A TIC agreement, short for tenants in common agreement, is becoming a popular method for co-ownership in California, often converting a single property into a townhome with multiple units occupied by unrelated co-owners. Popular for decades in San Francisco, the Los Angeles Times recently reported that the trend has headed to LA where developers are “replacing single-family homes with new townhomes.” This article explains what TIC agreements are and how they work.
What are Tenants in Common and Why Do They Need an Agreement?
Tenants in common is a form of real estate co-ownership in which: “Each tenant in common equally is entitled to share in the possession of the entire property and neither may exclude the other from any part of it.” [1]Zaslow v. Kroenert (1946) 29 Cal. 2d 541, 548 “[T]he cotenants hold the common land by unity of possession, for which reason there can be no specific or determinate portion of the common land which any one of such tenants can claim as his in severalty.”[2]Wood v. Henley (1928) 88 Cal.App. 441, 452
Example Uses of a TIC Agreement
A TIC agreement fundamentally changes the default rule of joint possession by way of a written agreement that each tenant in common is only allowed to possess a certain part of the property. For example, an unmarried couple or siblings after inheritance might jointly occupy a single-family property, each entitled to occupy the entire property. However, if the co-owners sign a TIC agreement, they can agree that one co-owner is entitled to occupy a certain part of the property while the other is entitled to occupy a different part of the property. Nonetheless, the property would still remain one APN (assessor’s parcel number) with one legal description. The two units might be referred to as Units A and B, e.g., 123-A Main Street and 123-B Main Street. A TIC agreement does not have a recorded deed in the city’s public records, however, it is not uncommon for parties of a TIC agreement to execute a short declaration or memorandum.
Examples of how a single property could be split via a TIC agreement include:
- Splitting a single-family home horizontally by adding a wall, with each having a kitchen and bathroom
- Splitting a single-family home vertically by making the first floor one unit and the second floor a separate unit, with each having a kitchen and bathroom
- Agreeing that one co-owner can occupy the front house, while the other co-owner occupies the back house with access provided so that the co-owner in the back can access their unit without the need for governmental approval under SB 9
- Agreeing that one co-owner can occupy the main residence, while the other co-owner occupies the ADU (accessory dwelling unit) without the need for governmental approval under AB 1033
What is a TIC Agreement?
A TIC agreement, short for Tenancy In Common agreement, is a legal document used when multiple parties co-own a single piece of real estate property but do not necessarily own equal shares. This type of ownership allows each tenant in common to have an undivided, fractional interest in the property, meaning that each owner has the right to use and enjoy the entire property, even though their ownership percentage may vary.
Key aspects of a TIC agreement include:
- Individual Ownership Share: Specifies the percentage of the property each owner holds. These percentages can be based on the amount each party contributes towards the purchase price or can be agreed upon differently.
- Separate Financing: Unlike joint tenancy, tenants in common can secure financing individually for their share of the property. This means each owner’s financial responsibility is limited to their portion of the property.
- Independence in Ownership: Each tenant in common can sell, transfer, or bequeath their interest in the property without the consent of the other owners. This provides flexibility but also introduces potential complications if owners have differing intentions for the property’s use or disposition.
- Survivorship: In a TIC agreement, there is no right of survivorship. This means that if one of the co-owners dies, their interest in the property becomes part of their estate and is passed on according to their will or the state’s intestacy laws, rather than automatically transferring to the surviving co-owners.
- Use and Management: The agreement details how the property’s expenses, maintenance, and use are managed. It might include provisions for resolving disputes, scheduling property use, and distributing expenses among the owners.
- Waiver of Partition: The agreement will make clear that the property is not subject to California partition laws, meaning a forced sale would not be possible. The case of LEG Investments v. Boxler (2010) 183 Cal.App.4th 484, 492 addressed a TIC agreement with a right of first refusal, rather than a waiver of partition.
Advantages of TICs
- Affordability: TIC agreements are particularly popular in expensive real estate markets, where buying a property independently might be unaffordable for most people. They offer a way to invest in real estate with others, sharing the costs and benefits, but they also require clear agreements and understanding among the co-owners to prevent conflicts. Generally, the price of two units on two separate parcels is more expensive than one, larger property that is shared jointly. TICs typically sell for about 10 to 20% less than condos in the same market.
- Homeownership: When compared to renting, TICs offer the benefits of ownership like tax benefits and appreciation.
- Smaller Communities: If you would prefer a small association, TICs can replace the large management seen in condos. Note that this can be a disadvantage if there are two co-owners who are deadlocked on a decision.
Disadvantages of TICs
- Financing: At this time, there are only a few lenders who provide financing on these fractional interests.
