When most people think of how real estate is owned, they usually think of full ownership, unshared with other co-owners. In more technical terms, they think of “fee simple” ownership, which is a concept we’ve discussed in some detail before. But full, or fee simple, ownership by one individual is just one among many ways to hold ownership to real estate. Real estate can be held jointly by multiple persons. In this post, we will discuss one of the more common kinds of joint ownership – tenancy-in-common.
Knowing the basics of tenancy-in-common ownership is useful for both real estate professionals and non-professionals alike. As agents and brokers, we’re very likely to come across this term in the course of business. And non-professionals are also likely to hear this term at least once or twice in their daily lives. Let’s look at the basics.
Tenancy-in-common (TIC) is a form of ownership in which title to a given property is shared among more than one individual or corporate person. In fact, a given property can have up to 35 persons holding a piece of title as tenants-in-common. This is the upper limit. In a TIC arrangement, all the co-owners have the right to sell their ownership interest at any time and without prior approval from the other owners. This type of interest is referred to as an “undivided fractional interest” in the property. In other words, even though each person technically has a “limited” interest in the underlying property, each person has the ability to sell his or her interest freely. And, TICs are considered to be an ownership interest in real estate, as opposed to an interest in a partnership or corporation.
Think of an apartment complex or a large commercial building. Rather than being owned as fee simple by a single individual or corporation, these properties are frequently owned as TICs. This makes sense, because the costs associated with the property would be a heavy burden for a single person to bear.
One Arrangement Among Others
TICs are not the only form of joint ownership. In fact, the popularity of TICs may be waning as other arrangements have more recently started to gain headway. For instance, Delaware Statutory Trusts (DSTs) provide an alternative to TICs, and in some cases they may be preferred. We may come back to DSTs in the future. Joint tenancy is another form of co-ownership which is commonly used among relatives who co-own a property.
To sum up, whether you’re in real estate or not, it’s useful to know that TICs are a form of co-ownership, and that they offer certain benefits to those who hold them. TICs are allowed to be exchanged under Section 1031, for instance. If you ever come across the phrase “undivided fractional interest” in the future, now you won’t have to be frightened by such a strange term.
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