San Francisco Apartment Association

Tic Corner

Defining Tenancy-in-Common

by D. Andrew Sirkin

A. From a legal standpoint, the term tenancy-in-common describes 
co-ownership without a right of survivorship. In plain English, this means that if an owner dies, his/her share passes according to his/her will (or to the next of kin, if there is no will). A tenancy-in-common is different from a joint tenancy where a deceased owner’s share automatically passes to the other owners.

For the past 25 years in San Francisco, and increasingly throughout the Bay Area and the Los Angeles/Orange County area, groups have purchased and co-owned apartment buildings as TICs because the cost per unit is lower than the cost of a comparable condominium. But TIC ownership is not the same as condominium ownership. In a condo, the property is actually subdivided into separate parcels of real estate, and each owner holds title to the inside of a particular apartment as well as a percentage of the rest of the property. In the case of a TIC, the property has not been legally subdivided, and the owners do not hold title to particular apartments; rather, each owner owns an undivided percentage of all portions of the property.

TIC groups typically have a detailed written agreement that allocates ownership rights and responsibilities. The most important rights are related to possession, specifically the right to occupy portions of the property or to rent them out and keep the income. The TIC agreement also assigns usage rights for specific apartments, parking spaces, storage space and other areas to specific owners. Each owner maintains his/her assigned areas. Other responsibilities, such as the maintenance of the building’s exterior and payment of expenses, including mortgage, property taxes and insurance, are typically allocated based on the value of the assigned spaces.

Q.How are TICs financed, and what happens to the financing when a TIC owner resells?

A. Although, from a legal standpoint, each TIC owner could possibly have an individual mortgage on his/her percentage of the co-owned property, there is currently no institutional lender offering individual TIC financing. Most TICs today are financed either with a single group mortgage or with individual mortgages carried by the seller.

In the case of a TIC financed through a group mortgage, the TIC agreement allocates debt service and repayment responsibility among the co-owners, and each owner’s monthly dues to the group includes his/her share of the mortgage payment. Debt shares are based upon each co-owner’s price and down payment. With this financing setup, resales are accommodated either through refinancing of the group mortgage or through debt assumption. To preserve maximum flexibility for resale, the group mortgage must be assumable (preferably, partially assumable for less than a full assumption fee), and it must allow secondary financing (so that co-owners can carry back seller financing, if necessary, to supplement the group mortgage on resale).

In the case of a TIC financed through individual mortgages carried by the seller, there is often an underlying loan that predates the TIC formation, for which the seller retains responsibility, and the individual TIC loans wrap around the seller’s original loan. This type of structure has several advantages for all parties. For the buyers, it eliminates the risk that one buyer’s mortgage default will blemish another buyer’s credit, or worse, cause another buyer to lose his/her home and investment. For the seller, it

  1. diminishes the risk of carrying secondary financing by allowing the seller to make sure payments are current on the senior financing;
  2. allows the seller to charge an interest rate markup on the entire amount financed; and
  3. enables the seller to defer capital gains taxes using the installment sale method.

Remember that the use of individual seller-wrapped financing does not circumvent the due-on-sale requirements in the underlying loan, so the seller must get the original lender’s permission for the sale. Also, the individual TIC loans carried by the seller should not themselves be due on sale because that would make resale difficult; rather, each individual TIC loan should be assumable by a qualified buyer.

Q. I am sick of being abused by tenants. Is it possible for me to sell TIC interests in my apartment building?
A. Owners of 2-15 unit apartment buildings have increasingly turned to TICs as a way of maximizing the value of their investments. Marketing the building as a TIC usually results in the quickest sale and the highest price because (1) most 2-15 unit apartment buildings in San Francisco make little economic sense as income investments and (2) there are far more home buyers than investors in the marketplace. TICs also offer the flexibility of selling less than the entire property. This allows the owner to gradually replace tenants with TIC owners as units become vacant and to diversify his/her real estate portfolio, while still maintaining an interest in the building. In today’s market, any apartment building owner who is thinking about selling should consult with two to five different realtors who have TIC experience for an analysis of the likely value of the building as a TIC. While TICs are not appropriate for every owner and every building, failing to investigate the TIC option may cost a seller hundreds of thousands of dollars in lost proceeds.

If the owner decides TIC marketing is appropriate, the next step is to obtain a TIC agreement. Since the building has not been subdivided, the owner cannot legally accept offers on particular units in the building. All purchase contracts need to describe what is being purchased as a percentage of the entire property. The structure created by the TIC agreement is necessary to avoid the uncertainty and risk that would otherwise be associated with a series of purchase contracts for percentages of the building. The need for a premarketing TIC agreement is the same regardless of whether the owner plans to allow individual TIC sales to close separately or insists that the entire property be sold at once. Also, if the building consists of five or more units, the owner will need to obtain approval of the Department of Real Estate prior to offering TIC interests.


The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. More detailed information on this topic is available online at www.andysirkin.com. D. Andrew Sirkin’s law practice is devoted exclusively to tenancy-in-common, condominium conversion, equity sharing, investment partnerships and other co-ownership matters. He can be reached at dsirkin@earthlink.net. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved