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What is Tenancy In Common (TIC)?

definition

Tenancy in Common (TIC) is an arrangement where multiple people own a single piece of property, commercial or residential, though each share may not be equal — and each owner can freely transfer their share to another person.

🤔 Understanding tenancy in common

When multiple people hold ownership in the same piece of property, there are numerous ways to divide the ownership share. One is to ensure that each person owns an equal percentage of the property (joint tenancy). The second does not require equal shares — One person can own half the property while two others each own a quarter of the property. Tenancy in common is a situation where multiple people own a property, but not all of the shares must be equally sized. The owners are also permitted to transfer their ownership stakes to other people freely.

example

Imagine John, Jane, and Mary decide that they want to invest in an apartment complex in their city. The complex costs $2 million, so Mary invests $1 million, and Jane and John each invest $500,000. They become tenants in common, with Mary owning half the building and Jane and John each holding 25%.

Later, Jane decides that she wants to sell her stake in the property. She can freely sell her 25% stake to Mary, John, or another person who isn’t part of the ownership group. Similarly, if one of the three passes away, they can leave their stake in the property to their heirs.

Takeaway

Tenancy in common is like slicing a pie…

When you slice a pie, not everyone has to get a slice of the same size. One person might be hungrier and pay for a larger slice than someone else. In the same way, Tenancy in common slices ownership in a property into multiple, but not necessarily equal, pieces. After the pie slicing, whoever is holding a slice is free to give it to another person. The other people with slices of pie don’t have any rights to anyone else’s slice or have a right of first refusal before the piece of pie is given away.

Tell me more...

What is Tenancy In Common (TIC)?
How does a TIC work?
What is Joint Tenancy?
How does Joint Tenancy work?
What are the rights and liabilities of a TIC?
What is the difference between a TIC and joint tenancy?
What are the tax implications of a TIC?
What happens when one of the tenants in common dies?
Can I change from joint tenants to tenants in common?

What is Tenancy In Common (TIC)?

Tenancy in Common (TIC) is a type of property ownership. In a tenancy in common agreement, multiple people own a piece of property, but their ownership stakes in the property are not necessarily equal. For example, one person can hold 40% of a property while two others own 30% each.

Every owner in a TIC has a right to occupy or make use of the property that they own. Each owner can occupy and use the entirety of their property, regardless of the size of their ownership stake. Even if one person owns a majority of the property, they do not have the power to refuse access to the other owners.

Owners in a TIC also have the freedom to sell, trade, or give away their ownership stake without input from the other owners. This applies even if one of the tenants in common passes away. They can bequeath their ownership in the property to an heir. The surviving owners don’t have rights to the decedents’ share of the property.

How does a TIC work?

A tenancy in common works much like other forms of joint ownership. Every person involved in the TIC owns a portion of a piece of property. That ownership stake entitles them to certain rights and benefits from the property.

For example, the owners involved in a TIC all have the right to occupy and use the entire property, even though they only own a percentage of the property. If the owners rent the property, each owner in the TIC receives a portion of the rent payments per their stake in the real estate.

Each owner also accepts the responsibilities associated with property ownership. Each must pay any relevant taxes and costs to maintain the property.

Owners in a TIC can draw up a TIC agreement to set rules for how they’ll share and use a property. For example, time-share owners use a TIC agreement to agree on when each owner may use the home and when they need to leave the property for other owners’ use.

What is Joint Tenancy?

Joint tenancy is another way to split ownership of a property between two or more people.

Like a tenancy in common, joint tenants all have the right to occupy and use the full property. The significant difference between TICs and joint tenancy is that joint tenancies create a right of survivorship for each tenant. If one joint tenant passes away, their share in the property passes to the remaining tenants. Joint tenancy also limits the rights of each tenant to sell their share in the property.

How does Joint Tenancy work?

Joint tenancy divides ownership of something into equal portions. Typically, the ownership is in a piece of real estate, though joint tenancy can apply to other things.

Each joint tenant has the right to occupy or make use of the property that they jointly own. Other tenants cannot infringe on their ability to use the property. If the joint tenants sell the property, they must divide the proceeds from the sale evenly among the tenants. If one tenant wishes to sell their share, the joint tenancy must transition to a tenancy in common.

If a joint tenant dies, they cannot pass ownership in the property to an heir through their will. Instead, the remaining tenants automatically inherit their share.

What are the rights and liabilities of a TIC?

Tenants in common all own the piece of property that they share, which means they have all of the rights and liabilities associated with property ownership.

Some of the rights associated with owning a property as part of a TIC are:

  • The right to occupy and use the property you own.
  • The right to receive income from the property when the owners rent it out.
  • The right to sell, gift, or otherwise transfer your ownership stake in the property.

The liabilities associated with owning a property as part of a TIC are:

  • The responsibility to pay expenses to maintain the property.
  • The responsibility to pay property taxes.
  • The responsibility for lawsuits against the property owners.
  • Liability to creditors or legal decisions that force the sale of the property.

What is the difference between a TIC and joint tenancy?

Joint tenancy and tenancy in common both allow people to split ownership of a property, but there are essential differences between the two.

One significant difference is that under a TIC, any tenant is free to sell, give away, or transfer their ownership stake to a person outside the TIC. Other tenants cannot stop a tenant from selling their stake in the property. Similarly, when a member of a TIC passes away, they can pass their ownership share to an heir.

Under a joint tenancy, a tenant cannot sell their share without breaking the joint tenancy. If this happens, the joint tenancy transitions to a tenancy in common. Joint tenants also cannot pass their share in a property to heirs. If a joint tenant passes away, the remaining tenants absorb their share of ownership.

Another difference is the way that the owners can divide the ownership stakes. With a TIC, each tenant can hold a different portion of the property. For example, one tenant can own 50% while two others own 25% each. Under a joint tenancy, the shares must be the same size.

What are the tax implications of a TIC?

Tenants in common own a portion of a piece of real estate, which means they have to deal with the taxes associated with real estate.

Legally, a property owned through a TIC remains one piece of real estate, and each owner is wholly responsible for paying property taxes. In reality, each owner in a TIC usually pays their portion of the tax bill. For example, an owner who owns 50% of the property typically pays half the bill. How the TIC participants plan to pay tax and other bills should be laid out in a TIC agreement.

Owners in a TIC can take deductions for the portion of the property they own. For example, someone who owns 25% of a property under a TIC can generally claim 25% of the mortgage interest paid for the mortgage interest deduction on their taxes.

What happens when one of the tenants in common dies?

What happens when a tenant in common dies depends on the decedent’s will. A TIC does not create a right of survivorship for the remaining tenants, so any tenant is free to transfer their ownership stake to someone else. That includes leaving the ownership share to an heir through a will.

If the tenant in common dies without a will, the share typically passes to their next of kin.

Can I change from joint tenants to tenants in common?

Yes, it is possible to change ownership of a property from joint tenancy to a tenancy in common.

One of the best ways to do this is to work with a lawyer to alter the deed of the property to outline the new ownership structure. It should include the names of the people who own the property and their share of the ownership.

After writing the new deed, file it with the local recorder of deeds, and pay any applicable fees to finalize the change.

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