What does tenants in common mean?
Tenants in common means each co-owner holds a separate, undivided fractional interest in the whole property. Nobody owns a particular unit or floor. A 30% owner of a 12-unit building owns 30% of every unit, the roof and the parking lot, and has the right to use and possess the whole property along with the other owners.
Shares don’t have to be equal. One owner can hold 50%, another 30% and a third 20%, usually in proportion to what each put in. Each owner can sell, gift or mortgage their own share, or leave it by will, without asking the others, unless a co-ownership agreement says otherwise.
In many states, tenancy in common is the default when a deed names two or more people and says nothing else. California Civil Code section 686, for example, says an interest created in favor of several persons is an interest in common unless it is acquired as a partnership, declared a joint tenancy or held as community property.
Tenants in common vs joint tenancy
The biggest difference between tenants in common and joint tenancy is the right of survivorship. When a joint tenant dies, their interest goes to the surviving joint tenants automatically, outside probate. When a tenant in common dies, their share goes to their heirs or the people named in their will or trust.
Joint tenancy also requires equal shares and has to be stated clearly in the deed. If one joint tenant sells their interest, the joint tenancy is usually broken for that share and the buyer becomes a tenant in common with the rest.
| Feature | Tenants in common | Joint tenancy |
|---|---|---|
| Shares | Can be unequal (50/30/20) | Equal shares |
| At death | Share passes to heirs or by will | Passes to surviving joint tenants |
| Probate | Share usually goes through probate unless held in a trust or by TOD deed | Avoids probate for the survivors |
| Selling a share | Allowed without consent unless an agreement limits it | Allowed, but it ends the joint tenancy for that share |
| How it’s created | Often the default for co-owners | Must be stated in the deed |
| Partition | Any owner can usually ask a court | Any owner can usually ask a court |
What rights does each tenant in common have?
Each tenant in common has the right to possess and use the whole property, a share of the rent and profits that matches their ownership, and the right to transfer their interest. They also share the costs. Property taxes, insurance, repairs and the mortgage are normally split by ownership percentage, and an owner who pays more than their share can often ask the others to reimburse them.
Without a written agreement, big decisions get hard fast. State law fills in some gaps, but it doesn’t tell three siblings who manages the building, how rents get collected or when to sell. A co-ownership agreement that covers management, reserves, buy-sell terms and a right of first offer prevents most of the fights we see.
A lender adds yet another layer. Often a building has a single mortgage signed by all the owners. In that case every owner is usually liable for the whole loan, not just their percentage, and a default by one owner puts everyone’s equity at risk.
Can you sell your share in a tenancy in common?
Yes. A tenant in common can usually sell their share without the other owners’ consent, unless a co-ownership agreement gives the others a right of first refusal or first offer. The buyer steps into your shoes and becomes a co-owner with the people you leave behind.
Price is the catch. Few outside buyers want a minority share of a building they can’t control, can’t finance on its own and have to manage with strangers. Offers for a fractional interest usually come in well below your percentage of the building’s full value, so most co-owners get more by selling to the other owners or by selling the whole building together.
Take a look at the mortgage before you sell your share. A sale of one owner’s interest can trigger a due-on-sale clause, and the remaining owners still have to qualify for the loan.
How a tenant-in-common buyout works
A buyout is the cleanest way out: the remaining owners pay the departing owner for their share, and that owner signs a deed transferring their interest. The process usually runs like this:
- Agree on value. Get an appraisal or a broker opinion, or use a written offer on the whole building as the benchmark.
- Subtract debt and, if agreed, the selling costs the owners avoid by not selling. What’s left is the equity to split.
- Multiply the equity by the departing owner’s percentage to get the buyout price.
- Fund it with cash, a refinance or seller financing from the departing owner, who can then report the gain as an installment sale.
- Close through escrow or a title company, record the deed and update the title policy, the insurance and the lender’s records.
Worked example: splitting a sale vs buying out one owner
Three relatives own a 16-unit building as tenants in common: 50%, 30% and 20%. A buyer offers $3,600,000. Selling costs are $180,000 and the mortgage payoff is $1,200,000, so the equity left after closing is $2,220,000.
If they sell the whole building, the 50% owner receives $1,110,000, the 30% owner $666,000 and the 20% owner $444,000. That assumes costs and debt are shared by ownership percentage, which is the default unless the owners agree otherwise.
