Tenancies in Common: the Argument in Spport of Tenancy in Common Agreements

By Mary J. Drury , Esq.

Whether it has been caused by the recent increases in land values, losses in the stock markets or otherwise, 1031 exchanges and 1031 exchange companies offering tenant in common (“TIC”) interests in property are becoming increasingly popular in Nevada.

A tenancy in common is one type of concurrent estate in land. It is a present concurrent right to enjoyment and possession. Tenants in common (“TICs”) can hold different interests in the property but each is entitled to possession of the whole. Under Nevada law, there is no maximum number of TICs that may hold an interest in one piece of land. A TIC may be any person or entity. Absent an agreement to the contrary, interests may be sold or devised at death. There is no right of survivorship upon the death of a TIC; that is, the death of one TIC does not vest that TIC's interest in the other surviving TICs.

Nevada law does not extensively regulate the rights and obligations of TICs. Therefore, of fundamental importance to TICs should be a tenancy-in-common agreement. The need for a tenancy-in-common agreement becomes clear when decisions must be made as to the use, operation and sale of the property. For example, is it clear how and when taxes are paid and by whom and in what percentages? How do the parties want rents and profits split? What about profits from a TIC's own use of the property? In the event of receipt of an offer to purchase the property, what percentage of the TICs must agree? At common law, the sale requires 100% agreement of the TICs. Do the TICs want one TIC to be able to mortgage or encumber his or her portion of the property? Finally, in the event that a TIC desires to partition the property, is this prohibited?

A TIC Agreement should address the parties' intent as to each of the foregoing, in particular partition. TICs have a statutory right to partition of the property. Partition may either occur “in kind” (physical division of the land among co-tenants) or by forced sale of the land and division of the proceeds. The sale is permitted so long as it can be made “without great prejudice to the owners or if the owners consent to a sale. If ... it is, in the opinion of the court, impracticable or highly inconvenient to make a complete partition, [then] . . . the court may . . . determine the shares or interest respectively held by the original cotenants, and thereupon cause a partition to be made .... ”

However, the right to partition is not absolute. In a 1975 Nevada Supreme Court case, the court held that the right of partition “may be waived by reason of agreement.”

In sum, due to the scarcity of Nevada law on TICs, TICs should strongly consider the use of an agreement which addresses their relative rights and obligations.