Tenants in Common: Understanding Joint Ownership of Property

What does ‘joint tenants’ or ‘tenants in common’ mean?

‘Joint tenants’ and ‘tenants in common’ are terms used in property law to describe different types of ownership interests in real estate.

Joint tenants refer to a type of ownership where two or more individuals own an equal share of a property. When one owner dies, their share of the property automatically passes to the surviving joint owner. This is known as the right of survivorship. In other words, if one joint tenant dies, the surviving joint tenants inherit the deceased tenant’s share of the property.

‘Joint tenantss’ and ‘tenants in common’ are terms used in property law to describe different types of ownership interests in real estate.

Joint tenants refer to a type of ownership where two or more individuals own an equal share of a property. When one owner dies, their share of the property automatically passes to the surviving owner(s). This is known as the right of survivorship. In other words, if one joint tenant dies, the surviving joint tenant(s) inherit the deceased tenant’s share of the property.

When a tenant in common dies, their share of the property is distributed according to their will or according to the laws of intestacy (if they don’t have a will).

In summary, the main difference between joint tenants and tenants in common is that joint tenancy includes the right of survivorship, while tenants in common do not.

How Tenancy in Common (TIC) Works

Tenancy in common (TIC) is a type of shared ownership of a property where two or more individuals own a fractional interest in the property.

Each owner has an undivided interest in the property, meaning that each owner has the right to use and occupy the entire property, regardless of the percentage of ownership. Here are some key characteristics of TIC:

  • Ownership shares: Each owner in a TIC has a distinct ownership share, which can be equal or unequal to other owners. For example, one owner may have a 50% interest in the property while the other owner may have a 25% interest. Each owner’s share is determined by the percentage of the property they own.
  • Control: Each owner has an equal right to manage the property and make decisions regarding the property, such as repairs, maintenance, and improvements. However, each owner’s decision-making power is proportional to their ownership share.
  • Income and expenses: Each owner is responsible for their share of the property’s expenses, such as property taxes, insurance, and maintenance costs. Each owner is also entitled to their share of any rental income or other profits from the property.
  • Transferability: Each owner can sell or transfer their ownership share in the property to another person without the permission of the other owners. However, the new owner will become a tenant in common and will be subject to the same rules and regulations as the existing owners.
  • Death of an owner: When an owner dies, their ownership share in the property passes to their heirs or beneficiaries, either through their will or through intestate succession laws.
  • Financing: Financing a TIC can be more challenging than financing a single-owner property. Each owner’s ownership share must be taken into account when obtaining a mortgage or financing, which can complicate the process.

Do You Need Tenants in Common Mortgage?

A Tenancy in Common (TIC) property can be financed through a mortgage, but whether you need a tenants in common mortgage or not depends on your situation and the lender’s requirements.

If you are purchasing a TIC property with other co-owners, you can apply for a tenants in common mortgage together. This allows each co-owner to contribute their share of the down payment and mortgage payments, and share ownership of the property according to their percentage of ownership.

However, some lenders may not offer tenants in common mortgages, or they may require additional documentation or higher down payments due to the added complexity of this type of ownership structure. In some cases, co-owners may need to obtain separate mortgages for their individual shares of the property.

It’s important to note that if you are considering a TIC property, you should consult with a real estate attorney or financial advisor to fully understand the legal and financial implications of this type of property ownership structure, including mortgage financing.

Ownership Percentage Options for Tenants in Common

Tenants in Common (TIC) allows two or more individuals to own a fractional interest in a property. The ownership percentage options for tenants in common depend on the agreement between the co-owners and can be divided in any proportion that the co-owners agree on.

Here are some common property ownership percentage options for tenants in common:

  1. Equal Shares: The co-owners divide the ownership of the property into equal shares. For example, if there are two co-owners, each co-owner will own a 50% share of the property.
  2. Unequal Shares: The co-owners divide the ownership of the property into unequal shares. For example, if there are three co-owners, one co-owner may own a 60% share of the property, while the other two co-owners may own a 20% share each.
  3. Proportional Shares: The co-owners divide the ownership of the property based on their financial contribution to the property. For example, if one co-owner contributed 60% of the down payment, they may own a 60% share of the property, while the other co-owners may own a 20% share each.
  4. Custom Allocation: The co-owners may agree to a custom allocation of ownership percentages based on factors such as anticipated use of the property, maintenance responsibilities, or other criteria that the co-owners deem relevant.

