Laying Down the Law – Tenants in Common
July 1, 2022
There are several ways to hold title to real property in Arizona: tenancy in common; joint tenancy with right of survivorship; community property with right of survivorship; and as community property. This article focuses on real property held at tenancy in common.
In a tenancy in common scenario, two or more people or entities retain joint ownership of the real property. Unlike community property, the parties need not be married, and an unlimited number of parties may share in the ownership of the real property. Each tenant in common owns an undivided fractional interest in the estate and the interests may be disproportionate, e.g., 20% and 80%; 60% and 40%; 20%, 20%, 20%, and 40%, etc. Each tenant’s share can be conveyed, mortgage, or devised to a third party. Also, each tenant has its own tax basis.
As with any situation where two or more people or entities share ownership of real property, in a tenancy in common scenario, the tenants should negotiate a written tenancy in common agreement (the “TIC agreement”) to memorialize the parties’ rights, privileges, and responsibilities in regard to the real property. The purpose of the TIC Agreement is to help the parties think through and establish one another’s expectations regarding their shared ownership to foster a positive and productive shared-ownership experience and to minimize the risk of future disputes. For example, without a TIC Agreement, what happens if one of the tenants wants to sell the entire property but one or more of the tenants in common prefers not to sell? If the tenants cannot negotiate an agreement, the tenant wishing to sell will have to file a partition action with the court to compel the sale of the property.
Last, a common question that often occurs in tenancy in common scenarios is who is entitled to possession of the shared property? Per the general rule in most states, absent a TIC Agreement, each of the tenants is entitled to possession of the property. And interestingly, per the majority rule, a tenant in common cannot recover rent from the other tenant absent an ouster. Brunscher v. Reagh, 164 Cal.App.2d 174, 176 (1958). Indeed, the majority rule is that a tenant-in-common cannot collect rents from a cotenant who is in exclusive possession of the premises unless there exists an agreement to that effect or unless the cotenant seeking rents has been ousted. Goldberg v. Ochman, 143 A.D.2d 255, 532 N.Y.S.2d 166.
Tenancy in common is still a common and valid method for owning real property amongst multiple owners, but without a TIC Agreement, it is not ideal. With today’s ease, affordability, and efficiency of forming limited liability companies (LLC), compelling arguments abound why an LLC (with a thoughtful operating agreement) is recommended for joint property ownership rather than a tenancy in common scenario.
Attorney Christopher Charles regularly represents property owners in shared property transactions, including partnerships, joint ventures, and tenancy in common agreements. If you or someone you know has a real property partnership issue, or any other real estate matter, contact us today to schedule an office meeting or virtual consultation with one of our real estate attorneys.
Christopher J. Charles is the Founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business, and he can be reached at chris@ProvidentLawyers.com or at 480-388-3343.