Tenants in Common with Art Macomber of Macomber Law
Podcast Episode by Art Macomber
What is a tenancy in common agreement and how do they protect your ownership interest in a piece of property?
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When real property is owned by a single owner, the owner is said to have ownership in severalty. Now for many of you, this may be a new word, but you can remember this by thinking of the word severed. When you have ownership in severalty, you are severed or separate from any other owners, you stand alone. This is actually very standard in American culture.
Ownership in severalty is very simple. The sole owner by their own choosing can sell mortgage transfer lease, Grant easements devise the property and there will dig a hole in the backyard. I mean, it’s yours, they still have to pay all the taxes associated with the property, but really, the sole owner retains all the legal rights and responsibilities associated with the property.
When a single property has multiple owners things get a little more complicated. No longer is there an ownership in severalty there is now concurrent ownership multiple owners with title to the same piece of dirt.
One way in which multiple owners take title to the same property is as tenants in common. As tenants in common the property owners aka co tenants have an undivided interest in the land without a right of survivorship. And undivided interest means that the owners have a right to possess and use the entire property, each one of them and that no right of survivorship means that when a code that when a co tenant dies, their interest in the property passes to their estate, rather than to the surviving co tenants.
So one key difference between a tenancy in common and other forms of concurrent ownership is that the code tenants can have different ownership interests in the land. Three, three co tenants can have a 60% 30% and 10% ownership interest in the land. It equals 100%. But they have different title percentages of ownership. There is in fact, no legal limit to the number of CO tenants allowed, but as they say, three’s a crowd.
Another characteristic unique to co tenancy is that not all owners need to be human beings. In the previous example, an LLC could own 60% a trust could own 30% and an individual person could own the 10%.
But remember, although co tenants may own different shares of the property title, each co tenant still has the right to use and possess the entire property only when the land is sold or partitioned. Will each co tenant receive an amount proportional to his actual title interest in the land.
Ownership interest in a tenancy in common are also freely alienable, which means owners can sell their interest in the land without any approval of their co tenants. The buyer takes a seat at the table as a tenant in common with the existing co tenants inheriting all the rights and responsibilities of his predecessor co tenant. a tenant in common can even unilaterally subdivide his own interest and make further conveyances. So remember our owner with a 10% ownership interest, the owner could make nine conveyances of 1% to each of his nine cousins, in titling nine more people to use and possess the entire parcel of land. As you can imagine, this could be very unwieldy.
Although tenants in common may own different shares of the property title, all owners are jointly and severally liable for financial obligations to upkeep and pay taxes on the land. What this means is that even if your ownership interest is only 5% if your co tenants aren’t paying the taxes on the property, you can foot 100% of the tax bill and be liable for it not just the amount relative to your ownership interest.
The common law offers the remedy of partition for owner who wants out of a joint tenancy where the CO tenants or a free buyer will not buy in or let them out. Joint tenants have the right to petition the court to order a partition of the land and if feasible, the court will order a partitioning kind where the land is split up relative to each owners interest. If an owner had a one quarter interest in 10 equally valuable acres of farmland he would receive two and a half acres under a partitioning kind. If a partition in kind is not feasible, a court will not order the physical partition of a single family dwelling, the court will order a partition by sale whereby the property is sold and the owners receive an amount of the sale price relative to their ownership interest. This is actually the more common solution because it is difficult to fit Divide real property and still meet the zoning requirements of where the land is located. But in a sale co tenants that do not support a partition and do not want to dissolve the tenancy in common, have little recourse, it just happens by court order.
Fortunately, most issues that arise as a as a in a tenancy in common can be dealt with by having a tenancy in common agreement. A tenancy in common agreement is just a contract between co tenants that provides well defined rights and responsibilities of each co tenant beyond what is required for by the common law. This may seem unnecessary if you’re buying a property with your cousin or a friend, but it may be what saves your relationship when issues not addressed by the common law inevitably arise.
A tenancy in common agreement can contradict the common law presumption that each owner has the right to beneficial use of the entire property. You can specify in your agreement that one owner will live in maintain the house while another owner will use the woodworking shop as his place of business. The tenancy in common agreement can also specify their property taxes will be divided 7030, with each owner entitled to claim tax deductions on his share of the taxes paid, but that when you Airbnb the property the rental profits will be split 5050. In other words, you have a much larger measure of control over how the tenancy in common actually functions day to day.
In a tenancy in common agreement, it is important to not only consider the present state of affairs, but plan for contingencies, the big three being the three DS death, divorce and disability. Although you may trust your cousin to come up with his share of the mortgage payment, what happens if he dies and the property goes to his sister who wants to partition by sale, what happens if he becomes disabled is no longer to operate his shop and sells his interest to someone looking to open up a nightclub next to your house. in addressing situations like these you may want a buy sell agreement giving you the right of first refusal to purchase his interest in the property for fair market value before it can be sold to a third party and other restrictions on when a partition action may be brought.
Important to note, however, is that a stipulation completely barring sale of his interest or complete waiver of his right to partition would very likely be found unenforceable by a court restrictions such as these are disfavored under the law because they go against the public policy goal of having land able to be freely bought and sold so that it can always be put to its best use.
We already discussed two ways in which a tenancy in common can be terminated partition by sale and partitioning kind. There is one final way in which a tenancy in common can be terminated, which is by an ouster. And ouster is a wrongful exclusion of a person entitled to possession of the property. For example, if you return from vacation to find your cousin has moved into the house and change the locks, he is committed and ouster he has outs to do the recourse for an ouster is for the ousted party to sue for wrongful ejectment and at the very least be compensated for the fair rental value of the property. And so you may have an eviction action between co tenants.
In rare situations if you do not defend your right to use your property over a long period of being ousted, your co tenant may even be able to satisfy the requirements for an adverse possession claim and bring an action for quiet title permanently depriving you of your ownership interest in the land. Now these time periods are long. For example, in Idaho, the time period is 20 years in Washington, it’s 10 years.
And these are the things that good planning can help you avoid before entering into a tenancy in common. Consider using the timely contract services TC drafting or TC review to ensure that your interests are protected now and down the road with a tenancy in common agreement.
At Timely Contract we have local real estate attorneys who have experience throughout Idaho, including: Boise, Post Falls, Coeur d’Alene, Lewiston, Moscow, and Sandpoint.
We also have local real estate attorneys who have experience throughout Montana, including: Missoula, Billings, Bozeman, and Kalispell.
And we have local real estate attorneys who have experience throughout Washington, including: Spokane, Spokane Valley, Liberty Lake, Medical Lake, and Cheney.
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