To create a tenancy in common agreement, first identify the co-owners and property, complete legal and financial due diligence, establish each owner’s percentage interest, decide how money and decisions will be handled, and then have a real estate attorney licensed where the property is located draft or review the agreement. A well-planned agreement should address voting, expenses, transfers, defaults, disputes, partition rights, and a clear exit process.
Key point: There is no single national TIC agreement that works for every property. State law, title requirements, financing documents, leases, the owners’ objectives, and any 1031 exchange considerations can change what the final agreement should say.
If you need a broader explanation of how this ownership structure works, start with our guide to tenancy in common agreements. The purpose of this article is narrower: how to build the agreement itself and what decisions should be made before an attorney prepares the final document.
Start With Due Diligence Before Drafting
A TIC agreement should be based on the actual property and transaction, not a generic template. Before drafting begins, the co-owners and their attorney should collect the documents that affect title, control, expenses, transfers, and the ability to sell or finance the property.
- Confirm the parties. Gather the legal name of every proposed owner, the form in which each owner will take title, and any trust or entity documents that affect authority to sign.
- Review title. Obtain the current deed, legal description, title commitment or preliminary title report, recorded easements, restrictions, liens, and other title exceptions.
- Review financing. Identify existing or proposed loans, guarantees, due-on-transfer restrictions, lender consent requirements, blanket liens, and separate debt tied to an owner’s interest.
- Review property contracts. Collect leases, property management agreements, service contracts, insurance policies, and any agreements that may limit owner decisions.
- Review the property itself. Coordinate appropriate physical, environmental, zoning, land-use, insurance, and financial due diligence for the property type.
- Identify the tax objective. Determine whether any co-owner is acquiring or holding the interest as part of a 1031 exchange or another tax-sensitive transaction so legal and tax review can occur before the agreement is finalized.
The attorney should also confirm the state-specific rules that affect the agreement, including execution formalities, recordability, transfer restrictions, partition rights, and available remedies. Our separate discussion of TIC legal requirements provides additional background, but the attorney handling the property should determine what applies in the property’s jurisdiction.
Set Ownership Percentages and Contribution Rules
The agreement should state each owner’s undivided percentage interest and should be consistent with the deed and closing documents. The percentages can be equal or unequal, but the owners should understand exactly how those percentages were determined.
Do not stop with the initial purchase price. The agreement should address initial cash contributions, closing costs, reserves, future capital calls, emergency expenses, and what happens if one owner advances more money than required.
It should also state whether an extra payment is a reimbursable advance, a loan, or something that could change ownership percentages. Those consequences should not be left for the owners to decide after the money has already been spent.
Hypothetical ownership example
Assume three co-owners buy a rental property and agree that Owner A will hold 50%, Owner B will hold 30%, and Owner C will hold 20%.
If the owners must contribute $1,000,000 of cash at closing in proportion to ownership, their contributions would be:
- Owner A: $500,000
- Owner B: $300,000
- Owner C: $200,000
If a later $120,000 operating budget is also allocated by ownership percentage, the contributions would be:
- Owner A: $60,000
- Owner B: $36,000
- Owner C: $24,000
The agreement should say whether those same percentages govern every category of income and expense. If the parties intend a different arrangement, counsel and the tax advisor should review the consequences before the agreement is signed.
Create a Voting and Management Matrix
One of the most important drafting decisions is determining which actions can be handled routinely and which require owner approval. The agreement should identify the voting threshold, how votes are measured, how notice is given, and what happens when the required approval cannot be reached.
Rather than using one voting rule for everything, consider separating decisions into categories such as:
- Routine property operations
- Annual budgets
- Capital improvements
- New leases or lease renewals
- Property management decisions
- Borrowing and refinancing
- Sale of the property
- Major casualty or restoration decisions
- Actions affecting an individual owner’s interest
The document should also state whether voting power follows ownership percentages or gives each owner one vote.
