In the summer of 1992, I published a real estate newsletter. One of the areas of discussion was related to the benefits of partnerships. In that summer’s issue, I wrote the following:
There are several ways that one can hold title to real estate. One of the common methods of taking title, when there is more than one owner is as tenants in common. Using this method of holding title, each owner can own an exact percentage of the property, and the ownership interests need not be equal. Each owner, regardless of the size of the interest held, has a right to the use of the entire property. This method of owning property, in which the ownership interest is called an undivided interest, can create a major problem between owners, especially with hunting property. If Joe and I own a piece of property together and Joe owns 99% and I own 1%, as tenants in common, I have the same basic right to use the entire parcel as Joe does. Not only can I use the entire property, but Joe cannot require me to contribute towards any improvements of the property. In addition, I can encumber the property, and if Joe decides to sell, the new owner must be my partner with the same ground rules that I had with Joe. Needless to say, the value of Joe’s property is greatly affected by my interest. If Joe decides to sell, the buyer will not only be concerned about what type of person that I am, but there is no control over who I might sell to, or how many. I could divide my 1% into five .2% interests and sell each of them. From an ownership standpoint, an undivided interest is only good if you own a very small interest in a property, and you buy it at a good price. Then, you don’t have much to lose. The entire mess, created by undivided interest, can be avoided by entering into a good partnership agreement.
As you can imagine, owning hunting property as Tenants in Common with unequal undivided interests is a very unfair arrangement. (read more)