, prorations, representations, closing costs, required approvals, loan conditions, and remedies if the transaction cannot close.
At closing, the parties may need a deed, settlement statement, lender documents, tax forms, amended ownership records, and updated management or operating instructions.
After closing, retain the final deed, settlement statement, appraisal, purchase agreement, loan documents, exchange records, and basis information with the permanent property and tax records.
Common Mistakes When Selling a Fractional Real Estate Interest
One common mistake is treating a TIC interest like a publicly traded share that can simply be sold without reviewing the underlying documents. A TIC is an interest in real property, and title, contracts, financing, and state law can materially affect the transfer.
Another mistake is assuming that co-owner consent is always required to sell an individual TIC interest. The rules for transferring one owner’s interest are not necessarily the same as the rules for selling the entire property.
The opposite assumption can also cause problems. A seller should not assume a completely unrestricted transfer right without reviewing the TIC agreement, lender requirements, title documents, and applicable law.
Other costly mistakes include accepting sale proceeds before a planned 1031 exchange is properly established, assuming an LLC or partnership interest is the same as a deeded TIC interest, relying on a simple ownership percentage as the final valuation, and overlooking securities restrictions in a syndicated TIC offering.
Selling Your Interest Versus Selling the Entire Property
The most important distinction in a TIC exit is whether you are selling your ownership interest or whether the co-owners are selling the property itself.
A transfer of one owner’s interest changes who owns that fractional portion of the property. The property remains co-owned.
A sale of the entire property transfers the underlying asset and generally requires coordination among all owners.
If another owner does not want to participate in a proposed property sale, the transaction moves into a different set of issues involving negotiation, contractual rights, and potentially partition. Our guide to a tenant in common who refuses to sell addresses that situation separately.
Coordinate a TIC Sale Before You Sign the Closing Documents
Selling a TIC interest can involve title, financing, valuation, contractual, tax, and sometimes securities issues at the same time. Reviewing those issues before signing a binding agreement gives the seller more options than trying to solve them immediately before closing.
If the sale of your TIC interest may become the relinquished-property side of a 1031 exchange, speak with a 1031 Exchange Place advisor before closing so the qualified intermediary steps can be coordinated with your attorney, CPA, lender, and closing professional.
