Tenancy in Common in San Francisco: The Ultimate TIC Guide

Vivre Real Estate April 6, 2023

Buying a Home

Tenancy in Common in San Francisco: The Ultimate TIC Guide

TICs in San Francisco

Tenancy in Common (TIC) is a unique and popular form of real estate ownership in San Francisco. As the demand for housing in San Francisco continues to rise, TICs have become an increasingly prevalent option for buyers looking to enter our competitive SF Bay Area real estate market. TIC ownership offers many advantages, but also comes with some unique legal and financial considerations. Below, we'll cover the basics of TICs in San Francisco, including what they are, why they're popular, and how they're organized. So, if you're considering a TIC in San Francisco, or just curious about this type of ownership, you’re in the right place!

Just a couple of notes before we dive in.

Disclaimer: Vivre Real Estate is a boutique collective of top San Francisco real estate agents and marketing professionals. We are NOT a qualified real estate attorney or tax professional. The following information is based on our knowledge and opinion, and should not be considered as legal or tax advice. Before you make any decisions, verify all information with a qualified legal professional who specializes in tenancy in common rules and regulations.

Also: Financing for TICs requires specialized knowledge, so it is crucial to work with a highly experienced TIC lender. If you need a referral to a great local San Francisco mortgage broker, we would be happy to connect you with one! Click here to get in touch.

And a quick SF TIC update: Back in 2013, San Francisco made significant changes to the number of properties eligible for condominium ownership. As a result, many Tenancy in Common (TIC) properties, some of which comprised up to 33 units, have become "permanent" TICs. Unfortunately, things got even more challenging for property owners when the City decided to suspend new condo conversion applications for properties with tenants, after facing a lawsuit concerning the Lifetime Lease requirements. This has put buildings with tenants in a precarious position as their prospects for condo conversion continue to dwindle. While properties without tenants remain unaffected, the future of the City's Condo Conversion Lottery remains uncertain, with no clear indication of when it will return (if at all) before 2024.

Ok, let's begin! We'll start with the basics, but you can click any question in this table of contents to jump to a particular answer.

Table of Contents

  1. What is a Tenancy in Common (TIC)?
  2. Why Are TICs Popular in San Francisco?
  3. What’s the Legal Status of TICs?
  4. How Are TICs Structured?
  5. How Are Tenants’ TIC Percentage Interests Calculated?
  6. How Do Shared Mortgages Work for a TIC?
  7. What About Individual TIC Mortgages?
  8. How Do TIC Owners Pay Expenses?
  9. How Does the TIC Group Make Decisions?
  10. How Do You Create a New TIC?
  11. What Should a TIC Agreement Include?
  12. What’s the Process to Prepare a TIC Agreement?
  13. How Do You Resolve TIC Disputes?
  14. How Can I Sell My TIC Interest?
  15. How Do You Finance the Resale of a Fractional Mortgage TIC?
  16. Does San Francisco TIC Ownership Have Tax Benefits?
  17. What Laws Affect TICs in San Francisco?
  18. What Does California Require for Large TICs?
  19. When is a TIC Property Eligible for Condo Conversion?
  20. My TIC Group is Ready for Condo Conversion. What Next?
  21. Will Evictions Impact a Condo Conversion?
  22. Are There Risks to Owning a TIC in San Francisco?
  23. How Do I Become Part of a TIC Group?
  24. I Own a Vacant Multi-unit Building. How Do I Sell it as a Tenancy in Common?
  25. Have a Question We Missed?

The Basics: What is a Tenancy in Common (TIC)?

When we hear the term "Tenancy in Common," it might sound like just another form of group ownership. However, in San Francisco, residential TICs are quite different from other forms of ownership, such as condominiums. A condominium allows individual unit owners to own the space within the walls of their unit, while everything else is owned by the homeowners' association. In contrast, a TIC allows the entire property to be owned by the TIC group (the tenants in common) in percentage shares. This means that each TIC member has their own exclusive rights to use and occupy specific dwelling units, as well as assigned parking, storage, and deck areas, all of which are outlined in a detailed written agreement.

Why Are TICs Popular in San Francisco?

