Definition
Tenancy in Common (TIC) is a legal term in finance that refers to a form of ownership where two or more individuals equally own property. Each owner, known as a tenant in common, holds a specific share of the property, and these shares do not have to be equal in size. Upon the death of a tenant in common, their share of the property is passed down to their estate or as specified in their will, not automatically to the other tenants.
Key Takeaways
- Tenancy in Common is a type of property ownership where two or more individuals hold interests in the same property. Each tenant in common owns their interest as an individual, which can be a different proportion from the others.
- A tenant in common has the right to sell, mortgage or transfer their interest without obtaining consent from the other tenants in common. Unlike joint tenancy, there’s no right of survivorship in a tenancy in common.
- In the event of a tenant in common’s death, their interest will pass in accordance with their estate plan, or if no estate plan is in place, it will pass in accordance with the laws of the state.
Importance
Tenancy in Common (TIC) is a critical finance term, especially in property investment. It refers to a situation where two or more parties hold ownership interests in a property.
The importance of this term lies in its implications for rights, flexibility and estate planning. Each tenant in common owns a separate and distinct share, and this share can be bought, sold, or bequeathed independently of the other co-tenants.
Different from joint tenancy, there’s no right of survivorship in TIC, meaning if one tenant dies, their share doesn’t automatically go to the remaining co-tenants, but instead is passed onto their heirs. Therefore, TIC allows for greater individual control and can be a useful vehicle for managing and passing on property assets.
Explanation
Tenancy in Common is primarily utilized as a method of co-ownership that allows each party to own an individual, undivided share in the property. The main purpose of this legal arrangement is to allow multiple parties to hold an interest in a single property simultaneously.
Each tenant in common may hold different proportions of the property, unlike joint tenancy where interests are equal. This type of co-ownership model is ideal for situations where the parties involved wish to have separate stakes that they can pass on independently to their heirs.
The key advantage of tenancy in common is that it provides great flexibility in estate planning. This is because each co-owner may dispose of their portion of the property as they wish, either during their lifetime or upon death, without requiring consensus from other co-owners.
A tenancy in common agreement allows each party to manage their estate according to their personal preferences or financial needs. Furthermore, as each party holds an individual interest, they can independently mortgage their portion of the property or sell it without interfering with the rights of other co-owners.
Examples of Tenancy in Common
Investment Property Ownership: Consider three business partners Larry, Curly, and Moe, who wish to invest in real estate together. They purchase an office building as Tenants in Common. Larry contributes 40% of the total investment amount, Curly 30%, and Moe the remaining 30%. This means Larry owns 40% of the property, Curly 30%, and Moe 30%. Later on, Moe decides he wants to sell his share. In a tenancy in common, he is allowed to do so without requiring permission from Larry and Curly. He can sell it to anyone he wishes or even leave it in his will.
Residential Property: Suppose, John and Sarah (who are not married) decide to buy a house together with unequal contributions. John contributes 70% while Sarah contributes 30%. Here, tenancy in common allows both of them to hold separate titles for the house with their respective interest (70% and 30%). If Sarah decides to sell her share in the future, she has the legal right to do so without John’s interference.
Family Inheritance: Let’s assume a family where the parents are deceased and leave their house to their three children, Alice, Bob, and Charlie, as Tenants in Common. The siblings each now own an equal one-third share of the property, regardless of their financial contribution to upkeeping of the property. If Alice decides she wants to sell her portion, she can do so without having to get approval from Bob or Charlie. However, if Bob passes away, his share will be dealt with according to his will, and not automatically get divided amongst Alice and Charlie.
Tenancy in Common FAQ
What is Tenancy in Common?
Tenancy in Common is a specific type of concurrent, or simultaneous, ownership of real property by two or more parties. It differs from other types of co-tenancy in that it allows each co-tenant to divide his share of the property among his beneficiaries, rather than the property vesting as a whole to the surviving tenant or tenants.
How is Tenancy in Common different from Joint Tenancy?
While both Tenancy in Common and Joint Tenancy allow for multiple owners of a property, one key difference separates the two. In Joint Tenancy, if one of the property owners dies, their share of the property automatically transfers to the surviving owners. In Tenancy in Common, however, the deceased owner’s share of the property does not automatically transfer to the surviving owners, but instead goes to the deceased owner’s estate.
Can a Tenancy in Common agreement be terminated?
Yes, a Tenancy in Common agreement can be terminated if one or more of the tenants decides to sell their interest in the property. Alternatively, a tenant can also file a petition to partition, which is a legal method of forcing a property sale.
What are the advantages of Tenancy in Common?
The main advantage of Tenancy in Common is the flexibility it offers in terms of estate planning. If one co-tenant dies, they can pass their interest in the property onto whomever they choose, rather than having it automatically go to the surviving co-tenant(s). This could be especially beneficial for co-tenants who are not married to each other, or for those who want to keep the property within their family.
Related Entrepreneurship Terms
- Joint Tenancy
- Undivided Interest
- Partition Action
- Co-tenancy
- Probate
Sources for More Information
- Investopedia: A comprehensive website offering a wide range of information on finance and investing terms.
- Nolo: An online library full of articles, lawyer directories, and free legal information.
- Bankrate: A source good for personal finance information, advice, and tools.
- LegalZoom: An online legal service company that offers legal information and services to its visitors.
