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What Is Tenancy In Common?

Sarah Li Cain5-minute read
June 23, 2022

Buying a house is a major financial commitment – think down payment, mortgage closing costs and maintenance, just to name a few. One tactic you can utilize to help you better afford owning real estate is through tenancy in common.

Essentially, this allows you to split the costs with someone else. Let’s dive deeper into exactly what tenancy in common is and whether it’s the right move for you.

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Tenancy In Common Definition

In real estate, a tenancy in common is when two or more people – known as the tenants in common – hold title, or ownership, of the same property. That means you can split both the ownership of the home and the related costs.

Tenancy in common is one way to share the costs of buying and maintaining a home. It typically has no right of survivorship, meaning that a tenant’s ownership in the property doesn’t pass to the surviving tenants should one tenant die. Instead, the deceased tenant’s portion of the property goes to their estate.

How Does Having Tenants In Common Work?

Under this type of plan, you can purchase a home with as many people, or tenants in common, as you’d like. There are no limits on the number of people who can participate in a tenancy in common partnership.

Not everyone needs to get the same share of ownership. You might own 50% of the property while your two friends both own 25%. However, everyone needs to be responsible for paying their share of the mortgage, based on their percentage of ownership.

Examples Of Tenancy In Common

Let’s go through some examples to help illustrate the concept. Three friends want to buy a home together. The first friend may want to have a greater share of ownership (50%), while the other two only want 25% each. The first friend would then pay 50% of the mortgage each month while the other two would split the remaining 50%.

Or, a brother and sister want to purchase a condo together. They both want the same ownership percentage, so they both have a 50% stake in the property. When the mortgage bill comes due, brother and sister each pay half.

How Do You Form A Tenancy In Common?

Here’s how to form a tenancy in common:

  1. Your other tenants in common decide how much ownership they each want on the property.
  2. Everyone works with a real estate agent (or themselves) to find and put an offer on a property
  3. All the tenants in common work with the lender to get preapproval and then through the underwriting process once the purchase offer is accepted. Each person will need to provide their personal and financial details.
  4. Tenants in common will submit any necessary documentation to close on the property.

How Do You Dissolve A Tenancy In Common?

There are several ways to dissolve a tenancy in common, including:

  • The other partner(s) buying out the departing tenant’s share of ownership
  • Sell the property entirely and divide up the profits according to the tenants’ share of ownership
  • Departing owner files a partition action in court and ask the judge to order the sale of the home and split the proceeds, if the remaining owners can’t agree on the first two options

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What Are The Property Tax Implications Of Tenancy In Common?

Property taxes can be complicated for tenancy in common partnerships because governments don't care who owns how much of a property as long as the proper amount of taxes get paid. How the owners of the property split it up is up to them, but it’s best to have a written agreement as to how it’s handled.

Homeowners can deduct the property taxes they pay each year – up to a certain level – on their income taxes. The amount of property taxes owners can deduct in a tenancy in common arrangement will usually depend on their share of ownership. If an owner has a 40% share in the property, that owner can only deduct the same percentage of the property taxes paid on his or her income taxes.

The only exception is if the contract signed by the parties in a tenancy in common arrangement specifically creates a different property tax payment arrangement.

What Are The Pros And Cons Of A Tenancy In Common?

While the concept of a tenancy in common sounds great, it’s best to consider the advantages and disadvantages before proceeding.

Pros

  • More affordable than buying a property on your own
  • Reduces the burden of maintaining the property
  • Increases your chances of qualifying for a mortgage

Cons

  • If a tenant in common dies, that share doesn’t automatically pass onto the other owners
  • May be a complex process when one owner no longer wants their share of the property
  • If one owner fails to make a payment, the others are also at risk of losing the property
  • Other owners may need to make up for missed or late payments from one tenant in common who isn’t financially responsible

Frequently Asked Questions

Here are some of the most common questions around tenancy in common.

What’s the difference between tenancy in common and joint tenancy?

The largest difference between the two is what happens to a share of the property if one tenant dies. With joint tenancy, the joint owners enjoy the right of survivorship, whereas with tenancy in common, you don’t.

Does tenancy in common impact my mortgage?

Yes, because you’re still responsible for your share of the mortgage payments, just like the other owners of the property.

What happens when a tenant dies?

When a tenant dies, their share of the home will pass onto their estate and onto a beneficiary of their choosing if they have estate planning documents put together. If one of the co-owners  dies with debt from their outstanding mortgage, then the estate would pay it off before passing it off to the beneficiary.

Can I sell my share of the property as a tenant in common?

Yes, you can as long as the other co-owners come to an agreement as to how it’s done, either by themselves purchasing it, or the property is sold and everyone takes a portion of the proceeds.

Do deeds show all of the tenants in common?

Yes, all of the names of the tenants in common will have their name on the deed.

The Bottom Line

Owning a property in a tenancy in common arrangement can pay off for those who want to own a home but worry that their income isn’t high enough to handle a mortgage payment on their own. But it’s important to understand the risks involved in such arrangements.

If you’re aware and prepared for the risks, tenancy in common might help you reach your goal of owning a home, though there are other types of ownership rights such as tenancy by entirety to explore before proceeding.

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Sarah Li Cain

Sarah Li Cain is a freelance personal finance, credit and real estate writer who works with Fintech startups and Fortune 500 financial services companies to educate consumers through her writing. She’s also a candidate for the Accredited Financial Counselor designation and the host of Beyond The Dollar, where she and her guests have deep and honest conversations on how money affects our well-being.