Tenants in Common and Unequal Shares

Written by mary beth magee
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Tenants in Common and Unequal Shares
Tenants in common share the expenses of the property in proportion to their ownership percentage. (real estate games image by Pix by Marti from Fotolia.com)

Property owners who hold title as tenants in common own a percentage of the property rather than the sharing joint ownership of the entire property. Tenancy in common occurs in business properties and sometimes in residential properties. The percentage of ownership comes from the percentage of investment each owner brought to the transaction.

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Definition

Tenancy in common is a legal mechanism that allows two or more people to jointly own a piece of real estate even though the people are not married or related and have no formal business entity binding them. Through a voluntary decision, the owners agree to share the ownership of and responsibility for the selected real estate. The proportion of interest each owns depends on the ownership agreement.

Benefits

Tenancy in common allows two or more people to own property together as individuals, without requiring the formation of a formal corporation or other business establishment. Each owner has control over his own percentage and can sell it without permission of the other owner or owners. He can claim any applicable tax deductions for the property, such as property tax, in the percentage he holds. Should an owner die, his portion passes to his heirs as part of his estate rather than the other owner as it would in joint tenancy.

Shares

Ownership shares may be based on percentage of financial investment each owner makes, but may take other forms. Some such arrangements match a financial backer with a skilled craftsman to rehabilitate a property for resale. The portions each hold in the property would be spelt out based on their valuation of the craftsperson's work in comparison to the cash investment. More than two owners may invest together but in different proportions.

Considerations

Each owner bears responsibility for the liabilities associated with the property in the same proportion as his ownership share. Owners share in decision-making for the property, so the owners must have a similar vision for the property to avoid stalemates and dissension.

Example

John, Bill and Elaine pool their resources to purchase a house as a rental property as tenants in common. John invests £16,250, Bill invests £8,125 and Elaine invests £16,250 in the down payment. John and Elaine each hold a 40 per cent share in the property; Bill holds 20 per cent. Their contributions to the monthly mortgage payment and other expenses would be in the same percentages. Each year, any tax deductions would be divided the same way. Each would receive a portion of any profit from the property in the same ratio.

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