Now say the 20% owner wants out and the other two want to keep the building. If they agree to price the share as if the building sold, net of the $180,000 in costs nobody actually pays, the buyout price is 20% of $2,220,000, or $444,000. After the buyout, the 50% owner holds 62.5% (50 ÷ 80) and the 30% owner holds 37.5% (30 ÷ 80).
| Line | Whole building | 50% owner | 30% owner | 20% owner |
|---|---|---|---|---|
| Sale price | $3,600,000 | $1,800,000 | $1,080,000 | $720,000 |
| Selling costs | −$180,000 | −$90,000 | −$54,000 | −$36,000 |
| Mortgage payoff | −$1,200,000 | −$600,000 | −$360,000 | −$240,000 |
| Net proceeds | $2,220,000 | $1,110,000 | $666,000 | $444,000 |
| Ownership after 20% buyout | 100% | 62.5% | 37.5% | 0% |
What happens if co-owners can’t agree? Partition
When tenants in common deadlock, any owner can usually file a partition action asking a court to divide the property or order it sold. Apartment buildings almost never split cleanly into separate parcels, so courts usually order a partition by sale and divide the proceeds by ownership, after costs and any credits for owners who paid more than their share.
Partition is time-consuming and expensive, and a court-ordered sale may bring less than a negotiated one. Many states have adopted the Uniform Partition of Heirs Property Act for inherited property, which gives the other owners a chance to buy out the owner who filed before a sale. Our partition action guide covers the process and costs step by step.
Tenants in common in a 1031 exchange
A TIC interest in real estate can qualify as replacement property in a 1031 exchange, but only if the arrangement is co-ownership and not a partnership. Section 1031 excludes partnership interests, so an investor exchanging into a TIC needs the IRS to see a direct interest in real property.
Revenue Procedure 2002-22 sets out the conditions the IRS uses when it considers ruling requests on TIC arrangements. They are ruling guidelines, not a safe harbor, and the IRS says it won’t use them for audits. The main conditions:
- No more than 35 co-owners, with a married couple counted as one person.
- No partnership or corporate tax returns, no common business name and no acting as a business entity.
- Unanimous approval to sell or lease the property, hire a manager, place or change a blanket mortgage or sign a management agreement.
- Each owner can transfer, partition or encumber their own share without the others’ approval, apart from customary lender limits.
- Revenue, costs and blanket-mortgage debt shared by ownership percentage.
- Management agreements renewable at least once a year, with fees at fair market value that don’t depend on income.
- Owner activities limited to the customary maintenance and repair of rental property.
Inheritance and stepped-up basis for tenants in common
When a tenant in common dies, only that owner’s share gets a stepped-up basis to its fair market value at death under Section 1014. The surviving owners keep their old basis, including the depreciation they have taken.
Say two unrelated partners each own half of a building now worth $3,000,000, and each has an adjusted basis of $400,000 after depreciation. If one dies, the heirs take that half with a basis of about $1,500,000, so a sale soon after brings little taxable gain for them. The survivor still faces roughly $1,100,000 of gain on their half, including depreciation recapture.
Joint tenancy works differently. For non-spouses, Section 2040 includes the full value in the first owner’s estate except the part traced to the survivor’s own contribution, and spouses who own as joint tenants are generally treated as each owning half. In community property states, both halves of a married couple’s community property can step up at the first death.
How this works for a 5+ unit apartment building
Apartment buildings end up in tenancy in common more often than people guess: siblings inherit a building, partners buy one without forming an LLC or a 1031 investor buys a TIC slice. A 5+ unit building also makes the problems bigger. There are leases, a rent roll, a commercial loan and a property manager, and every major decision needs agreement.
Commercial lenders underwrite the building on NOI and DSCR, and many won’t lend against one owner’s fractional share at all. That makes outside sales of a share hard and pushes most TIC exits toward one of three paths: a buyout, a sale of the whole building or partition.
If you’re planning a sale, have each owner talk to their own CPA early. One owner may want cash, another a 1031 exchange and a third an installment sale, and each is usually free to choose their own tax treatment for their share.
Selling a tenants-in-common building to Skyline
Skyline Capital Investments buys apartment buildings with five or more units nationwide, including buildings owned by siblings, heirs and partners as tenants in common. We can buy the whole building in one closing so every owner gets paid at once, work around a co-owner’s 1031 exchange timeline and, where it helps, include seller-carry terms for an owner who wants payments over time.
Send the address and unit count through the form on this page or call (469) 660-2977. We typically respond within 48 hours, and a written offer on the whole building gives all owners a clear number to work from, whether you sell to us or use it to price a buyout.
