Tenancy In Common
Expert Budgeting & Public Reports For TIC Properties
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Tenancy in Common & DRE Public Reports
Tenancy in common is an increasingly popular style of fractional ownership in which two or more people jointly own property by owning percentages or shares of the property. While legal details vary depending on the purchase contract and tenancy in common agreement, all TIC property arrangements allow any joint tenant to sell their property share while refusing the right of survivorship. This allows each co-owner in the TIC to select the heirs for their ownership interest upon their death.
The formation of a tenancy in common (TIC) doesn’t require city or county approval. However, if the property contains five or more residential units that will be co-owned and occupied, the approval of the California Department of Real Estate (DRE) and a DRE public report are required.
The process of obtaining DRE approval takes between 6-9 months to complete, followed by the issuance of a public report by the Department of Real Estate. A DRE public report includes critical information and disclosures about a TIC property and group that must be provided to all prospective buyers who show interest in the property. At California Builder Services, we offer DRE public report services to help developers and tenants in common (TIC) build successful tenancy in common properties.
Tenancy In Common & Reserve Funds
In situations where co-owners share a single tenant in common mortgage loan, each co-owner will pay a specific percentage of the loan as part of their monthly dues. This arrangement creates a risk for tenants in common since, if one owner fails to pay, the other co-owners could face foreclosure. To navigate this risk, TIC groups establish reserve funds to pay expenses in the event that one of the tenants in common is sold out of the TIC group.
A tenancy in common agreement may also use reserve funds to plan for future repair and replacement of common areas, like roofing and exterior paint. The critical nature of a TIC budget requires the attention of a professional to ensure accurate reserve calculations and avoid the drastic impact of an underfunded reserve fund. At California Builder Services, our professionals offer reserve fund study services to help you ensure that your tenancy in common arrangement is prepared for success.
Benefits Of Tenancy In Common (TIC) Arrangements
In a tenancy in common arrangement, each of the co-owners owns a specific percentage or ownership share of the property as tenants or co-owners.
No Right To Survivorship
A key feature of tenancy in common (TIC) arrangements is that each of the co-owners can pass their ownership interest to the heir of their choice, rather than the other co-owners.
Freedom To Sell
Another key aspect of tenancy in common property ownership is that each of the co-owners can sell their ownership share without the prior approval of others in the co-ownership.
Common Questions About Tenancy In Common
The main difference between joint tenants and tenants in common is the difference in how the death of a co-owner is handled. In a tenancy in common, the death of one of the owners will transfer their rights to their heirs.
In a joint tenancy, the death of one of the joint tenants will transfer the share of the property and their real estate property ownership rights are automatically passed to the surviving members of the joint tenancy.
Joint property ownership allows for easier entrance into the world of real estate property management. There are different options for joint ownership, each with its own nuances, rights, and options for owners. The three options for joint owners are tenancy in common, joint tenancy, and tenancy by entirety.
In a tenancy in common, the entire property is held through a shared ownership between two or more people. In tenancies in common, each owner owns an undivided interest on the property held in the shared ownership.
On the other hand, a joint tenancy allows for co-ownership by usually two people who act as joint tenants and retain full ownership of the property. This arrangement is common among married couples where both spouses have equal shares in ownership of the property.
The third type of co-ownership is tenancy by entirety, in which a married couple shares ownership of a property in unequal, distinct shares. Like a joint tenancy, the interest and property rights of a deceased spouse are automatically transferred to the surviving spouse. However, a tenancy by entirety does not allow any party to transfer the interest of the deceased spouse to another person.
Tenants in common enjoy numerous benefits from this specific type of real estate co-ownership. First, any income from the property, such as rental income, will be divided between each of the tenants in common proportionate to their ownership share.
The second benefit of a tenancy in common group is that each of the tenants in common reserve the right to transfer their ownership interest in the property through selling, gifting, or mortgaging their ownership share.
The third benefit enjoyed by tenants in common is that ownership rights and interest is transferred through probate to their heirs. This is different from a joint tenancy where, if one owner dies, their interest in the property is passed to the surviving joint tenants.
In a tenancy in common, the property owners have unequal shares of ownership of the property. For example, if one owns 50%, another person may own 25% and another person may own the remaining 25% of the property. Owners in a TIC property share the following liabilities: property expenses, lawsuits, creditors, partition.
Regarding expenses, TIC property expenses are paid through a group bank account. Each co-owner typically makes a single monthly payment into the group bank account that’s proportionate to their interest or share of the property.
In a joint tenancy, the death of a joint owner (known as a joint tenant) automatically transfers that owner’s right and property interest to the surviving owner or owners through the right of survivorship.
If all owners in a joint tenancy die, the property will be passed without probate according to the terms of their will. If neither owner has a valid will, then the property is passed to the closest relative of the owners.
Unlike a joint tenancy, the death of a co-owner in tenancies in common does not automatically pass to the surviving owners. Instead, the death of one or more co-owners in tenancies in common passes their property share and interest to their legal heirs.
Can you hold property as a joint owner and tenant in common?
Within the state of California, it is possible to co-own property in several different ways. The two most common forms are joint tenancy and tenancy in common, but these are not exclusive. For example, some co-owners of a property may own as joint tenancy while other owners may own as tenancy in common.
A specific advantage of California tenancy in common groups is the ability to add additional owners over time, rather than requiring that all owners title the property at the same time.
The key difference between a tenancy in common and a co-op is that, in a co-op, the property is owned by a corporation or other legal entity. Owners purchase shares of the corporation which owns and manages the property.
To dispose of a tenancy in common, one or more tenants in common may buy the interests and ownership rights of the other co-tenants. In this situation, if the co-tenants are unable to agree on the direction for the property’s use, a court may divide the property among each tenant, allowing each owner to move forward separately from the other owners.
If the owners in a tenancy in common are unable to reach an agreement, they can enter into a partition of property by sale, in which the real estate property is sold and the proceeds are divided between the parties according to their interests.