Your Guide to Tenancy in Common Agreements

Welcome to 1031 Exchange Place, your trusted partner in real estate investment and 1031 exchanges. Whether you are a seasoned investor or new to the real estate market, understanding Tenancy in Common (TIC) agreements is essential. This comprehensive guide will walk you through everything you need to know about TIC agreements, from their definition to common disputes and resolutions.

What is a Tenancy in Common Agreement?

A tenancy in common is a form of real property ownership in which two or more co-owners each hold a separate, undivided interest in the same property. A tenancy in common agreement, sometimes called a TIC agreement or co-ownership agreement, is the contract the owners may use to establish how they will manage that shared ownership, including expenses, voting, property use, transfers, defaults, disputes, and exit procedures.

Ownership percentages do not have to be equal. Each owner’s interest should be coordinated with the deed and other transaction documents. The specific rights of the owners can also be affected by state law, financing, leases, and the terms of an enforceable co-ownership agreement.

Key Features of TIC Agreements

• Undivided Interest: Each owner holds a fractional interest in the entire property, not a specific portion.
• Transferability: Owners can sell, gift, or bequeath their shares without the consent of other co-owners.
• Flexibility: TIC agreements are flexible in terms of ownership percentages and financial responsibilities.

Learn more about what’s included in a tenancy in common agreement.

How a Tenancy in Common Agreement Is Created

Creating a TIC agreement starts with the actual property, ownership structure, financing, and objectives of the co-owners. Before an attorney drafts the document, the owners should confirm title, ownership percentages, financial contributions, voting rules, management responsibilities, transfer rights, default procedures, dispute resolution, partition rights, and exit procedures.

The final agreement should be coordinated with the deed, title documents, loan requirements, leases, management arrangements, and applicable state law. When a TIC interest may be used in a 1031 exchange, the owners should also obtain appropriate tax review before the agreement is finalized.

For the full drafting process and attorney-review checklist, see our guide on how to create a tenancy in common agreement.

Benefits and Drawbacks of Tenancy in Common Agreements

A TIC structure can provide flexibility, but shared ownership also creates practical and legal issues that should be addressed before the property is acquired.

Potential Benefits

• Flexible ownership percentages: Co-owners can hold equal or unequal undivided interests based on their agreed ownership structure.
• Shared acquisition costs: Multiple owners can combine capital to acquire real estate that one owner might not purchase alone.
• Separate ownership interests: Each co-owner generally owns a distinct interest that may be transferred or inherited, subject to applicable law, financing, and agreement restrictions.
• Defined operating rules: A carefully drafted agreement can establish procedures for expenses, management, voting, transfers, disputes, and exits before disagreements occur.
• Potential 1031 planning: A direct TIC interest in qualifying real property may potentially be used in a 1031 exchange when the ownership structure and exchange otherwise satisfy the applicable requirements.

Potential Drawbacks and Risks

• Shared decision-making: Major property decisions may require approval from multiple owners, which can slow action or create deadlocks.
• Disputes: Owners may disagree about expenses, leasing, improvements, management, financing, use of the property, or when to sell.
• Funding problems: If one owner fails to contribute an agreed share of property expenses or capital needs, the agreement must determine how the shortfall is handled.
• Financing complexity: Lender requirements, guarantees, blanket debt, and restrictions on transfers can make financing a multi-owner property more complicated.
• Limited liquidity: A fractional interest may be difficult to sell, and a buyer may require a discount or additional diligence because the buyer will become a co-owner.
• Exit conflicts: One owner may want to sell while others want to continue holding the property, making buyout, transfer, or partition provisions especially important.

The suitability of a TIC structure depends on the property, owners, financing, investment objectives, and governing documents. Shared ownership does not guarantee diversification, investment returns, income, liquidity, or reduced risk.

Legal Requirements Depend on the Property and State Law

There is no single national set of execution requirements that applies to every tenancy in common agreement. State property law, the deed, financing documents, recording rules, the intended use of the property, and the terms of the agreement can all affect what is required.

A written, attorney-reviewed agreement is often useful for establishing enforceable rules among co-owners, but investors should not assume that every TIC agreement must be separately notarized or recorded, or that recording the agreement itself creates the tenancy in common.

For a detailed discussion of title, contract enforceability, recording, transfers, partition rights, and federal tax-classification considerations, review our tenancy in common agreement requirements.

Common Disputes and Resolutions in Tenancy in Common Agreements

Despite careful planning, disputes among co-owners can arise. Understanding common issues and how to resolve them can help maintain harmony and protect your investment.

Common Disputes in TIC Agreements

• Financial Contributions: Disagreements over financial contributions for maintenance, repairs, or improvements.
• Property Use: Conflicts over the use of the property, especially if co-owners have different plans or usage needs.
• Sale of Shares: Issues arising when one co-owner wants to sell their share, but others do not agree.

Resolutions for TIC Disputes

• Mediation: A neutral third party can help facilitate discussions and resolve conflicts amicably.
• Arbitration: Binding arbitration can provide a quicker, less formal resolution process compared to court litigation.
• Buyout Agreements: Establishing buyout terms in the TIC agreement can provide a clear process for one co-owner to purchase another’s share if conflicts arise.
• Court Intervention: As a last resort, co-owners can seek legal resolution through the courts, though this can be time-consuming and costly.

Learn more about possible disputes and resolutions of a tenancy in common agreement.