Property Ownership Basics for Tenants in Common

Tenancy in common is a form of concurrent ownership of real property and can be an excellent solution for those who want to buy a home but can't afford one on their own. However, it can limit a co-owner's rights and options to the property, not only while owning it, but also when transferring ownership to another buyer. While this type of ownership agreement can make things easier for potential buyers, it may have detrimental results for renters who get displaced when ownership of their building changes.

Tenancy in common allows more than one person to own a property, such as a home or land parcel, at the same time. Each person can hold an equal or unequal percentage of the overall property. For example, two people may own 25 percent of a property, while another person owns 50 percent. Co-tenants are “undivided,” in the eyes of many states.

This means that each person in a tenancy in common relationship has an equal right to the entire property without restriction to a specific part of it. Tenancy in common is popular in San Francisco and Los Angeles and is emerging in New York, Boston, Seattle and Portland.

Before a co-owner passes away, they have the right under a tenancy in common agreement to leave their share of the property to a beneficiary of their choosing as part of their estate. Property owners can create a tenancy in common agreement between themselves at any time or add others to it. For example, if two people each own 50 percent of a property, one can decide to split their portion with someone new to the agreement, leaving two people to have 25 percent ownership and the third to still have 50 percent. Any member of this agreement may also sell or borrow against the portion they own.

On the plus side, entering into a tenancy in common may make homeownership a greater possibility for people struggling to buy property independently. As it divides deposits and payments between co-owners, it is a cheaper option than owning a property alone. Additionally, when one co-owner makes more money or is in a better financial position than the others, tenancy in common allows them to combine assets and incomes to make a down payment and qualify for a loan.

There are a few reasons why a tenancy in common agreement doesn't work for everyone. All owners share equal responsibility for debts and property taxes. If one person stops contributing to the mortgage, everyone else must cover their share. Each group member signs a mortgage for the property, so the lender can seize holdings from all of them if they don't come up with the delinquent money.

If a co-owner dies without a will, their portion will go through probate, which can take significant time and money to settle. As the deceased person also can designate a beneficiary of their choosing, the surviving owners can find themselves in a partnership with someone new that they don't agree with or don't like.

A joint tenancy is a way to co-own real or personal property between two or more people, with each owning an undivided interest of the whole. This means that the co-owners of the property own equal shares of the property without owning any one piece in particular.

The key difference between joint tenancy and tenancy in common is that owners receive what is called a "right of survivorship" through a joint tenancy's creation. When a co-owner dies, their share of the property passes to the joint tenants still living. For example, a married couple share property, such as a home or land, as joint tenants. When a spouse dies, their share of the property transfers to the surviving spouse, which allows them to avoid probate.

Dissolution of a tenancy in common is possible in several ways. One or more co-owners can buy the others out, effectively dissolving the relationship. Once the sale occurs, the money gets divided among the group, based on each owner's interest percentage in the ownership of the property.

If they have different ideas about how they want to use or sell a property and can't agree, members can file a partition action against other members, which forces the division of property by court order. This can occur only if fair division of the property is possible so that each group member gets a parcel of equal value but not necessarily of equivalent size – the court will require the help of a surveyor and real estate appraiser to calculate this. After partitioning the property, each co-owner receives a deed to their parcel.

As tenancy in common agreements become more popular, they can change a city's real estate landscape for better or worse. While these arrangements can open doors for people who cannot afford to own property otherwise, they may displace the original renters. For example, in Los Angeles, tenancy in common agreements primarily come into play when purchasing apartment buildings, subdivided homes and bungalow courts, all of which have multiple units.

These agreements allow tenants to decide who can occupy various areas of a property and who can live in what unit. As they can be complex – co-owners don't own the apartment they live in, but do own a share of the property – the number of interested buyers is smaller, and units may sell for 11 to 15 percent less than average.

While tenancy in common is one of the more popular forms of concurrent ownership, it is still rare in Los Angeles. In fact, only two financial institutions – Sterling Bank and National Cooperative Bank – offer buyers the fractional loans they need to purchase a property. There are also few payment plans in the area.

When a multi-unit building changes ownership via tenancy in common, landlords will usually remove the renters currently living in its units. They do this either by paying them a relocation fee to leave, waiting for them to voluntarily move so they don't have to pay the fee, or force them to relocate by invoking California's Ellis Act, which allows owners to evict renters if they decide to leave the rental business.

Cities can make their own laws regarding renters when removing a property from the rental market. In San Francisco, a married couple who bought an apartment building with others in a tenancy in common (TIC) arrangement discovered that their renters signed an agreement with the building's other owners to stay in an apartment through the city's Expedited Conversion Program. This requires landlords to offer lifetime leases to tenants in some units when converting to a TIC.

Their tenant took the deal after the conversion went through and when they tried to sue the city regarding the lifetime lease, the court dismissed the case. However, the renters may not be there for long – the U.S. Supreme Court revived the case in June 2021.