The state of California recognizes several different ways people can co-own property. Two of the most common forms of co-ownership are joint tenancy and tenancy in common.
Tenants in common is a form of property ownership in which two or more people share in ownership interest in a property. Joint tenants own equal shares in the property and received their interest at the same time, with the same deed. Tenants in common do not necessarily own equal shares of the property and may have come to own their shares at different times.
Tenants in common do not have the “right of survivorship” or the right to the other owner(s) share(s) when they die. Therefore tenants in common is a more common form of co-ownership for unrelated property owners. They have grown in popularity as a means for individuals to own property as home prices increase.
What Is a Tenant in Common?
Tenants in common are co-owners of property who may own unequal shares and have different ownership interests. For example, Owner A might own 20% of the property, Owner B owns 30%, and Owner C owns 50%. Each owner’s interest may also have been acquired at different times.
A tenancy in common is also created if a joint tenant sells or transfers their interest to another person. The joint tenancy is broken and tenancy in common is formed.
When considering the various forms of property co-ownership it is important to pay attention to the tenants in common rights and liabilities. Tenants in common enjoy the following rights:
- Income from the property: When the property produces income (such as rental income), the owners are entitled to a share of the income proportional to their ownership share.
- Transfer ownership: Each tenant in common has the right to transfer their ownership interest. They may 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 to the transfer.
- Transfer through probate: Tenants in common will often transfer their interest via a will or living trust. If a tenant in common dies intestate, or without a will, their interest will transfer to their heirs according to the state laws of intestacy. This is in contrast to joint tenancy, where a co-owner’s interest passes to the other owners when they die.
Tenants in common also share the following liabilities:
- Expenses: Tenants in common share responsibility for property expenses. This responsibility is usually distributed according to the ownership shares, with each owner paying a percentage based on their interest. Therefore, if one owner owns 50%, they pay 50% of the expenses.
- Lawsuits: If tenants in common are subject to a lawsuit because someone was injured on the property, all of the owners are responsible for any judgment against them. Regardless of the circumstances or fault of any particular owner, all co-owners are responsible according to their ownership interest.
- Creditors: If one of the co-owners has a creditor that gains an interest in the property, such as by court ordered sale to satisfy a debt, the other owners can be forced to sell. They will be compensated based on their stake in the property, but unless they are able to buy out the creditor, there is little they can do to retain their ownership of the property.
- Partition: In some cases tenants in common find themselves in a dispute that they cannot resolve. In a partition action the court can split up the property according to the ownership shares or force the owners to sell and split the proceeds.
A tenancy in common agreement is a way for co-owners to be proactive and address what will happen if there are disputes regarding ownership of the property. A tenancy in common agreement is a formal document that outlines the rights and responsibilities of the owners as well as how disagreements will be handled.
For example, the co-owners might agree to alternative dispute resolution, like mediation, before going to court, If the co-owners want to handle expenses and income in a way other than according to each owner’s share in the property, the agreement can address that too.
Holding Property in Multiple Forms in California
In California, property can be held in more than one form. That means that some co-owners may own property as joint tenancy, while the other so-owners own the property as tenants in common. The multiple forms of ownership will impact what happens to each share when an owner dies.
To illustrate, owners A, B, and C own a building. A and B own the building as joint tenants. They are also tenants in common with owner C. If A dies their ownership share transfers directly to B. However if C dies first, their interest will pass according to their will or the state intestate succession laws.
There are several advantages of California tenancy in common. First, each owner has the right to the entire property, regardless of their ownership share. This can make it possible for people to own residential property in areas that have a high cost of living. Several individuals can have an ownership interest in a property with no limitations on their use.
Another advantage is being able to add additional owners over time. That can help with the costs associated with the property. There is no requirement that all owners receive title to the property at the same time.
Tenancy in common is also an advantageous form of ownership for investors. It is possible for new investors to be added to the title, and also allows investors to sell their shares.
What are the Disadvantages of California Tenancy in Common Arrangements?
While tenancy in common has its advantages, there are also some drawbacks to this form of ownership. First, because each owner is able to sell their share without the others agreeing to the transfer, co-owners might find themselves with a stranger as a co-owner. Legally there is nothing that can be done if they are not happy with that arrangement.
Similarly, when one co-owner dies their share passes to whoever the owner specified in their will. That heir then has the option to sell their share. The other owners might be able to buy that share, or be forced to share ownership of the property with a stranger.
Co-owners are all responsible for their share of mortgages, taxes, and other bills. If one owner does not pay their share, the other owners must pay more to make up the difference. It is also possible for co-owners to have separate mortgages for their shares of the property. This can be a problem if one owner stops paying their mortgage and that lender tries to foreclose on the entire property.
Co-owners can try to avoid the potential issues that might arise with a tenancy in common with a clearly written agreement that outlines the rights and responsibilities of all of the owners. The agreement can address things like what happens when one owner wants to sell their share or require the owners to attempt alternative dispute resolution options like mediation before asking the court to step in when there is a disagreement.
Terminating a California Tenant in Common Arrangement
Terminating a tenancy in common is relatively simple. A co-owner just needs to sell, give, or otherwise transfer their interest to someone else (either to one or more co-owners, or someone else entirely). If there is a written agreement, the co-owners might have the right of first refusal or the option to buy out the owner who no longer wants to be part of the tenancy.
If legal issues arise during the termination process the owners can initiate a partition action. In a partition action the court can force the sale of the property and then distribute the proceeds to the owners according to their ownership interests.
Consulting a California Attorney
If you are trying to decide whether a tenancy in common is the type of property ownership you want to enter into, you should contact a California property lawyer. They can advise you as to which type of property ownership is best for your situation. An experienced lawyer can also help you draft an ownership agreement so that the rights and responsibilities of each owner are clear and unambiguous.