Creating a Tenancy-in-Common Property

Tenancies-in-common (TICs) are among the most popular forms of shared property ownership in San Francisco. Following sweeping changes to condominium conversion rules over the last decade, which have discouraged (or outright banned) property owners from dividing their properties as separate condominiums, TICs operate as a simple intermediary to allow joint operation of multi-unit properties under varied ownership. Indeed, a TIC enjoys many of the legal benefits of condominiums and, often, avoids some of the drawbacks applicable solely to condominiums. While San Francisco’s moratorium on the condo conversion lottery continues, TICs bridge a gap for many homebuyers and sellers seeking common governance of a shared property interest.

What is a TIC?

TICs are one of several ways that unrelated persons may co-own a single property. Under California law, unless otherwise expressly stated in the conveying deed, properties owned by multiple parties are presumed to be TICs.[1] When a single property is owned by multiple parties, each of those parties owns an undivided interest in the entire property. In other words, when a two-unit property is owned by unrelated persons, the owner of one unit has rights to occupy and access the other unit, unless the owners have an agreement stating otherwise. This contrasts neatly with condominiums: where, for example, a two-unit property has been divided into condominiums, the owner of each condominium may only occupy and access her own condominium, with shared ownership solely of the property’s common area. Thus, TICs can present challenges to unrelated co-owners in the operation of the property, since co-owners are jointly liable for all aspects of the entire property; whereas, condominium owners are responsible for only their units (as well as a portion of the shared common area).

How Does a TIC Work?

The key to a successful TIC is the TIC agreement, which is a contract between the co-owners similar to a condominium’s covenants, conditions & restrictions (CC&Rs). The TIC agreement is the fundamental governing document that supports the operation of a multi-unit property with several unrelated owners. Perhaps most importantly, the TIC agreement assigns each co-owner an exclusive right to occupy and access their own unit as well as a non-exclusive right to access and utilize any shared common spaces of the property. So, for in the ubiquitous San Francisco duplex, the owner of the upper unit will have the exclusive right to occupy only the upper unit, but will also have a non-exclusive right to access, for example, a shared staircase leading to both units or the back yard, and the owner of the lower unit may also have non-exclusive rights to access the back yard, but only the owner of the lower unit may occupy the lower unit.

Similar to a condominiums’ CC&Rs, the TIC agreement may provide logistics for co-owners to navigate, for example, division of expenses like shared utilities, property insurance, and taxes, property repair and maintenance obligations, and dispute resolution. The TIC agreement may also establish a committee, like a homeowners’ association, to manage and operate the property—e.g., collection and allocation of expenses—further easing the administrative burden of property ownership.

Importantly, TIC agreements are merely contracts between and among co-owners. The Davis-Stirling Act functions as a regulatory system for certain common interest development projects like condominiums; however, TICs are not included within this scheme. Therefore, the TIC agreement is limited only by the creativity of co-owners (and basic contract law). And while homeowners’ associations are subject to certain restrictions found in the Davis-Stirling Act, such as election procedures and fiduciary obligations, a TIC committee need only look to the TIC agreement for guidance. And while condominiums require, among many other things, registration with local and state agencies and recordation of the CC&Rs, a TIC may be formed upon the execution of the TIC agreement, streamlining co-ownership.

Conclusion

In short, owners of multi-unit properties may enjoy many of the benefits of condominium ownership through development of a TIC agreement, which establishes exclusive ownership rights, division of common expenses, and procedures for general operation of the entire property.

Unless and until San Francisco re-opens its condominium conversion lottery (which may not happen until at least 2026), property owners may find that creating a TIC through the development of a TIC agreement simplifies many of the issues that arise from co-ownership of multi-unit properties.

For assistance with drafting or amending a TIC agreement, you may contact Andrew Grindstaff at Zacks & Freedman, PC for guidance. Contact us at your convenience to request a consultation.

Neither this website nor this post are intended to create an attorney-client relationship.

[1] Cal. Civ. Code Sec. 686.