In the State of California, there are several different ways individuals can co-own property. Two of the most common types of co-ownership include joint tenancy and tenancy in common.
Tenants in common is a type of property ownership in which two or more individuals share an ownership interest in a property. Joint tenants own equal shares in the property and receive their interests at the same time with the same deed.
Tenants in common, on the other hand, do not necessarily own equal shares of the property and may have gained ownership of their shares in the property at different times. Tenants in common in California do not have the right of survivorship or the right to the shares of other owners when they pass away.
Because of this, tenants in common is a more common type of co-ownership for unrelated property owners. This form of property ownership has grown in popularity as the price of homes has increased.
What Is a Tenant in Common?
Tenants in common are co-owners of property who may own unequal shares and who may have different ownership interests. A tenancy in common will also be created if one joint tenant sells or transfers their interest to another individual.
When that occurs, the joint tenancy is broken, and a tenancy in common is formed. When an individual is considering the various types of property co-ownership, it is important to pay attention to the rights and liabilities of tenants in common.
Tenants in common have various rights, including:
- Income from the property: When the property produces income, for example, rental income, the owners are entitled to a share of the income proportional to their ownership share;
- Transfer ownership: Each of the tenants in common has the right to transfer their ownership interest. They can sell, gift, or mortgage their share;
- In the event the other owners of the property will be negatively impacted by the transfer, the owners must all agree; and
- Transfer through probate: Tenants in common will often transfer their interest using a will or living trust;
- If a tenant in common dies intestate or without a will, their interest in the property will transfer to their heirs according to the state laws of intestacy;
- This is in contrast to joint tenancy, where the co-owner’s interest passes to the other owners when they pass away.
Tenants in common also share certain liabilities, including:
- Expenses: Tenants in common share responsibility for expenses related to the property. This responsibility is typically distributed according to their ownership shares, meaning each owner pays a percentage based on their interest;
- This means that if one owner owns 50%, they will pay 50% of the expenses;
- Lawsuits: If tenants in common are subject to a lawsuit because an individual was injured on the property, all of the owners are responsible for any judgment against them;
- Regardless of the circumstances or fault of an owner, all co-owners are responsible according to their ownership interest;
- Creditors: If one of the co-owners has a creditor that obtains an interest in the property, for example, by court-ordered sale to satisfy a debt, the other owners can be forced to sell. The other owners will be compensated based on their stake in the property.
- Unless they are able to buy out the creditor, there is not much they can do to retain their ownership of the property; and
- Partition: In certain cases, tenants in common find themselves in a dispute that they cannot resolve. In a partition action, the court can split up a property according to the ownership shares or force the owners to sell and split the proceeds.
A tenancy in common agreement is one way for co-owners to be proactive and address what will occur if there are any disputes regarding ownership of the property. A tenancy in common agreement is a formal document that outlines the rights and responsibilities of the owners in addition to how disagreements will be handled.
For example, the co-owners may agree to alternative dispute resolution, for example, mediation, before going to court. If the co-owners desire to handle expenses and income in a way other than according to each owner’s share in the property, the agreement can also address that.
Holding Property in Multiple Forms
In the State of California, property may be held in more than one form, for example, joint tenancy or tenants in common. The different types of ownership will have an impact on what happens to each of the shares when an owner passes away.
There are advantages in California to a tenancy in common. Each of the owners has a right to the entire property, regardless of their ownership share.
This may make it possible for individuals to own residential property in locations with a high cost of living. Several individuals may have an ownership interest in the property without limitations on their use of the property.
One other advantage is being able to add additional owners over time. This may help with the costs that are associated with the property.
There is no requirement that all owners receive title to the property at the same time. A tenancy in common is also an advantageous form of ownership for an investor.
It is possible for a new investor to be added to the title. A tenancy in common also allows investors to sell their shares.
How to Change Joint Tenancy to Tenants in Common?
Owners can change a joint tenancy to tenants in common through a process called severance. This involves one of the joint tenants transferring their interest to themselves or to another individual or party.
If an individual is interested in changing their joint tenant to tenants in common, they should consult with a local attorney in California.
What Are the Disadvantages of California Tenancy in Common Arrangements?
Although a tenancy in common does have advantages, there are certain drawbacks to this type of ownership. Because each owner can sell their share without the other owners agreeing to the transfer, co-owners may find themselves co-owning the property with a stranger.
There is nothing that can be legally done if that occurs. In addition, if a co-owner passes away, their share passes to whomever the owner specified in their will.
The heir has the option to sell their share. Other owners may be able to purchase that share or be forced to share ownership of their property with a stranger.
All co-owners are responsible for their share of taxes, mortgages, and other bills. If one of the owners does not pay their share, the other owners will be required to pay more to make up the difference.
It is also possible for co-owners to have separate mortgages for their share of the property. This may be an issue if one of the owners stops paying their mortgage and the lender attempts to foreclose on the entire property.
A co-owner may attempt to avoid the potential issues that may arise with a tenancy in common with an agreement that outlines the rights and responsibilities of all of the owners. The agreement may address things such as what happens when one of the owners wants to sell their share or require the owners to try alternative dispute resolution options, for example, mediation, before asking the court to step in if there is a disagreement.
Terminating a California Tenant in Common Arrangement
It is relatively simple to terminate a tenancy in common. One of the co-owners just needs to give, sell, or otherwise transfer their interest in the property to another party, which may be one or more co-owners or a different party entirely.
If a written agreement exists, the co-owners may have the right of first refusal or the option to buy out the owner who no longer desires to be part of the tenancy. If any legal issues arise during the termination process, the property owners can initiate a partition action.
In a partition action, the court may force the sale of the property and then distribute any proceeds to the owners in accordance with their ownership interests.
Consulting a California Attorney
If you are considering entering into a tenancy in common, you should consult with a California property lawyer. Your lawyer can advise you on what type of property ownership is the best type for your situation.
Your attorney can help you draft an ownership agreement to ensure that the rights and responsibilities of each of the owners are clear and unambiguous. Having a lawyer help with your property ownership can ensure that your rights and interests are protected.