A tenancy in common agreement is a written contract among co-owners of a property that spells out each person’s ownership percentage, who pays what, how the property can be used, how decisions get made, and what happens when someone wants out or dies. The deed makes the co-ownership legal; the agreement makes it workable. Without one, co-owners fall back on default state rules that assume equal shares and give every owner broad rights, and that is usually not what anyone had in mind when they signed the closing papers.
What the Agreement Does That the Deed Doesn’t
Tenancy in common is a form of co-ownership in which two or more people each hold an undivided interest in the whole property. No co-owner has an exclusive claim to a specific room or section, shares don’t have to be equal, and each owner can independently sell, mortgage, or bequeath their share.1Legal Information Institute. Undivided Interest When a co-owner dies, their share passes through their estate rather than to the surviving co-owners.2Legal Information Institute. Tenancy in Common
The deed records the ownership and identifies the co-owners as tenants in common. Courts in most states presume a tenancy in common when a deed names multiple grantees without specifying the ownership type, but relying on that presumption is a gamble worth avoiding.2Legal Information Institute. Tenancy in Common The agreement is a separate private contract that fills in everything the deed leaves out: the percentages, the money, the rules, and the exits.
What a Tenancy in Common Agreement Should Cover
Ownership Shares
The agreement should state each co-owner’s percentage interest in plain numbers. Shares can be equal or unequal and should reflect what each owner actually contributed to the purchase. Mismatches between contribution and recorded share can create gift tax exposure: for 2026, the federal gift tax annual exclusion is $19,000 per recipient, and contributions that exceed a co-owner’s proportional share by more than that in a single year may require filing a gift tax return.3Internal Revenue Service. Frequently Asked Questions on Gift Taxes
Who Pays What
Mortgage payments, property taxes, insurance premiums, and maintenance costs are typically split in proportion to ownership shares, though co-owners can negotiate another formula. The agreement should also address what happens when someone doesn’t pay. All owners listed on the deed are legally responsible to the taxing authority and the lender for the full amount owed, not just their proportional piece, so the remaining owners end up covering any shortfall. A workable agreement creates consequences for nonpayment, such as giving the paying co-owners a lien on the delinquent owner’s share, though enforcing those provisions still takes time and sometimes legal action.
Use and Occupancy
When some co-owners live in the property and others don’t, or when co-owners want to use a vacation home at the same time, conflicts are predictable without written rules. The agreement can set occupancy schedules, restrict subletting, and decide whether a non-occupying owner receives compensation from occupying owners.
Transfers and Exits
Any co-owner can sell their share to anyone, which means the other owners can end up sharing title with a stranger they never chose. Most TIC agreements address this with a right of first refusal, giving the remaining co-owners the chance to buy a departing owner’s share at fair market value before it goes to an outsider. A right of first refusal is one of the few restrictions on a TIC owner’s ability to dispose of their interest that courts consistently uphold.4Internal Revenue Service. Revenue Procedure 2002-22
Buy-out clauses and an agreed valuation method, such as an independent appraisal, make exits cleaner. Without them, a co-owner who wants out may have no practical option other than filing a partition action in court. The agreement should also deal with death: because a deceased owner’s share passes through their estate, the surviving co-owners can suddenly find themselves sharing title with heirs who want different things from the property. A right of first refusal that triggers on death, paired with a valuation method, closes that gap.
Decision-Making
The agreement should specify how decisions about repairs, improvements, leasing, and refinancing get made. A common structure requires unanimous consent for major decisions and majority approval for routine ones. Spelling out which decisions fall into which category up front prevents arguments later over whether a new roof is maintenance or a capital improvement.
Dispute Resolution
A mediation or arbitration clause gives co-owners a way to resolve disagreements without filing a lawsuit, which is typically faster and cheaper than litigation. Pair it with a cost-sharing rule for the mediator or arbitrator so the clause doesn’t bog down when a dispute actually hits.
Limiting Partition Through the Agreement
Any co-owner can petition a court to partition the property, which is a legal way of forcing a resolution when owners can’t agree. Courts generally prefer to physically divide the property, but when that isn’t practical (a single house, a commercial building), the court orders a sale and divides the proceeds by ownership percentage. For most TIC owners, partition means a forced sale.
