Tenants in Common Agreements: What to Know Before You Sign
Buying an otherwise unaffordable home as tenants in common may be tempting, but understand what you’re getting into
In northern California, a woman with terminal cancer recently found herself in a dispute with a family with six children that jointly owned the multifamily home they all lived in through a tenants in common (TIC) relationship. The woman found them too noisy and had her doctor write letter after letter saying she required quiet because of her illness. The family installed insulation. Family members removed their shoes when in the home. They even rearranged who slept where to minimize traffic, but it still wasn’t enough for the woman.
Eventually the tenants sought mediation through an attorney, who said it was clear that the situation was at a point where one of the parties needed to move out to resolve the problem, but neither wanted to leave the home.
“They weren’t angry with each other. Everyone was just very frustrated,” said Andy Sirkin, a San Francisco Bay Area attorney who specializes in co-ownership arrangements. “They couldn’t resolve it.”
Get an agreement in writing
Tenants in common is a convenient way you can buy property with several other people, whether it’s an apartment, multifamily home, or single family home, particularly in areas where real estate prices have soared and you’d otherwise be priced out of the market. By pooling resources with other people, you can afford a home whether you buy a small or a large percentage of it. (TIC differs from joint tenancy. In joint tenancy, all parties must have equal shares of the property and must buy them at the same time.)
But while these arrangements have grown in popularity, extensive planning prior to a purchase can avoid a lot of pain and expense when things go wrong.
“The most important thing that people can do to protect themselves is to enter into a written agreement beforehand,” said Sirkin. “When deciding what the content of that agreement should be, they need to be working with someone who can ask the right questions and force them to answer the right questions.”
No right of survivorship with TICs
Would-be homeowners should also be aware that they won’t have all the same rights as they would if they owned property in a joint tenancy.
If you buy property with someone as joint tenants, you’ll both take title on a deed, with each owning an equal share of the property. If your partner dies, you’ll automatically inherit his or her share of the property. But if you buy a property with other people as tenants in common, there is no right of survivorship. That means that unless a will specifies you’ll inherit that share, that percentage of the property automatically goes to the heirs of the person who died. Also, a tenant in common can sell his or her interest in the property at any time.
Related: Safest and Riskiest Mortgages
Don’t let conflicts simmer
Even if you’re not worried about inheriting the property, you need to work out problems before you sign any papers. When buying property, attorneys say, people can become so emotionally attached to the purchase that they gloss over disagreements with co-owners.
That’s a dangerous approach, according to Sirkin, who says it’s important to face the hard issues before becoming co-owners.
In terms of financial issues, make clear how you’re going to divide costs and agree on budgets. An annual budget with expenses set aside in 12 equal payments is one way to avoid problems later.
But financial issues tend to be the ones that are easily resolved. TIC relationships are more likely to sour due to issues around noise, pets and alterations of shared areas. Though family members and friends often end up in tenants-in-common purchases, attorneys say these agreements can be more problematic than agreements among strangers. Why? Because disputes often get blended with long-brewing conflicts unrelated to property issues.
Sometimes these disputes get resolved through the legal system, and sometimes the unhappy tenants seek alternative solutions. Two northern California attorneys recall some recent scenarios: In one case, a woman with chemical sensitivities sued her co-owners for painting the house while she was away. In another case, a man wanted his girlfriend to reimburse him for the exterior stucco treatment he paid for when they went to sell the house. She refused, saying she had covered his housing costs for a year. His solution was to power-wash the stucco off in the middle of the night.
When these arrangements don’t work out, standard agreements for tenants in common usually allow one owner to buy out the other if they want to move out. But that can make these relationships dicey for people who don't have the financial means to buy out their co-owner. If they can’t reach an agreement in a fixed amount of time, usually around six to nine months, then the property gets sold.
“You can’t force someone to stay in a co-owner relationship they don’t want to be in, just like you can’t force someone to stay in a marriage,” said Frederick Hertz, an attorney and mediator in the San Francisco Bay Area and the author of three Nolo Press books for couples and co-owners. “That means if you are sharing housing with someone and you don’t have the capital to buy them out, your housing is at risk if this relationship doesn’t work.”