For example, if routine decisions require approval from owners holding more than 50% of the interests, Owner A in the hypothetical above cannot approve a routine action alone because 50% is not more than 50%. Owner A would need Owner B or Owner C to join the decision.
If a TIC structure is being evaluated for federal tax treatment in connection with a 1031 exchange, the drafting team should review IRS Revenue Procedure 2002-22.
Among its ruling conditions, the revenue procedure calls for unanimous approval for specified actions such as a sale, lease or re-lease, certain blanket-lien decisions, hiring a manager, and negotiating a management contract. It permits owners to agree to a vote of more than 50% of the undivided interests for other actions.
These are IRS ruling guidelines for the circumstances addressed by the revenue procedure, not a universal voting statute for every TIC agreement.
Define Income, Expenses, Reserves, and Capital Calls
A TIC agreement should make the money rules easy to follow. Identify who collects income, who pays bills, where funds are held, what records owners receive, and when distributions are made.
The agreement should also establish an operating reserve and explain who can authorize spending from it.
Expense provisions should cover items such as:
- Property taxes
- Insurance
- Utilities
- Routine repairs
- Property management fees
- Debt service
- Capital improvements
- Professional fees
- Casualty deductibles
- Emergency repairs
For each category, state whether the cost is divided according to ownership percentage or another approved formula.
The agreement should also explain how capital calls work. This may include who can request additional money, what approval is required, how much notice owners receive, when payment is due, and what happens if an owner does not contribute the required amount.
If an owner fails to fund a required contribution, the default section should control what happens next. The remaining owners should not have to invent a remedy during a cash shortage.
Draft Transfer and Financing Restrictions Carefully
The agreement should explain what an owner must do before selling, gifting, financing, or otherwise transferring an ownership interest.
Important questions include:
- Must the transferring owner give advance written notice?
- Do the other owners receive a right of first offer or another purchase opportunity?
- How will the interest be valued?
- How long will the other owners have to respond?
- How long will they have to close?
- Is lender consent required?
- Must the new owner sign an assumption of the TIC agreement?
- Are transfers to trusts, family members, or related entities treated differently?
A transfer provision should not be copied from another deal without legal review. State law, the deed, loan documents, and the owners’ tax objectives can all affect which restrictions are enforceable or advisable.
This is especially important when the owners want the structure evaluated under Revenue Procedure 2002-22. Under those ruling conditions, a co-owner generally retains rights to transfer, partition, and encumber the undivided interest without another person’s approval, subject to specified exceptions such as customary lender restrictions.
The revenue procedure also contemplates a right of first offer and an agreement to offer an interest at fair market value before exercising a partition right.
Counsel should draft the transfer section so the owners’ business goals do not accidentally conflict with the tax structure they intend to use.
Build Default and Cure Provisions Before a Problem Occurs
The agreement should define an event of default instead of relying on a general statement that owners must comply with the document.
Possible events of default to address include:
- Failure to pay an approved expense or capital contribution
- Failure to maintain required insurance
- An unauthorized transfer
- An unauthorized lien or encumbrance
- Failure to sign an approved property document when required
- Failure to provide information required under the agreement
- A material breach of another provision of the TIC agreement
For each type of default, the agreement should state the notice procedure, any cure period, and the remedies that may be used.
The owners may also want the agreement to address:
- Protective advances made by another owner
- Reimbursement of advances
- Interest on unpaid amounts if permitted
- Recovery of enforcement expenses
- Handling of distributions while a default remains unresolved
- Possible buyout rights if allowed under applicable law and consistent with the intended tax structure
Default remedies deserve careful attorney review. A clause that sounds practical may not be enforceable under applicable law, and an aggressive remedy can create unintended title, lending, tax, or other legal issues.
Plan for Disputes and Deadlocks
A useful dispute section creates an escalation path before litigation becomes the only option.