Many TIC agreements include clauses that waive or limit the right to partition for a set period, often 5 to 10 years. Courts in many states will enforce these waivers as long as the language is clear, all co-owners consented in writing, and the restriction isn’t indefinite or otherwise against public policy. The practical approach is to pair a temporary partition waiver with real exit alternatives: a right of first refusal, a buy-sell provision, and a valuation method. That way a co-owner who wants out has a path that doesn’t involve a courtroom, and the others have time to find the money.
Tax Conditions the Agreement Has to Respect
Each co-owner reports their proportional share of rental income and deductible expenses on their own tax return. The IRS does not treat a basic TIC arrangement as a partnership as long as the co-owners’ activities stay limited to maintaining, repairing, and renting the property, and no partnership tax return is required.
If the arrangement starts looking too much like a business, the IRS may reclassify it as a partnership, which changes the tax reporting and can disqualify co-owners from doing individual 1031 exchanges on their shares. IRS Revenue Procedure 2002-22 sets the conditions for staying on the right side of that line, and a TIC agreement needs to be drafted so it doesn’t violate them:4Internal Revenue Service. Revenue Procedure 2002-22
- No more than 35 co-owners, with married couples counted as one.
- Each co-owner holds title directly or through a disregarded entity like a single-member LLC.
- The co-ownership does not file a partnership return, operate under a common business name, or hold itself out as a business entity.
- Selling, leasing, or placing a blanket lien on the entire property requires unanimous consent.
- Revenue, costs, and debt are shared in proportion to each owner’s interest.
- Co-owner activities are limited to what’s customary for maintaining and renting property.
- Any management contract is renewable at least annually.
Violating these doesn’t automatically trigger partnership treatment, but it puts the arrangement at risk if the IRS audits.
When a Written Agreement Especially Matters
Any TIC benefits from a written agreement, but a few situations make it close to essential. Investment groups pooling money for rental or commercial property need clear rules on income splits, expenses, and management because the arrangement will be scrutinized against the Revenue Procedure 2002-22 conditions. Siblings who inherit a family home or relatives who co-own land land in a TIC by default, and a written agreement prevents the slow-burning conflicts that come from no one agreeing on who pays taxes, who can live there, or what happens when one heir wants to cash out. Unmarried couples buying a home together and friends buying a vacation property have no automatic legal framework like the one married couples get with tenancy by the entirety, so the agreement becomes the rulebook.
What the Agreement Can’t Fix
A tenancy in common agreement is a contract among the co-owners, which means it binds them but doesn’t bind outsiders. If one co-owner has a judgment entered against them, that creditor can place a lien on the debtor’s TIC share and, in extreme cases, force a sale of that share, potentially bringing a stranger into the ownership group. The agreement can’t block that; unlike tenancy by the entirety, a TIC provides no shield against one owner’s individual debts.
Financing is the other common pressure point. Traditional TIC financing puts a single mortgage on the whole property, making all owners jointly and severally liable for the full loan, so one co-owner’s default puts the others on the hook. Fractional TIC loans, where each owner has a separate mortgage on only their share, exist but typically carry interest rates one to two percentage points higher than comparable condo loans and shorter terms of 10 to 20 years rather than 30. Many lenders won’t touch residential TIC properties with fewer than five units at all. These constraints affect what the agreement needs to say about default and buyout funding, but they aren’t things the agreement itself can change.
Drafting and Signing
Drafting a TIC agreement means negotiating every major term: ownership percentages, cost-sharing, occupancy, transfer restrictions, decision rules, dispute resolution, partition limits, and exits. All co-owners sign, and the document should be reviewed by an attorney familiar with real estate co-ownership in your state because the default rules that fill in any gaps vary by jurisdiction.
Recording fees for the deed vary by county but are generally modest. Legal fees for the agreement itself are the real cost and can range from a few hundred dollars for a simple two-owner arrangement to several thousand for a multi-investor property with complex management provisions. Spending the money up front on a thorough agreement is dramatically cheaper than litigating a partition action later.