A tenancy in common is one of several ways numerous people can hold title to property together. According to Ward and Smith, a law firm in North Carolina, most unmarried co-owners hold ownership this way. You might end up owning property as tenants in common by default -- if your deed doesn’t specify exactly what kind of tenancy you have, ownership is legally treated as a tenancy in common in some states.
Characteristics of a Tenancy in Common
Tenants in common don’t have to be equal owners. If you and your best friend buy property together, she might put down the lion’s share of the down payment and you might agree that she therefore has 75 percent ownership while you hold 25 percent. You each have a right to full access and use of the premises regardless.
A tenancy in common can be a great way to keep things equitable – the partner who contributes more financially rightfully deserves a bigger share of ownership. But if only one of you actually lives there, things could get awkward if that owner refuses to grant free and unlimited access because he considers it his home. You would have the right to take him to court, however, to straighten things out if you can’t do so by agreement.
The Right to Transfer Ownership
If you’re squeamish about long-term commitments with no easy exit, a tenancy in common might appeal to you because it’s the least restrictive form of property ownership. You can transfer or sell your share to a third party if you decide you want out -- you don’t need the consent of your co-owner or co-owners. You also can leave your ownership interest to someone in your will because a tenancy in common doesn’t offer survivorship, an arrangement where your interest transfers automatically to your co-owners by operation of law when you die.
These provisions can have unintended consequences, however. If you transfer, sell or bequeath your ownership to someone else, your co-owners acquire a new co-owner, possibly someone they don’t know or even particularly like. Transferring ownership doesn’t terminate the tenancy in common. It just introduces a new tenant, someone who takes your place in the arrangement and who has a legal right to full access and use of the property now, too -- an uninvited roommate.
The Right to Encumber the Property
A tenant in common can pledge his ownership interest in the property as collateral for a loan without the consent of his co-owners. As a practical matter, most reputable lenders don’t want the potential for this kind of headache. It often means extra legal fees in the event of foreclosure, because they have to deal with the other tenants’ interests. But other desperate creditors might not care. If your co-owner racks up debt and doesn’t pay, his creditors can place liens against his ownership interest. They can’t touch your share, but they can go to court to force the sale of the property in an effort to collect what they’re owed.
Partitioning the Property
Both creditors and tenants can go to court and ask the judge to order a partition of the property, effectively dissolving the tenancy in common. A creditor might do this to collect what one tenant owes. A tenant might do it because he wants to get his money out of the property but the other owner or owners aren’t willing or able to buy him out. In either case, the party can file a partition action, asking the judge to divide the property into the ownership portions specified in the deed. This might be an option with raw land – you can take a quarter of an acre and your co-owner can take the remaining 75 percent. It’s less feasible, if not impossible, with structures. In this case, the court will most likely order the sale of the property. Proceeds would be divided according to the ownership percentages of your deed.