Syndication
Tenancy in Common (TIC): Fractional Ownership and the 1031 Connection
Tenancy in common (TIC) is a form of co-ownership in which two or more parties each hold an undivided fractional interest in the same property, with each owner holding direct title to their share. Unlike an LLC or partnership — where investors own interests in an entity that owns the property — TIC owners own the real estate itself, in fractions. That distinction is small in words and large in consequence, and it's the reason TIC structures occupy a specific niche in real estate: they let an investor own a piece of an institutional-quality asset while holding direct title, which has a particular value in 1031 exchanges.
By One Million Media5 min read
This guide is for sponsors and GPs who encounter TIC structures — usually because an investor wants to 1031-exchange into a deal, or because the deal itself is structured as a TIC. The mechanics differ meaningfully from a standard syndication, and the differences carry real legal and practical risk. Understanding them lets a sponsor structure correctly and explain the trade-offs honestly.
How tenancy in common ownership works
In a TIC, each co-owner holds a separate, undivided fractional interest in the whole property — not a specific physical portion. A 25% tenant in common owns 25% of the entire asset, with rights to 25% of income and proceeds, and holds that interest as direct real property on their own deed.
- Undivided interest: no owner can point to 'their' unit or acre — each owns a percentage of the entire property.
- Direct title: each owner is on title (or holds a deeded interest), which is what distinguishes TIC from owning a membership interest in an entity.
- Independent transferability: in principle a TIC owner can sell or will their interest separately, subject to any TIC agreement.
- Proportional rights and obligations: income, expenses, and sale proceeds are shared according to ownership percentages.
The key distinction
In a syndication LLC, investors own interests in an entity, and the entity owns the property. In a TIC, investors own the property directly, in fractions. That difference is what gives TIC its 1031 advantage — and what creates its governance challenges.
Why TIC matters for 1031 exchanges
The IRS lets investors defer capital gains tax by exchanging one investment property for another of 'like kind' under Section 1031. The catch for syndication is that an interest in a partnership or LLC is not 'like-kind' to real estate — so an investor generally cannot 1031 the proceeds from selling a building into a syndication LLC interest.
A TIC interest, because it is direct ownership of real property, can qualify as like-kind. This makes TIC (and its cousin the Delaware Statutory Trust) one of the few ways an investor with 1031 proceeds can move into a fractional interest in a larger, professionally managed asset while preserving their tax deferral. For a sponsor, being able to accommodate 1031 investors through a properly structured TIC can open a pool of motivated capital that a standard LLC syndication can't accept.
The structural risks of TIC
TIC's strengths create its weaknesses. Because each owner holds direct title, governance is harder and lenders are warier than with a single-entity structure:
| Issue | Why it matters |
|---|---|
| Unanimity requirements | Major decisions (sale, refinance) often need all owners to agree — one holdout can stall the group |
| Partition risk | A co-owner can potentially force a sale of the whole property through a partition action |
| Financing complexity | Lenders must underwrite multiple owners on title; some won't lend to TICs at all |
| Owner cap | IRS 1031 guidance effectively limits TIC arrangements to 35 co-owners |
| Securities question | A managed TIC marketed to passive investors can itself be a security, triggering Reg D obligations |
That last point is critical for sponsors. The IRS spelled out conditions (Revenue Procedure 2002-22) under which a TIC is treated as direct co-ownership rather than a partnership, but if a sponsor packages and markets fractional TIC interests to passive investors with centralized management, the SEC may treat those interests as securities. Many TIC offerings are therefore structured and offered under Reg D, with a PPM and the full securities apparatus, exactly like a syndication. The structure is different; the securities analysis still applies.
TIC vs. DST vs. LLC syndication
- TIC: direct fractional title; 1031-eligible; but cumbersome governance, ≤35 owners, and partition/financing risks.
- Delaware Statutory Trust (DST): also 1031-eligible and passive, but solves TIC's governance problems by placing the asset in a trust with a single decision-maker — usually the better vehicle for passive 1031 capital today.
- LLC syndication: the standard for pooled equity, with clean governance and liability — but interests are not 1031-eligible, so it can't take exchange money directly.
For most sponsors, the practical question is how to accommodate an investor arriving with 1031 proceeds. The honest answer is usually a DST rather than a TIC, because the DST preserves the tax benefit without TIC's unanimity and partition headaches. But TIC remains relevant — particularly for a small group of sophisticated co-investors who want direct title — and a sponsor should understand it well enough to route each investor to the right structure and the right counsel.
Frequently asked questions
What is tenancy in common in real estate?
It's a form of co-ownership in which two or more parties each hold an undivided fractional interest in the same property and each holds direct title to their share. A 25% tenant in common owns 25% of the entire asset and its income, held as direct real property rather than as an interest in an entity that owns the property.
Why is TIC used in 1031 exchanges?
Because a TIC interest is direct ownership of real estate, it can qualify as 'like-kind' under Section 1031, while an interest in a partnership or LLC cannot. This lets an investor with 1031 proceeds move into a fractional interest in a larger, professionally managed property while preserving their capital-gains tax deferral.
What's the difference between TIC and an LLC syndication?
In an LLC syndication, investors own membership interests in an entity that owns the property; in a TIC, investors own the property directly in fractions. The LLC offers cleaner governance and liability but isn't 1031-eligible. TIC is 1031-eligible but carries unanimity requirements, partition risk, financing complexity, and a 35-owner cap.
What is the difference between a TIC and a DST?
Both allow fractional, 1031-eligible, passive ownership. A TIC gives each owner direct title but requires near-unanimous decisions and is limited to 35 owners. A Delaware Statutory Trust places the asset in a trust with a single decision-maker, eliminating TIC's governance and partition problems — which is why DSTs have become the more common vehicle for passive 1031 capital.
Are TIC interests securities?
They can be. If a sponsor packages and markets fractional TIC interests to passive investors with centralized management, the SEC may treat them as securities, triggering Reg D obligations and a PPM. The IRS's Revenue Procedure 2002-22 sets conditions for TIC to be treated as direct co-ownership, but the securities analysis is separate and often leads sponsors to offer TICs under Reg D anyway.
Keep reading
This article is for educational purposes only and is not legal, investment, tax, or securities advice. Securities offerings are regulated; always work with your securities attorney to structure and run your offering. One Million Media is a marketing and lead-generation provider — not a broker-dealer, investment adviser, or law firm.