For example, the agreement might provide for:
- Written notice describing the dispute
- A required meeting among the co-owners
- Mediation if the owners cannot resolve the issue
- Arbitration or court proceedings if mediation is unsuccessful
The agreement should identify the governing law, location for proceedings, method of selecting a mediator or arbitrator if used, and whether emergency court relief remains available when immediate action is needed to protect the property.
Deadlock is a separate issue. If the required vote cannot be reached, the agreement should state what happens next.
Depending on the property and applicable law, the parties may consider a neutral decision-maker for limited operational matters, a buyout process, a sale procedure, mediation, or another defined exit mechanism.
Counsel should confirm that the deadlock remedy is consistent with the ownership structure, financing, and any federal tax position being pursued.
Address Partition Rights Before They Become a Dispute
Partition rights should never be treated as an afterthought. Because partition rules and the enforceability of contractual limits vary by state, the agreement should be drafted with local law in mind.
The owners should decide whether the agreement will require advance notice before an owner seeks partition and whether the other owners receive an opportunity to purchase the departing owner’s interest first.
The agreement may also address:
- How fair market value will be determined
- Whether one or more appraisals are required
- Who selects the appraiser
- How appraisal costs are divided
- How long the owners have to complete a voluntary buyout
- What happens if the owners cannot agree on value
- When the departing owner may proceed with another available remedy
Partition provisions become particularly important when owners have different investment timelines. One owner may want to hold the property for many years while another may need liquidity much sooner.
Create Clear Exit Procedures
An effective TIC agreement should distinguish between the sale of one owner’s interest and the sale of the entire property.
Sale of one owner’s interest
The agreement should establish the process an individual owner follows before exiting. That process may include notice requirements, valuation procedures, purchase opportunities for existing owners, lender approvals, closing procedures, and requirements for an incoming owner.
Sale of the entire property
For a whole-property sale, the agreement should address:
- The voting threshold required to approve a sale
- Who selects the real estate broker
- Who approves the listing price
- Who evaluates offers
- Who signs the purchase contract and closing documents
- How secured debt is paid
- How closing expenses are allocated
- How the remaining proceeds are distributed
The agreement should also address what happens if an owner dies or becomes legally unable to act, including who can exercise the owner’s rights and whether a successor must agree to be bound by the TIC agreement.
Estate documents and the TIC agreement should be reviewed together when that issue is material.
Core Provisions to Address Before Your Attorney Drafts
| Provision | Decision to Make | Information to Gather |
|---|---|---|
| Parties and property | Who owns the property and what real estate is covered? | Legal names, vesting, deed, legal description, title report |
| Ownership percentages | What undivided percentage does each owner hold? | Purchase contributions, closing statement, deed terms |
| Voting | Which decisions are routine, major, or unanimous? | Ownership percentages, lender requirements, management plan |
| Income and expenses | How are income, operating costs, reserves, and capital calls allocated? | Budget, leases, debt service, insurance, reserve plan |
| Management | Who manages the property and what authority does that person have? | Management contract, leases, reporting procedures |
| Transfers | What notice, purchase rights, valuation rules, and lender approvals apply? | Loan documents, title restrictions, proposed transfer process |
| Default | What is a default, how long is the cure period, and what remedies are available? | Payment obligations, insurance requirements, state-law remedies |
| Disputes and deadlock | How are disagreements escalated and unresolved votes handled? | Preferred mediation, arbitration, venue, and deadlock procedures |
| Partition | What steps occur before a co-owner pursues a partition remedy? | State law, valuation method, buyout timing |
| Exit | How can one interest or the entire property be sold? | Broker selection, sale approvals, closing and distribution rules |
Attorney Review Checklist and Sample Outline
The following is a drafting outline to take to a real estate attorney. It is intentionally not written as a generic legal contract because the final language should be adapted to the property, the owners, state law, financing documents, and tax objectives.
- Parties and recitals: legal names, capacity, purpose of the co-ownership, and effective date.
