Tenancy in Common
September 23, 2009 | Posted by admin Tenants in common enjoy equal rights of possession. However, this does not mean that ownership is equitably distributed. Say, three tenants are in common agreement and they hold the property in proportion of 50:30:20 . A person who owns 20 percent of the property enjoys the same rights of occupation as one who owns 50 percent. Having a greater stake in the property does not mean that one has the right to exclude others, who own smaller shares, from occupying the property in the presence or the absence of the majority stakeholder. In other words, ownership refers to the amount invested and the portion that is owned as a consequence of investment, while possession refers to physically occupying the same. Tenants also have the right to receive a prorated share of rents or profits that accrue from leasing or selling the property respectively.
It is important to note that tenancy in common agreement does not require the tenants to be related. A tenant has the right to pass on his/her share of ownership to the heirs with/without the consent of other co-tenants. A tenant can also exercise the option of bequeathing the property to a co-tenant by naming the latter in the will. Regardless of whether or not the inheritor is a co-tenant, the other tenants maintain their status quo. All liens on the property must be cleared to ensure the transfer of ownership. The surviving tenants can also opt to buy the inheritor’s share of the property, provided the latter is willing. If the inheritor is unwilling to sell his/her share of the property to the surviving tenants, but wants to sell off the property to the highest bidder, the latter may object, thus forcing the heir to file a partition action with the court. Doing so will result in the property being sold off as per court orders. The proceeds from the sale of the property will then be distributed among the tenants. This in turn results in the dissolution of the current agreement of holding the property. The agreement may also be dissolved if the co-tenants voluntarily decide to sell the property and distribute the proceeds amongst themselves. For details regarding drafting a will, one may refer to the article How to Write a Will.
Advantages of Tenancy in Common
Benefits of Diversification: One of the advantages of tenancy in common is that the tenants have the option of diversifying their portfolio of real properties by investing in different regions and in properties involving different levels of risk and return. A sufficiently diversified portfolio, that includes high grade, institutional-type properties and properties yielding stable returns, will help in reducing the overall risk of the portfolio.
Obtaining Loans: Tenancy in common allows a co-tenant to use his/her share of the property as a collateral for seeking loans. Moreover, the creditors can place liens only against the co-tenant’s portion of the property.
Disadvantages of Tenancy in Common
Lack of Liquidity: The main problem regarding assets which are held under tenants in common agreement, is that they are illiquid. This is because of the lack of secondary market for these assets. Hence, the tenancy in common property is usually sold off at a substantial discount.
Couples who are interested in holding a title to a property may prefer joint tenancy to tenancy in common. Joint tenancy may be considered as an alternative to tenancy in common agreement after comparing the pros and cons of tenancy in common vs. joint tenancy.
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