When most people think of Tenancy, they picture a single person renting a property from a landlord. However, another form of Tenancy is known as ‘Tenancy in Common (TIC),’ which is becoming increasingly popular among homeowners.
Tenancy in Common is a great option for many different tenant setups and applications. However, without prior knowledge, this concept can be a bit confusing. So, let’s explore Tenancy in Common to understand how it works and why it is becoming a more popular choice for those looking to own a property.
What is Tenancy in Common?
Tenancy in Common, or TIC, is a legal arrangement wherein two or more parties own a property together and have equal rights. Each party may control an equal or different portion of the total property, whether residential or commercial. The parties as a whole are known as Tenants in Common.
How Does Tenancy in Common Work?
TIC owners are essentially tenants, but they share the property equally and can either have full use of all areas or divide the property among themselves to use as they wish. Each tenant can have a separate deed, and you don’t need an equal financial stake or level of ownership in the property.
This type of arrangement can be particularly useful for unmarried couples or friends who want to co-own a property. Unlike joint Tenancy, each tenant in a TIC can sell or borrow against their portion of the property without consulting the other owners. This flexibility makes TIC an attractive option for many homeowners.
Types of Shared Ownership
There are three types of shared ownership:
- Tenancy in Common
- Joint Tenancy
- Tenancy by the Entirety
Let’s go over each one briefly:
- Joint Tenancy requires all owners to have an equal stake in the property, and each owner must agree before any major changes or decisions can be made regarding the property.
- Tenancy by the Entirety is similar to Joint Tenancy, but it is only available to married couples. It also requires both spouses to agree on any changes or decisions before they can be made.
- Tenancy in Common is the most flexible of the three, as it doesn’t require all parties to own equal shares or to agree before any changes can be made. However, TICs don’t have a right of survivorship—which means that when one owner passes away, their portion of the property will pass to their heirs and not to the other owners.
How to Dissolve a Tenancy in Common?
When two or more people own a property as tenants in common, there may come a time when one or more of them wish to leave the arrangement. In this case, the remaining owners can buy out the departing owner’s interest in the property or sell their own portion of the property.
Alternatively, the owners may choose to dissolve the Tenancy in common and sell or transfer their interest in the property. In this case, it is best to have a clear and binding agreement that specifies each owner’s obligations. That way, if one owner fails to uphold their obligations, the other owners may have legal recourse.
Property Taxes Setup in Tenancy in Common
Property taxes are an important consideration when creating a tenancy in Common. In most jurisdictions, a TIC agreement imposes a joint-and-several liability, meaning that each tenant is responsible for their own portion of the taxes, but all tenants are liable for the entire amount due.
However, this should be clearly laid out in their agreement.
It is also important to remember that tenants in common must share any profits from the sale of the property, so it is wise to have a plan in place for this as well. That way, there is no confusion or dispute later on.
The liability will apply to each owner regardless of the level of ownership percentage. Tenants can opt to deduct payments from their income tax, can pass the liability to another party, or share it among themselves.
Pros and Cons of Tenancy in Common
While Tenancy in Common is a great rental concept, it does have its fair share of flaws. That’s why it’s important to go over the advantages and disadvantages of this setup to determine if it’s the right choice for you. With that said, let’s go over the pros and cons of Tenancy in Common:
Pros of TIC
- Facilitates property purchases: Tenancy in common makes it easy for multiple people to purchase a property by allowing them to share the cost and ownership of the property.
- Flexible ownership structure: Tenancy in common allows each tenant to have a different percentage of ownership or control over the property.
- Ability to pass on inheritance: When a tenant in common passes away, their portion of the property can pass to their heirs and not the other owners.
- Number of tenants can change: With Tenancy in Common, new tenants can easily join the ownership arrangement.
- Different degrees of ownership possible: Tenancy in Common allows for different degrees of ownership and control so that each tenant can have a different amount of influence.
Cons of TIC
- No survivorship rights: The most glaring disadvantage of Tenancy in Common is that it lacks a right of survivorship, so when one owner passes away, their portion of the property will pass to their heirs and not to the other owners.
- Joint-and-several liability: Tenants in common are jointly liable for all taxes on any debt against the property, meaning that each tenant is responsible for their own portion of the taxes, but all tenants are liable for the entire amount due.
- No guarantee of equal ownership: Tenants in Common can own different proportions of the property, so there is no way to ensure an equitable arrangement.
- One tenant can force sale of property: Even if the other tenants don’t want to sell the property, one tenant can force a sale by exercising their right of partition.
Example of Tenancy in Common
The classic example of Tenancy in Common is a family purchasing a property together. The family can divide up the ownership of the property in any way they choose, and each member can have different levels of ownership.
For example, one family member could own 50%, another 30%, and the last 20%. This allows each member to have a say in property management while facilitating inheritance should one family member pass away.
Tenancy in Common is a great way for multiple parties to share the cost and ownership of a property, but it’s important to understand the risks and limitations of this type of arrangement to make sure it’s the right choice for you. Take the time to go over your options, and consult with a lawyer to ensure the agreement is legally sound.
Why Tenants Should Choose a Property with Recurring Billing
If you’re considering a Tenancy in Common (TIC) agreement, it’s important to consider the option of recurring billing. With recurring billing, each tenant will be responsible for paying their share of the rent, taxes, and utilities regularly.
This payment concept ensures that all tenants will pay their portion on time, helping to avoid any potential disputes. Additionally, recurring billing offers flexibility if tenants cannot pay their portion in full or on time.
Why Choose ReliaBills for Property Management Billing?
If you’re a landlord and you’re planning to offer Tenancy in Common to prospective tenants, choosing the right property management billing platform is important. ReliaBills is an ideal choice for landlords as it offers a secure and easy-to-use platform for managing Tenancy in Common billing.
ReliaBills is an invoicing and payment processing platform that allows landlords to keep track of each tenant’s payments and records. This platform also features automated reminders, so landlords won’t have to worry about sending out manual reminders or tracking down delinquent tenants. Additionally, ReliaBills allows landlords to customize payments by tenant type, income level, or other criteria.
Overall, ReliaBills is an ideal choice for Tenancy in Common properties as it provides a secure, reliable platform for managing and processing payments. This platform can help simplify the process of billing tenants and ensure that all parties involved in the Tenancy in Common agreement are aware of their obligations and responsibilities.
Visit our website at www.reliabills.come to learn more or get started with automating your payment processing system!
Tenancy in Common is a great way for multiple people to share the costs and ownership of a property, but it’s important to understand the risks and limitations of this type of arrangement. Take the time to go over your options, and consult with a lawyer to ensure any agreement is legally sound.
Additionally, an automated billing platform like ReliaBills can help simplify the process for landlords and tenants alike and offer added protection to all parties involved. Get started today!