A tenant in common owns an undivided, fractional interest in a property (real or personal) with one or more additional tenants in common, who may be related or unrelated persons. Let’s consider issues related to some scenarios.
Consider two friends who buy real property as equal tenants in common to turn into a rental property. As equal co-owners they each are responsible to pay their own half of all maintenance, repair, and real property tax costs. What happens if one of the equal co tenants becomes unable to pay his share of such expenses?
That happened to a client of mine. In her case, she paid all the expenses associated with ownership and with repairing the rental property in order to re-sell the once rental property. My client did so with an oral agreement with her business partner that she would be reimbursed from the partner’s half of the future sale proceeds. However, the partner died prior to the property being sold. The deceased partner’s son — and sole heir — stepped in.
Disagreement arose over the son’s right to use the rental property, as to my client’s creditor claims against the deceased partner’s estate, and as to how to settle the mother’s estate (probate versus small estate administration). These issues and how the property would be sold needed to be resolved. Disagreement led to litigation which led to a settlement.
Next, consider two siblings who together, as equal tenants in common, inherit their parent’s ranch, which has multiple dwelling units. The siblings decide to live in separate dwellings on the ranch and to separate their use of the large estate where possible. A Tenants in Common Agreement allows co-tenants to specify their rights and responsibilities associated with their agreement.
Although tenants in common each own an undivided interest in the entire property they can agree to allocate separate use of certain parts of the property to one tenant and to allow both tenants shared use of the other parts. They can allocate their rights and responsibilities accordingly. The drafting of a Tenants In Common Agreement will vary depending on the circumstances and objectives. In our example, the agreement concerns in which dwelling each sibling resides and their individual rights and responsibilities for their separate dwellings and environs and for their shared environs and responsibilties.
Next, the siblings may each want to gift their undivided fractional ownership to their own children when they die. A tenant in common can transfer his undivided interest into a Trust with future beneficiaries, or can name such future beneficiaries in a Will. Wills require probate when the value of the decedent’s probate estate exceeds one-hundred, fifty thousand dollars.
If, however, tenants in common cannot cooperate then each tenant in common has a right to bring a Petition to Partition action in civil court. A partition action will result either in the division of the property, if possible, or in the sale of the property. Either way the tenants in common are set free of one another.
If parents wish to leave real property for the common enjoyment of their children they may wish to leave such property in a further on-going trust. The trust will name a trustee and the terms under which the children and their families share the benefits and burdens associated with the property. The trust prevents any of the children from selling, or partitioning, the real property and says what happens when all of the children are deceased, no longer want to use the property, or the real property becomes uneconomical to maintain.
The foregoing discussion illustrates why the tenants in common form of ownership needs to be thought through and addressed before entering into such an arrangement. If you are confronting the issue, consult a qualified attorney to discuss your planning options.