A Tenancy in Common Agreement, commonly referred to as a TIC Agreement, is intended to provide a framework for the co-ownership of real property.  If drafted appropriately, the agreement can facilitate harmonious co-ownership by providing a framework for addressing operational issues and disputes that arise during the course of co-ownership.

Before one dives into a TIC Agreement, a fundamental consideration is how ownership/title to real property is held.  Some of the more common forms of ownership are personally/individually, as a married couple, through an entity like a Limited Liability Company, or through a trust.  In Washington, aside from an intent to hold otherwise (i.e., joint tenancy with rights of survivorship) or as community property (i.e., a married couple or registered domestic partnership), co-owners of real property are presumed to be owners as tenants in common.

Tenancy in common is a form of property ownership where each co-owner owns a portion of the real property, and collectively, they own the entirety.  The co-owners may own the property in equal shares or disproportionately and not all of the owners need to own the property the same way.  For example, the co-owners can be comprised of multiple entities, individuals, or trusts, or any combination thereof.  Generally, each co-owner has the right to possess and use the entire property except as otherwise provided.  In addition, each owner may mortgage, sell, lease, or pass by testamentary disposition the owner’s proportional interest although lenders typically do not loan against a fractional interest and leasing usually requires that the entire interest be leased.

A tenancy in common is also a flexible form of ownership that can facilitate the pooling of resources to acquire a property.  For example, one party may not have the resources to buy a property, but when joined by others, the group may collectively have more buying power and leverage like a partnership.  A tenancy in common is also essential for a 1031 Exchange where the owners wish to go their separate ways when selling co-owned property.  With the advantages of co-tenancy come potential drawbacks one of which is that decisions regarding the property must be made by all owners.  This includes decisions about maintenance, repairs, financing, improvements, cost allocation, and otherwise.  As a consequence and in the absence of appropriate guardrails like a TIC Agreement, co-owners may end up disagreeing, reaching an impasse, and/or becoming fractured.

To help address potential issues with co-ownership of a property, following are some of the more common items addressed by a TIC Agreement:

• Confirming each owner’s percentage interest/share of the property. A deed may not specify the ownership percentages of each owner.  A TIC Agreement may also include a provision for adjusting the ownership share depending upon certain conditions/events.
• Restrictions on the sale or transfer of one’s interest and usage. For example, owners of an inherited family vacation property may wish to control/restrict the ability of owners to sell their interest to help ensure the property remains in the family and that use is equitably shared and not abused.
• Distribution of rents and profits. The owners may want specific arrangements as to the allocation and distribution of rents and profits.
• Maintenance, repairs, and expenses. The owners can clarify how work is to be undertaken and how expenses, such as property taxes, maintenance, repairs, and improvements are to be shared among the owners.
• Exit plans. This might include a right of first refusal, a buyout trigger, and/or even the inclusion of provisions for ending a co-ownership.
• Dispute resolution mechanisms.

If you are considering co-owning real property, as a tenant in common or otherwise, the real estate attorneys at Lasher are available to help you evaluate and plan your investment and to incorporate a TIC Agreement as appropriate.