Commercial tenancy in common
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- For residential tenancy in common, see concurrent estate
Tenant-in-Common (TIC) is a type of ownership structure used in the United States for holding title to commercial real estate assets. The TIC structure gives each owner an undivided interest in a property and is often used in 1031 exchanges. The TIC investors receive a separate deed and title insurance for their percentage interest in the property.
A TIC sponsor, who is usually a trust subsidiary, real estate investment company or entrepreneur, arranges the structure. The sponsor will identify the property, perform the due diligence, enter into the purchase and sale agreement, arrange financing and sell TIC interests to investors. The TIC interest may be prior to closing in which case the equity for the acquisition is from the TICs or post-closing.
When forming TIC structures for 1031 exchanges, individuals are not usually investors in the asset. Instead, the investor will form a special purpose entity to hold their interest in the property. This entity is a bankrupt remote, single-member LLC; this provides the co-owners and lenders with additional liability protection.
The responsibilities of the various TIC investors are outlined in the TIC agreement (just as an operating agreement outlines the responsibilities of partners in a partnership). Also, the individual TICs sign additional documents giving the TIC sponsor the right to handle the day-to-day operations of the property. This can be achieved in two ways, through a master lease or management agreement.
[edit] Benefits of Tenant-in-common Transactions
- typical real estate benefits (net income, tax benefits, growth, etc)
- no day-to-day management responsibilities
- the ability to acquire higher quality assets since the lower equity requirements (ie. $100,000) allow you to invest in institutional grade assets
- the ability to diversify one’s portfolio since you can acquire properties in other parts of the country and invest a 1031 tax free exchange into more than one asset
- debt on TIC transactions are typically non-recourse (no personal guarantee) except for standard “bad boy” carve outs
- easy to identify properties for 1031 transactions or have a second choice in the event that your preferred transaction falls through