- Weak Association: A small group of co-owners in a TIC may mean deadlocks on issues and disputes with your co-owners. Nonetheless, there may be savings from avoiding professional management.
- Lack of Independence: Some homeowners prefer sole ownership of just one parcel (APN). This gives the sole owner complete control of the property. A TIC agreement has many of the same features as an HOA (homeowners association).
- Marketability: Since TICs are uncommon, there may be a smaller pool of buyers interested in purchasing a co-ownership interest in the property.
Are TICs regulated in California?
There is surprisingly little regulation of TIC agreements. Those agreements raise many of the same concerns as HOAs where common ownership requires that there be sufficient reserves to cover capital expenditures, like a new roof or retrofitting a building for safety. Common expenses for owners include costs from shared utilities such as one water line, insurance bill and electric bill. Parties of TIC agreements are also liable for their share of homeowner taxes. Generally speaking, the interest in regulation goes up as the number of units increases, meaning it becomes more like a traditional HOA that is already governed by existing law. For more information on the regulation of TIC agreements, review information available from Sirkin Law.
When May a TIC Be Appropriate For A Co-Owner of a Partition Action?
During a partition action when one co-owner purchases the property interest of another co-owner, the owner with 100% interest in the property could consider entering into a TIC agreement. Generally, dilapidated property may not be suitable for a TIC agreement without first undergoing renovations. Elements that make a property ideal for a TIC agreement include units located on a nice plain street and property that can be broken down into different units.
Cost Associated with Preparing a Property for a TIC Agreement
Generally, buyers who want to to acquire property for a TIC agreement do not want to fix up plumbing, electrical systems, foundation, exterior landscaping and painting issues. A seller looking to enter into a TIC agreement may want to repair the property structural elements to enhance the property’s appeal and competitiveness in the buyer’s market. A TIC agreement will cost a few thousand dollars.
Where are TICs most common?
TICs are popular in only a couple of areas of California. A search of the MLS for listings with “TIC” in the last 2 years showed 121 listings, though the MLSs do not fully cooperate, so this number is likely higher. Those listings were almost entirely in two major areas as follows:
San Francisco and the East Bay TICs
In the Bay Area, San Francisco, along with Oakland and Berkeley, are the most common locations for TICs. The map below shows MLS sales with the word “TIC” in the last 2 years in the Bay Area.
Los Angeles Area TICs
In Southern California, TICs are popular in trendy, upscale cities like Santa Monica, Eagle Rock, Echo Park, West Adams, Culver City, and Hollywood Hills. The map below shows MLS sales with the word “TIC” in the last 2 years in the LA area.
TIC Agreement Template
To have a TIC agreement drafted, several attorneys have extensive experience in this area of law. Since these agreements are common in the San Francisco area, it is no surprise that some of the attorneys with experience in TIC agreements are also in SF. These attorneys include:
- Andy Sirkin of Sirkin Law
- R. Boyd McSparran, Esq.
Los Angeles TIC Realtors
In Los Angeles, there appears to be a more specialized niche. The most common Realtors handling TIC sales in Los Angeles are:
- Girl TIC Team at The Rental Girl – Elizabeth “Liz” McDonald and Christina Brow – Providing extensive information about TIC agreements, financing, development, and more.
- Tracy Do
- Michael Kafaei
- Lauren Biedenharn
- Brita Kleingartner
San Francisco TIC Realtors
Selling a fractional interest is quickly becoming a specialty in California. In the San Francisco area, many Realtors have handled a few TIC sales, though the most popular appear to be:
TIC Lenders
Obtaining a loan on a property with a TIC agreement often requires specialized financing. Some of the lenders providing TIC financing include:
- Jeremy Morgan – National Cooperative Bank
- Henry T Jeanes – Meriwest Credit Union
- Gordon Friedman
- Fifth Street Capital
Additional lenders and other resources are on the Sirkin Law website.
More Information about TIC Agreement
YouTuber Shelby Church joined by Realtor Brita Kleingartner provides an interesting and informative perspective on the benefits of lower cost acquisition in TIC ownership alongside the potential downsides after acquisition, notably legal and financial issues.
Talkov Law Co-Ownership Attorneys
Talkov Law is California’s #1 law firm for co-ownership disputes. The vast majority of co-owners have no co-ownership agreement, e.g., a TIC agreement. More commonly, co-owners simply bought or inherited a property with multiple owners which can lead to disputes among co-owners on the disposition of the property. Oftentimes, a partition action is the best way to end the co-ownership relationship fairly and equitably. Perhaps it can end with a TIC agreement, or perhaps the property will simply be sold to one of the co-owners or a third party. For a free consultation, contact us by phone at (844) 4-TALKOV (825568) or online today.
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