Definition
Tenancy in Common (TIC) is a form of real estate ownership in which two or more individuals or entities hold undivided fractional interests in the same property. Each co-owner owns a percentage of the entire property, not a specific physical portion.
In simple terms: multiple parties own the same property together, each holding a share.
Key Characteristics
- Ownership percentages may be equal or unequal.
- Each owner has the right to use and possess the entire property.
- Each owner can sell or transfer their interest independently.
- No automatic right of survivorship.
No Right of Survivorship
Unlike joint tenancy, TIC ownership does not include a right of survivorship. When a TIC owner dies, their interest passes to heirs or beneficiaries, not automatically to the other co-owners.
Example
Three investors purchase a commercial property:
- Investor A: 50%
- Investor B: 30%
- Investor C: 20%
Each owns a fractional interest in the entire asset and shares income and expenses according to ownership percentage.
TIC and 1031 Exchanges
Tenancy in Common structures are sometimes used in 1031 exchanges because fractional TIC interests may qualify as direct real estate ownership rather than securities (subject to IRS guidance).
TIC interests can allow investors to exchange into larger institutional-grade assets while maintaining fractional ownership.
TIC vs. Joint Tenancy
- TIC: No survivorship rights; fractional interests can differ.
- Joint Tenancy: Equal ownership shares with right of survivorship.
TIC vs. LLC Ownership
- TIC: Owners hold title directly.
- LLC: Entity holds title; investors own membership interests.
LLC structures often provide stronger liability protection and centralized management.
Management Considerations
TIC arrangements often require a co-ownership agreement covering:
- Decision-making authority
- Expense sharing
- Transfer restrictions
- Dispute resolution mechanisms
- Buy-sell provisions
Without clear agreements, disputes can arise over control and capital contributions.
Risks of TIC Structures
- Potential for forced partition actions.
- Limited liability protection compared to LLCs.
- Financing complexity—lenders may require all TIC owners to sign.
- Coordination challenges among multiple co-owners.
When TIC Is Commonly Used
- Family property ownership
- Inherited real estate
- 1031 exchange replacement properties
- Small group investment partnerships
Investor Checklist
- Document ownership percentages clearly in deed.
- Execute a written co-tenancy agreement.
- Clarify capital contribution responsibilities.
- Establish dispute and buy-sell mechanisms.
- Evaluate lender requirements before acquisition.