Santa Monica Property Blog

Are there liabilties in buying a property that offers a Tenancy In Common?

We were shopping for a new Santa Monica condo for the sellers of 428 Hill St. 13, (www.428hillst.jodisummers.com)
 when we came across a property on Franklin Ave. that seemed a particularly good value compared to some of the other properties we had been seeing. The reason it was such a good value was because the property was a “condo-like” unit that is being marketed as having tenant in common ownership.
 The buyers were curious, is this a good way to hold title, and what are there liabilities a tenancy in common ownership? …online had all the answers….
 

The Washington Post Noted:
 With a condo, each owner has title to his or her unit and jointly owns common space, such as the entryway and grounds, with others. But when owners hold property as tenants in common (TIC), each owner has an undivided interest in the whole property.
 For example, in a four-unit building, you will own a portion — perhaps one-fourth — of the entire property, not a specific unit. Unlike with other forms of joint ownership, tenants in common don’t have to own equal shares, so you could just as easily own one-tenth. The portion you own usually relates to the size and quality of the unit you live in. (It’s best to have this value set by a professional appraiser.) TIC owners can sell their interests whenever they want, without the consent of the other owners.
 

There are drawbacks to a tenancy in common. You’ll be buying property with people you don’t know. Because you all own the entire building, you will have to agree on how to handle things like improvements and repairs in any of the units.
 

You can limit the impact of some of these drawbacks by drafting an agreement to deal with these issues. You can make the agreement “condo-like” by setting up a maintenance fund to repair common spaces and allocating responsibility to each owner for the repair and improvement of the unit he or she lives in. You may also agree that if any of you want to sell your share, you must first give the other owners the right of first refusal.
 

In cities where real estate is expensive, TICs give many buyers an affordable opportunity to enter the real estate market. In fact, that may be your only option in this situation, unless you can afford to buy the whole building. To avoid some of the hassles of TIC ownership, you and the other owners may want to consider converting the building to condos later.
 

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Wikipedia.com stated:
 Tenancy in common
 Tenancy in common is the default form of concurrent estate, in which each owner, referred to as a tenant in common, is regarded by the law as owning separate and distinct shares of the same property. By default, all co-owners own equal shares, but their interests may differ in size.
 

This form of ownership is most common where the co-owners are not married or have contributed different amounts to the acquisition of the property. The assets of a commercial partnership are normally owned on a tenancy in common basis. Also, if the joint owners had attempted to use a form of joint ownership, such as a joint tenancy with right of survivorship or a tenancy by the entirety, and the effort was for some reason invalid, the joint owners would by default be classed as tenants in common. If conclusive evidence is not available of the desire to create a tenancy with rights of survivorship or a tenancy by the entirety, a court will normally determine that a tenancy in common has in fact been created.
 

Tenants in common have no right of survivorship, meaning that if one joint owner dies, that owner’s interest in the property will be part of his or her estate and pass by inheritance to that owner’s devisees or heirs, either by will, or by intestate succession. Also, as each joint owner has an interest in the property, they may, in the absence of any restriction agreed to between the joint owners, sell or otherwise deal with the interest in the property (e.g. mortgage it) during their lifetime, like any other personal interest.
 

Destruction of a tenancy in common
 

Where any party to a tenancy in common wishes to terminate (usually termed “destroy”) the joint interest, he or she may obtain a partition of the property. This is a division of the land into distinctly owned lots, if such division is legally permitted under zoning and other local land use restrictions. Where such division is not permitted, a forced sale of the property is the only alternative, followed by a division of the proceeds.
 

If the parties are unable to agree to a partition, any or all of them may seek the ruling of a court to determine how the land should be divided - physically division between the joint owners (partition in kind), leaving each with ownership of a portion of the property representing their share. Courts may also order a partition by sale in which the property is sold and the proceeds are distributed to the owners. Where local law does not permit physical division, the court must order a partition by sale.
 

Each co-owner is entitled to partition as a matter of right, meaning that the court will order a partition at the request of any of the co-owners. The only exception to this general rule is where the co-owners have agreed, either expressly or impliedly, to waive the right of partition. The right may be waived either permanently, for a specific period of time, or under certain conditions.
 

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About.com offered:
 

Tenants in Common Ownership
Tenants in Common is a way to hold title, to own property, by two or more individuals. Sometimes it is referred to as Tenancy in Common. There is no limit to the number of individuals who can hold title to one piece of real estate. A property held by tenants in common can be owned by two owners or 100+ owners.
 

Tenants in common can be between two or more persons who are related or who are unrelated. Husbands and wives can hold title as tenants in common. John Smith, Mary Johnson and Tallulah Bankhead can hold title together as tenants in common.
 

Ownership can be held in equal shares or unequal shares. For example, John could hold 50% ownership, Mary 25% and Tallulah 25%.
 

Co-tenants have the right to possess the property by one tenant or by all the tenants. Tallulah can live in the property by herself or share the property with John and Mary. Neither tenant can exclude the other.
 

Upon death, the interest of the deceased co-tenant will pass to the co-tenant’s heirs. If Tallulah died, John would still hold 50%, Mary would own 25%, but Tallulah’s 25% would pass to whomever she designated in her will.
 

How Are Tenants in Common and Joint Tenants Similar?
They aren’t, really. Tenants in common hold one unity or requirement that is similar to joint tenancy. That unity is the right of possession.
 

How Can Joint Tenants Become Tenants in Common?
Joint tenancy requires four unities. Unlike tenants in common, joint tenancy involves right of survivorship, meaning the interest held by each tenant will pass to the other upon death. The four unities necessary to create joint tenancy are:
 

Time. Each owner must receive title at the same time.
 

Title. Each owner must receive title on the same deed or document evidencing title.
 

Interest. Each owner receives the same proportionate and equal share of ownership.
 

Possession. Each owner has the identical right of possession.
If one of the joint tenants sells or conveys the interest created in a joint tenancy to another person, 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 the tenancy in common, one or more co-tenants can always buy out the others.
 

The property can be sold and the proceeds distributed equitably among the owners.
 

A partition action can filed. This involves going to court and asking to sell the property under court order and distribute the proceeds among the owners. When a co-tenant dies, you may see a partition action filed when an heir may want to sell and the other co-tenants do not.
 

Other Uses for Tenants in Common
 Increasingly, many properties are being sold under a tenants in common arrangement instead of a limited or general partnership. A builder, for example, may sell portions of a new project to a number of investors, who will all share an undivided interest in the property. If you are considering a venture of this nature, it is wise to seek the advice of legal counsel to thoroughly understand your rights and liabilities.
 It is wise to seek the advice of a real estate lawyer any time you buy property. The advice contained in this article is not meant to be construed as legal advice and cannot be relied upon as such.
 

©2007 About.com, Inc., a part of The New York Times Company. All rights reserved.
 

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