Inherited property can quickly go from financial boost to a major headache.
What are tenants in common?
Tenants in common, also referred to as tenancy in common, is a form of ownership of real property in which two or more people own the property simultaneously. Tenancy in common is agreed upon by all tenants of a property or it can be created by a will, a deed, or by operation of law. While similar to a joint tenancy, in that tenants in common each own the property, they may own different proportions of interest.
Tenants in common is the most popular form of concurrent property ownership. Co-tenants own an equal share of a property, whether it’s an apartment, a house, or a commercial building. When the value of the property appreciates, each co-tenant benefits as well.
This means that each co-tenant has an equal, “undivided” right to own or use the entire property, and that the property’s rent or maintenance costs are shared among co-tenants according to their ownership interests. However, each tenant may own different sized shares of the property, unlike a joint tenancy or tenancy by the entirety, where shares must be equal for all tenants.
Unlike a joint tenancy, which has to be established at the point of purchase of the property, a tenancy in common can be created or modified at any time. In a tenancy in common, a co-tenant can transfer interest to her chosen beneficiary, or to another buyer. Also, a co-tenant can mortgage a share in the property.
A co-tenant, however, cannot transfer or sell the interests of the other co-tenants in the property. Once the interest of a co-tenant in a tenancy in common is transferred, the new owner becomes a tenant in common. In other cases, a partition action may be filed to sell a portion of the property to a new tenant or to separate tenants who no longer wish to reside together. The proceeds from the sale must be be divided up according to each tenant’s respective shares.
Tenancy in common can also be transferred through inheritance when the deceased tenant has specified an heir in her will.
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Tenants in common example
Bob and Mac are in a long-term relationship, but they aren’t sure if they want to seal the deal and get married. However, they decide to purchase a home together. Bob is considerably more well off than Mac, so he pays for and owns 75 percent of the property, while Mac gets to live there and use it all he wants but only owns 25 percent of the property.