SF: Understanding the TIC, part I

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SF likes her local hero-celebrities, and our reverence for Andy Sirkin is no different. This attorney has been credited for single-handedly untangling the Tenancy in Common (TIC) quagmire, creating the “Andy Sirkin TIC Agreement” that nearly all SF TIC formations adopt as law for their buildings. His webpage, andysirkin.com is a must read for anyone planning to start or join a TIC. Because though these agreements allow you to get more for your money since you can split the cost of a building between yourself and partners for a great deal less that you would spend on a single-family home, they are by no means easy. The dream of most TIC buyers is to eventually convert the TIC units to condos at which point they become separately owned and no longer jointly owned, so a person could conceivably rent or sell his or her unit if such action were desired. But SF has many laws regulating when you convert, how you convert, and who can convert.

For this article, I will include a brief overview of Sirkin’s text on TIC agreements (taken from his webpage) and the bare essentials your agreement must address whether you decide to use Sirkin or another attorney to legalize your contract. In my next installment on TIC’s, I will address SF’s condo conversion laws.

What is the difference between a tenancy in common and a condominium?

In a condominium, property has been legally divided into physical parts which can be separately owned. Each condo owner owns a particular area of the property which is delineated on a map recorded in the public records, and has a deed which identifies the area which is individually owned. By contrast, TIC owners own percentages in an undivided property rather than particular units or apartments, and their deeds show only their ownership percentages. The right of a particular TIC owner to use a particular dwelling comes from a written contract signed by all co-owners (often called a “Tenancy In Common Agreement”), not from a deed, map or other document recorded in county records. The difference between physical division of ownership in county records (as in a condominium) and an unrecorded contract allocating usage rights (as in a tenancy in common) is significant from both regulatory and practical standpoints, as discussed below.

What is included in a TIC agreement? The following is a partial list of issues a tenancy in common agreement should cover:

• Division of the property into “individual” and “group” spheres with regard to usage rights and maintenance responsibilities;

• Description of the owners’ financial obligations including initial deposits, reserve accounts, mortgages (if shared), taxes, common area maintenance and other expenses;

• Formulas for determining each owner’s monthly payment in advance and periodically adjusting the amount;

• Management of the property including accounts receivable, accounts payable, regular reporting, maintenance and janitorial;

• Rules governing usage of the property by the owners (e.g. pets, noise, floor covering) and enforcement provisions;

• Meeting and decision making procedures;

• Provisions defining when a default has occurred and describing remedies;

• Policy in the event of death or bankruptcy;

• Sale of interests, group approval of prospective purchasers, and rights of first refusal; and
dispute resolution.

The goal in tenancy in common agreement preparation should not be “simplicity” or brevity. A short agreement is unlikely to directly address the real-life problem that will cause you to need the agreement. Consequently, using the short agreement to resolve a dispute will require interpretation and extrapolation, processes that make dispute resolution more difficult, time-consuming and costly. A tenancy in common agreement should be long enough to cover every issue imaginable, well organized (including an index or table of contents) so that a needed provision can be located quickly and easily, and written in language that is understandable yet sufficiently nuanced to avoid crating ambiguity or loopholes. In the unlikely event that you ever need to use your TIC agreement, you will want to be able to find a section that directly addresses your problem and clearly provides a solution.

A common mistake in creating a co-ownership agreement is postponing resolution of difficult issues (“we’ll just work that out later”) to avoid uncomfortable confrontations and preserve a transaction. The issues that seem most difficult to address are generally the most likely to lead to a dispute. Another common mistake is to assume everything will work out exactly as planned (particularly with regard to when people will occupy the property and whether and when they will sell). Housing plans are closely related to employment, health and domestic situations, and these regularly change in unforeseen ways. A good co-ownership structure is durable enough to adapt to dramatic changes in occupancy and ownership plans without being renegotiated, and certainly should never cause one owner to sell his/her home as a result of another owner’s life changes.

Even a well-prepared tenancy in common agreement should be used only in the event friendly relations among group members break down. While it is useful to have owners’ rights and duties well defined, relying on the agreement to dictate a response to actual events is unwise. Even the best agreement will rarely anticipate all circumstances, and applying a formulaic response that does not quite fit the situation may not reveal the best course of action. Such an approach encourages group members to adopt firm positions based on agreement interpretations, and an impasse may develop. A better strategy is to rely first on discussion. The goal should be to develop a consensus that all owners can accept even though some may believe that the agreement dictates a more personally advantageous decision. If a consensus cannot be reached, the TIC Agreement can provide a final resolution.

If you are represented by an agent, this is not a solicitation of your business. This article is for informational purposes only, and is not a substitute for professional advice from a medical provider, licensed attorney, financial advisor, or tax professional. Consumers should independently verify any agency or service mentioned will meet their needs. Learn more about our Editorial Guidelines here.
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