Tenants in Common in Real Estate Ownership

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Tenants in common is one way for two or more individuals to hold the title to a property. You can't be a tenant in common by yourself, but there's no limit to the number of individuals who can hold title to the property with you. A property held by tenants in common can be owned by two owners or 100-plus owners. Sometimes this type of title is referred to as a tenancy in common.

A common misconception is that tenants are people who rent. While that's accurate, in this case, the term "tenants" is unrelated to rental property.

Learn more about tenants in common and what to keep in mind if you own property with others.

Financing With Tenants in Common

Most lenders require that mortgage documents include the signatures of all the parties who hold title in a tenants in common property. In other words, you must all take out the loan together. If a lender made the loan to only one party or "tenant," only one person's portion of ownership would act as security for the loan. Lenders would not be able to seize the entire property in the event of default. 

If three people hold title as tenants in common and one of them stops contributing to the mortgage payment, the remaining two would still be liable for the loan to prevent default.

The Rights of Tenants in Common

Tenants in common can be related to each other or unrelated. The relationship between the parties, if any, makes no difference. Ownership can also be held in equal shares or unequal shares. For example, John could hold 50% ownership, Mary 25%, and Sally 25%. 

Sally can live in the property by herself or share the property with John and Mary. No tenant or tenants can exclude the others. 

Should one of the tenants die, their interest would pass to their heirs. If Sally died, John would still hold 50% and Mary would still own 25%, but Sally's 25% would pass to whomever she designated in her estate plan or to her relatives, according to state law. 

How Can Joint Tenants Become Tenants in Common?

Unlike tenants in common, joint tenancy typically involves a right of survivorship, which means that the interest held by each tenant would pass to the others upon death.

Joint tenancy requires four unities known as TTIP, which stands for time, title, interest, and possession. Each owner must take title to the property at the same time. Each owner must receive the title on the same deed. Each owner receives the same proportionate and equal share of ownership, and each owner has an identical right of possession.

The title usually reverts to a tenancy in common if these four unities aren't met. If a joint tenant sells or conveys the interest created in a joint tenancy to another party, the joint tenancy is broken and a tenancy in common is created. Joint tenants cannot stop another tenant from breaking the joint tenancy.

Dissolving Tenants in Common

To dissolve tenants in common, the property can be sold and the proceeds can be distributed among the tenants according to their ownership percentage.

A partition action can also be filed. This involves going to court and asking a judge to order that the property be sold so the proceeds can be distributed among the owners. You might see a partition action filed when an heir wants to sell the property after a co-tenant dies but the other co-tenants do not.

One or more co-tenants can buy out the others if they elect to dissolve the tenancy in common.

Other Uses for Tenants in Common

Properties are increasingly being sold under a tenancy in common arrangement instead of a limited or general partnership. A builder might sell portions of a new project to a number of investors who will all share an undivided interest in the property. Seek the advice of legal counsel if you're considering a venture of this nature so you thoroughly understand your rights and liabilities.

Key Takeaways

  • Tenants in common is a way for two or more individuals to hold the title to a property. 
  • If the property is financed, all tenants must sign for the mortgage. 
  • Tenants in common do not have survivorship rights. If one of the tenants dies, their interest passes to their heirs rather than to the other tenant(s). 
  • Tenants in common can be dissolved by selling the property and distributing the proceeds or by filing a partition action.