Tenants In Common: What Does It Mean and How Does It Work?

Tenancy in common vs. other tenancies

Homeowners who share their ownership with another or others are often tenants in common.

We may think of tenancies as relating to rental properties. But, as legal jargon, they’re ways in which real property is owned. In fact, there are three main types of homeownership tenancies:

1. Tenancy in common
2. Joint tenancy
3. Tenancy by the entirety

Those can come in refined forms. So read on, as we explain what a tenancy in common is, its pros and cons, and contrast it with the other two later in this article.

In this article (Skip to...)

• What is tenancy in common?
• How does tenancy in common work?
• Pros and cons of tenancy in common
• How to create a tenancy in common

What is tenancy in common?

The three types of tenancy we just listed are called “concurrent estates.” And Cornell Law School defines those as, “an estate that has shared ownership, in which each owner owns a share of the property.”

A tenancy in common allows two or more people to own a share of a home or other real estate. And those shares aren’t necessarily equal. One person may own 70% and the other 30%. Or one person may own 50% while two others own 25% each.

So, they’re commonly used when people who aren’t spouses, partners or significant others wish to buy some real property. And they may be used when those in marriages or other romantic relationships wish to keep their finances separate. They might also be useful for senior parents moving in with their adult children.

The ownership stake of each may be proportionate to the co-owner’s investment in the purchase and maintenance of the home. Or some other equitable arrangement can be reached.

The share each co-owner holds only becomes relevant when dividing up the sale proceeds of the home or when one co-owner buys out another’s share. While living there, each owner has equal rights to use and occupy the entire property.

Of course, there’s nothing to stop informal arrangements between residents that allow some privacy. So, you can still have Jane’s study, John’s craft room, and teenage Tom’s bedroom. But, legally, all the co-owners have equal rights over the entire home.

How tenants in common differ from those with other tenancies

Joint tenants

As discussed, tenants in common can hold different shares in the value of a home. One might hold 90% and another 10%.

But joint tenants always share the value of a home equally. That’s usually 50-50. But, if, say, four people become joint tenants they’d each own 25%.

When one joint tenant dies, the surviving one(s) automatically get(s) his or her ownership share. This avoids the wait and expense of the probate process.

Tenants in common can achieve the same thing. But they have to explicitly specify when drawing up the documents that theirs is a “tenancy in common with rights of survivorship.”

Cornell Law warns: "... if a conveyance does not explicitly show an intent to create a right of survivorship, and it is unclear as to whether the conveyor intended to create a tenancy in common or a joint tenancy, courts will typically interpret the conveyance as creating a tenancy in common, rather than a joint tenancy.”

However, there’s a big drawback to joint tenancies if you enter one with someone who might get into financial difficulties. A creditor can force the sale of a home to liquidate the tenant’s debt, even though the other joint tenants are entirely innocent. They wouldn’t be liable for the debt themselves, but they could find their lives disrupted.

Tenancy by the entirety

Legal website NOLO says a tenancy by the entirety is, “A special kind of ownership, similar to a joint tenancy, that’s reserved for married couples or, in some states, couples in a domestic partnership. It’s available in about half the states.”

As with a joint tenancy (but unlike a tenancy in common), ownership shares are equal. In fact, as the couple is married or in a civil partnership, they hold an undivided interest, and still have equal rights to use and occupy the entire home.

Tenants by the entirety have a big advantage over joint tenants. If one has big debts, creditors can’t seize the home unless those debts are in both names.

And survivorship rights are automatic with a tenancy by the entirety. So, again, probate is avoided where the home is involved.

How does tenancy in common work?

We’ve already covered this but let’s summarize what we know about tenancy in common.

A tenancy in common:

• Can be created by co-owners of a home as a way of defining their ownership shares
• May provide for rights of survivorship but only if those are specified in the tenancy agreement
• Will, in the absence of rights of survivorship, transfer the deceased’s ownership share to those named as beneficiaries in his or her will or, if nobody is named, to those with an intestate claim on the estate
• Allows each tenant equal rights over the property while still in residence
• Divides the proceeds of the ultimate sale of the home according to the shares defined in the agreement

Typically, tenants in common share the chores and expenses of maintaining and improving the home, including mortgage payments and property taxes.

Sometimes, one tenant may offer to pay for an improvement. He or she can’t usually demand any form of immediate payment from the other(s), according to the Law Teacher website. However, the tenant who paid for the improvement may try to recover its value when the home eventually comes to be sold.

Pros and cons of being a tenant in common

Pros

Compared to other forms of tenancy, tenants in common might find their arrangement:

• Fairer — Each tenant benefits in proportion to their contribution
• Safer — If one tenant has a problem with debt, his or her creditors can’t force a sale of the home
• Efficient — If tenants in common specify rights of survivorship, ownership automatically passes to the named survivor on death, avoiding probate
• Flexible when estate planning — Absent rights of survivorship, a tenant can bequeath his or her share to whomever he or she pleases
• Accessible — In some circumstances, this may be the only sensible way to buy a home with others
• Evolutionary — The number of co-owners and their ownership shares can be changed over time

Cons

• Absent rights of survivorship, a spouse or significant other might be forced to move home on their other half’s demise
• Not wildly romantic — Spouses and civil partners may resent having a smaller ownership share than their significant other
• Just one tenant can force the sale of the home, regardless of their ownership share. But the other(s) may have the option to buy that share
• All tenants must pay their share of mortgage payments and property taxes. If one experiences financial distress and can’t pay, the others may become resentful
• Tenants in common can sell their shares at will. Let’s hope you like their purchasers as new roommates

How to create a tenancy in common

A tenancy in common is a legal contract that governs the ownership structure of a home. Often two or more parties create one when a home is first bought.

However, tenants in common can sign one later. And the contract can subsequently be varied by agreement.

The bottom line: Is becoming tenants in common a good idea?

As always with such questions, the answer depends on your personal circumstances. For some, it may be their only sensible way to purchase a home.

Suppose you want to buy somewhere with a couple of pals. It’s only fair that each has an ownership share that’s proportionate to his or her contributions. Becoming tenants in common is your only choice because other tenancies insist on equal shares.

Of course, if you’re all making the same down payment, paying the same closing costs, and shouldering equal shares of household outgoings, you could opt for a joint tenancy.

But you wouldn’t want to do that if any of you were at risk of financial distress. Because a big creditor could force the sale of a joint-tenancy home to recover a debt.

It becomes more complicated if you’re buying the home only with your spouse or civil partner. It then depends on whether you want a 50-50 ownership split. If you do, and your state allows it, a tenancy in the entirety could be as good.

Then your decision would depend on whether you wanted automatic rights to survivorship. In other words, do you want your spouse or partner to automatically receive your homeownership share? If so, a tenancy in common with survivorship rights is equally as attractive as a tenancy in the entirety.

But, if you wish to leave your share to others (perhaps kids from a previous marriage), then your chosen solution would be a tenancy in common without rights of survivorship.

Your choice of tenancy is all about your personal circumstances, needs, and wants.