- Property: street address, legal description, title references, and any exhibits.
- Percentage interests: each owner’s exact undivided interest and confirmation that deed vesting matches.
- Initial contributions: purchase money, closing costs, reserves, and responsibility for acquisition expenses.
- Future funding: budgets, capital calls, emergency contributions, advances, reimbursement, and consequences of nonpayment.
- Income and accounting: collection of rent, bank accounts, financial reports, tax information, reserves, and distribution procedures.
- Management and use: manager authority, owner responsibilities, leasing authority, insurance, repairs, and property access.
- Voting matrix: routine decisions, major decisions, unanimous decisions, notice requirements, and deadlock rules.
- Financing: existing debt, future borrowing, blanket liens, separate financing, guarantees, and lender-consent requirements.
- Transfers: permitted transfers, notice, purchase rights, valuation, closing periods, transferee qualifications, and assumption of the agreement.
- Default and remedies: events of default, notice, cure periods, protective advances, reimbursement, enforcement, and any buyout remedy.
- Dispute resolution: negotiation, mediation, arbitration or litigation, governing law, venue, and emergency relief.
- Partition: required notices, pre-partition purchase procedure, appraisal method, deadlines, and allocation of costs.
- Exit and sale: sale of an individual interest, sale of the entire property, broker selection, approvals, closing authority, debt payoff, and distribution of proceeds.
- Successors and amendments: death or incapacity procedures, successor obligations, amendment threshold, notices, counterparts, electronic signatures, and other state-specific execution provisions.
- Tax review if applicable: confirm whether the arrangement is intended to be treated as direct co-ownership for federal tax purposes and whether any owner expects to use the interest in a 1031 exchange.
Coordinate 1031 Exchange Requirements Before Signing
If an owner plans to acquire or dispose of a TIC interest through a 1031 exchange, the legal agreement and the exchange plan should be reviewed together before closing.
Treasury Regulation Section 1.1031(a)-3 includes co-ownership among the intangible interests that can be real property for Section 1031 purposes, while generally excluding partnership interests except for the limited Section 761(a) situation described in the regulation. See the current Section 1031 real property regulation.
That distinction is one reason the co-owners should avoid casually drafting partnership-style control or economic provisions when direct TIC ownership is part of the intended tax structure.
Tax counsel should determine how the arrangement will be classified. A qualified intermediary handles exchange mechanics and cannot determine whether a particular co-ownership agreement produces the intended tax result.
When the agreement will be used with a 1031 exchange, compare its voting, transfer, management, debt, and allocation provisions with the Revenue Procedure 2002-22 ruling conditions before signing.
Finalize the Agreement With the Other Transaction Documents
Before execution, the attorney should compare the TIC agreement against the deed, title requirements, loan documents, leases, management agreement, insurance requirements, and any purchase or sale contract.
A conflict between documents can create problems even if the TIC agreement itself is carefully written.
The attorney and title or escrow professionals should also determine which signatures, acknowledgments, notarization, memoranda, or recordings are appropriate in the property’s jurisdiction.
Do not assume that every TIC agreement must be recorded or that recording the agreement itself creates the tenancy. The deed, state law, and local recording practices control important parts of that analysis.
Once the document is signed, each owner should receive a complete copy along with the related property documents.
The owners should also calendar any recurring requirements, such as annual management approvals, insurance renewals, reporting dates, budget approvals, and any amendment or notice procedures written into the agreement.
Coordinate the TIC Agreement With Your Exchange Plan
A real estate attorney should draft or review the co-ownership agreement, and a qualified tax professional should address classification and tax consequences. If the TIC interest is part of a 1031 exchange, 1031 Exchange Place can help coordinate exchange timing, qualified intermediary requirements, and replacement-property logistics while your legal and tax advisors handle the agreement itself. You can discuss TIC exchange coordination with our team before the transaction documents are finalized.
