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Buying Property: What is Tenancy in Common?

Ownership of real property comes in a variety of forms, with the four most common types being:

  • Sole ownership by a natural person or a limited liability company or corporation
  • Tenancy by the entirety, which applies to ownership by a married couple. Upon the death of the spouse first to die, full ownership vests in the surviving spouse.
  • Joint tenancy by two or more persons, which means each of the owners holds equal interests, all must receive their interest at the same time, and all must acquire their interest by the same deed. When one joint tenant dies, their interest transfers to the remaining owner(s). Upon the death of the last joint tenant, the property passes to that last tenant’s heirs.
  • Tenancy in common, which can be equal or unequal ownership between two or more people. When one of the tenants in common dies, their share goes to their heirs.

What’s the Difference Between Joint Tenants and Tenants in Common?

The main difference between these two forms of shared ownership is that joint tenants have a right of survivorship, while tenants in common do not.

With joint tenancy, owners hold equal shares of a property with the same deed acquired at the same time. When one joint tenant dies, their interest passes to the remaining joint tenants. This is known as a right of survivorship. The marital rights of a spouse of a joint tenant do not attach to the joint tenant’s interest. At the death of the last surviving joint tenant, he or she can dispose of the property as they wish in their will.

In a tenancy in common arrangement, ownership interests can be equal or unequal, though all areas of the property are owned equally. A tenancy in common can be created at any time and new tenants can be added at different times. In this form of ownership, the tenants in common own property together without a right of survivorship. When one tenant in common dies, their share of the property passes to their heirs or designated beneficiaries, not to the other tenants in common.

Why Would One Enter into a Tenants in Common Arrangement?

Buying real estate can be challenging, especially from a financial standpoint. Ownership by two or more tenants in common is a way of dividing up deposits, mortgage payments, property taxes, and maintenance, making it easier to buy real estate.

You may have a potential co-tenant with greater borrowing power than you do, giving you the ability to get a foothold in the housing market that you otherwise wouldn’t have. Different tenants in common can own different shares of the property.

What Are the Disadvantages to the Arrangement?

If the property is mortgaged, all borrowers are on the same loan agreement. If one borrower stops paying their part of the loan, other borrowers on the loan agreement would still be responsible for paying the full amount. The real estate is also potentially vulnerable to the creditors of the other owners.

All tenants are responsible for costs (bills, maintenance, insurance, taxes, etc.) associated with the property. If one tenant pays for these expenses using their own money, it’s imperative to create an agreement to ensure the others reimburse them. Otherwise, this could cause friction between owners.

And again, if one tenant in common dies, the remaining tenants don’t automatically get the rights to that share of the property because it will go to the heirs or estate of the deceased. If owner #1 passes away and leaves their half of the property to their child, that child and owner #2 will co-own the property together.

If Tenancy in Common Doesn’t Work Out, Then What?

Breaking up the arrangement is possible. One or more tenants can buy others out and dissolve the arrangement.

If the parties simply can’t agree, a partition action—which divides the property and ownership—may be the only way to resolve it. In this instance, a court will order how the property is split, or may order that the property be sold and the net proceeds divided among the owners

What Form of Ownership is Best?

The type of ownership that is right for you depends on individual circumstances. Things can get complicated when you are buying a house with other people. It’s important to have guidance from an attorney on how to protect your interests.

If you are buying or selling and have questions regarding the deed or title on your property, give Attorney’s Title Group a call. Our experienced team of real estate attorneys and title and closing professionals are here to help! Click here to contact us.