San Francisco Business Lawyer Blog

Purchasing real estate is one of the largest financial decisions we make. The process becomes even more complicated when buying real estate with another party. Whether buying real estate with a business partner, spouse or friend the importance of title to the property cannot be overlooked.

Concurrent ownership means two or more parties own property together, with neither party having exclusive possession or right of use of any particular part of the property.

California recognizes two main categories of concurrent ownership:

1. Tenancy in Common
2. Joint Tenancy with the Right of Survivorship

There are distinct characteristics to consider in each type of concurrent ownership. The differences of each form of co-ownership influence events such as: selling the property, estate planning, protecting the property from creditors as well as contributions toward property maintenance.

An informed decision on the type of concurrent ownership requires consideration of use and transfer of the property.

Tenancy in Common

Tenancy in common is the predominate form of concurrent ownership used by unmarried individuals. In the San Francisco Bay Area, where the purchase price of real property is some of most expensive in the country, tenancy in common creates home ownership and investment opportunities where none would otherwise exist.

In a tenancy in common, two or more individuals own property in undivided interests. An "Undivided Interest" means that all of the-co-owners have the legal right to use and enjoy all of the property equally. Although the amount of interest in the property held by each owner may be different, (ex: two individuals may each own an equal undivided interest or one party may own a 10% undivided interest and another party may own the remaining 90% interest) each owner is equally entitled to possess and use all of the property.

However, the parties may modify this undivided right of use by written agreement to conform to their intended use of the property. For example, one party may have exclusive rights of use to a certain floor in a building, or, the parties may assign exclusive rights of use of the property based on time, as in a time-share.

Notably, tenants in common do not have the "automatic right of survivorship" that joint tenancy provides; whereby, when one joint tenant dies, that joint-tenant's interest automatically passes to the remaining owner.

Advantages of Tenancy in Common

The benefits of a tenancy in common include:

• Each owner has a freely alienable undivided interest in the property.
• Each owner has the right to give away, sell, or mortgage their interest in the property. However, all tenants in common must agree on decisions such as sale and mortgage affecting the whole property.
• Upon death, each owner's interest in the property passes by will, trust, or intestate succession to the owner's heirs, beneficiaries, or devisees.
• The co-owners have no right of survivorship in another owner's undivided property interest.

Disadvantages of Tenancy in Common

While tenancy in common is advantageous in many circumstances, in other situations, there are potential drawbacks to evaluate:

• Each owner must pay for property taxes, liens, assessments and repairs.
• If one owner pays taxes or makes necessary repairs, they are entitled to a sum of money from the other owners in proportion to the remaining owner's undivided interest.
• If a dispute arises involving transfer or usage of the property or if one owner desires sole ownership and/or possession of an increased share of the property, any owner can file suit for partition of the property.
• If the court grants a partition, the property is divided between the owners, resulting in each becoming a sole owner of a portion of the divided property.
• If the court decides that physically dividing the property may be injurious to any of the involved parties, an order may be issued to sell the entire property and divide the proceeds between the owners in amount of their proportionate interests.

The tenancy in common arrangement is very much like a business partnership. When co-owning property with others, it is best to work out the details of property management and ownership in a written Tenancy In Common Agreement. Such agreements address the respective rights and duties of each party concerning mortgage payments, property taxes, insurance, maintenance, lease, development and sale of the property. A well prepared agreement can help avoid real estate contract disputes.

Next, we will examine the characteristics of joint tenancy co-ownership of property.