It’s important for tenants in common to agree on the ownership percentage options and document their agreement in writing to avoid disputes and misunderstandings in the future.

What happens when a joint tenant dies?

When a co owners dies, the ownership of the property passes automatically to the surviving joint tenant(s) through the right of survivorship. This means that the deceased joint tenant’s share of the property is transferred directly to the surviving joint tenant(s) without going through probate or being affected by the deceased joint tenant’s will.

Property Taxes Under Tenancy in Common

Under Tenancy in Common (TIC), each co-owner is responsible for paying property taxes on their fractional interest in the property. This means that each co-owner’s share of the property tax is calculated based on the percentage of ownership they hold in the property.

For example, if there are two co-owners in a TIC property, one with a 60% share and the other with a 40% share, the property tax bill will be split accordingly. The co-owner with the 60% share will be responsible for paying 60% of the property tax bill, while the co-owner with the 40% share will be responsible for paying 40% of the bill.

It’s important for TIC co-owners to have a clear understanding of their respective ownership percentages and their obligations with regard to property tax payments. The co-owners may choose to make these payments directly to the tax authority or to set up an joint tenancy agreement
in which one co-owner makes the payment on behalf of all co-owners and is reimbursed by the others.

It’s also important to note that if property taxes are not paid, the local government may place a lien on the property, which can lead to foreclosure. Therefore, it’s essential for TIC co-owners to stay current on property tax payments to protect their investment in the property.

Is it better to be tenants in common or joint tenants?

Whether it’s better to be tenants in common or joint tenants depends on your individual circumstances and goals.

Joint tenancy is often chosen by couples or family members who want to ensure that the surviving joint tenant(s) will automatically inherit the property when one of the owners dies. This is because joint tenancy includes the right of survivorship, which means that when one joint tenant dies, their share automatically passes to the surviving joint tenant(s) without going through probate.

On the other hand, tenants in common may be preferred when co-owners want more flexibility and control over their respective shares of the property. Each co-owner in a tenancy in common can sell, transfer, or mortgage their share without the consent of the other co-owners, and they can also leave their share of the property to whomever they choose in their will.

Pros of Tenancy in Common:

  • More flexibility: Each co-owner has greater flexibility and control over their respective shares of the property.
  • Unequal ownership: Tenants in common can have unequal ownership percentages, which may be desirable if one co-owner contributed more to the purchase price or mortgage payments.
  • Inheritance control: Co-owners can leave their share of the property to whomever they choose in their will.
  • Right to partition: Each co-owner has the right to seek a court-ordered partition of the property if they wish to sell their share of the property or if they can no longer agree with the other co-owners on the management of the property.
  • Right to contribution: Each co-owner has the right to require the other co-owners to contribute their fair share of expenses related to the property.

Cons of Tenancy in Common:

  • No right of survivorship: Tenants in common do not have the automatic right of survivorship, which means that when one co-owner dies, their share of the property does not automatically pass to the surviving co-owners.
  • Potential conflicts: Disagreements can arise among co-owners over the management of the property, especially if there are unequal ownership percentages or differences in opinion about the use of the property.
  • Risk of partition: The right to partition can result in the property being sold against the wishes of some or all of the co-owners.
  • Difficulty in selling: It can be more difficult to sell a share of a property owned as tenants in common compared to joint tenancy, as each co-owner must agree to the sale and the ownership percentages may not be equal.

How to Change to a Tenants in Common Agreement

Changing the ownership structure of a property from joint tenancy to tenancy in common requires a legal process that typically involves the following steps:

1. Discuss the change with the other joint tenant(s): If you are currently a joint tenant and want to switch to tenancy in common, you will need to discuss this with the other joint tenant(s) and obtain their consent.

2. Consult with an attorney: It’s recommended to consult with an experienced real estate attorney who can advise you on the legal and tax implications of changing ownership structure, and help you draft and file the necessary legal documents.

3. Prepare a new deed: The new deed will transfer ownership from joint tenancy to tenancy in common. The deed must include the names and ownership percentages of each tenant in common.

4. File the new deed with the county recorder’s office: The new deed must be filed with the county recorder’s office in the county where the property is located.

5. Notify relevant parties: Notify your mortgage lender, insurance company, and any other relevant parties of the change in ownership structure.

6. Update your estate plan: If you have an estate plan that includes your property, you will need to update it to reflect the new ownership structure.

It’s important to note that changing ownership structure can have legal and tax implications, so it’s recommended to consult with an attorney and/or tax professional before making any changes.

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