For the past 25 years, TICs have been a viable option for home ownership in San Francisco, and for good reason. The unique combination of factors in San Francisco, including sky-high single-family residence prices, rent control rules that discourage investment ownership of multi-unit properties, and highly restrictive limits on condominium conversions of existing multi-unit properties, made TICs an attractive option. The potential for TICs to convert to condominiums fueled the creation of many TIC properties, and the city even established a lottery/waiting list for condo conversions. However, in 2013, the city drastically reduced the number of properties allowed to convert to condominium ownership and suspended the system in 2017, leaving many TICs facing an indefinite wait for conversion. As a result, the concept of “permanent” TICs is slowly replacing the original model of TICs as a temporary bridge to condominium ownership.

What’s the Legal Status of TICs?

In San Francisco, there have been attempts to restrict or even ban TIC formations, but these efforts have largely failed. In 2001, a law was proposed to make the exclusive occupancy arrangements that are a cornerstone of TICs illegal and unenforceable. However, this law was eventually ruled unconstitutional by the San Francisco Superior Court, with the decision later affirmed by the California Court of Appeal in 2004. Despite these challenges, the concept of "permanent" TICs—buildings that have no potential for condo conversion—has become more common. As a result, TIC ownership has become a well-established part of the San Francisco real estate landscape for over 25 years, with TIC interests being regularly listed, bought, and sold.

How Are TICs Structured?

If you are a property owner considering forming a Tenancy in Common (TIC), you’ll need to consult with an attorney to help create a structure that meets the unique needs of your group and property. This will be documented in a written TIC Agreement that outlines specific goals, such as minimizing conflicts among TIC owners, maximizing the marketability of TIC shares, and facilitating condominium conversion if appropriate. Once the purchase is completed, each TIC owner occupies and maintains their designated areas. The costs associated with maintaining common spaces and other building expenses are split equitably among the owners, as stipulated in the TIC Agreement. Each owner retains the right to sell their interest at any time, subject to first refusal rights (if any) established in the TIC Agreement. If the building is converted to condominiums, each owner will receive a deeded condominium unit that corresponds to their assigned areas.

How Are Tenants’ TIC Percentage Interests Calculated?

Within the TIC framework, owners are typically assigned a "relative value percentage" that corresponds to the areas of the property they will occupy, such as the dwelling, parking, storage, and deck. This percentage is determined by a variety of factors, including square footage, floor level, views, and overall condition. Often, prospective co-owners work with a real estate agent to determine these percentages. One common approach is to value each unit as if it were being sold separately, with recent sales of comparable condominium units serving as a guide for valuation. Once values are established, they are added together and divided into the total to determine each owner's TIC percentage. Purchase prices and property taxes are then allocated according to these percentages.

How Do Shared Mortgages Work for a TIC?

Early TIC groups commonly shared a joint mortgage, divided in the same proportion as their TIC ownership percentages. However, sometimes a prospective TIC owner would have a small down payment but a stable income, or a significant down payment but limited income. To address this, each owner's share of the group mortgage could differ from their TIC ownership percentage. This approach works as long as the sum of an owner's down payment and loan share equals their portion of the building cost. However, if there is a significant disparity in debt and/or down payment, extra measures may be necessary to ensure fairness.

What About Individual TIC Mortgages?

Individual TIC mortgages, also known as "fractional" TIC mortgages, offer several advantages over group mortgages and are the go-to choice for today’s TICs. With individual TIC mortgages, each owner obtains a separate, independent mortgage secured only by their ownership interest in the TIC property. This means that a late payment or loan default by one owner will not damage the credit history of the other TIC owners. Moreover, the risk of foreclosure against the non-defaulting TIC owners is not among the consequences of a loan default.

Despite having slightly higher interest rates, fractional TIC mortgages have become the preferred option for TICs in recent years, due to their considerable advantages. An expanding number of lenders now offer fractional TIC mortgage loans, which has opened the door to TIC ownership in larger properties in desirable neighborhoods, as well as to small properties that are ineligible for condo conversion. These "permanent" TICs have established their own niche among San Francisco real estate owners and buyers, making TIC ownership a viable and attractive option for a broader range of people.

How Do TIC Owners Pay Expenses?

In TIC ownership, expenses are categorized as individual and common.

  • Individual expenses are borne by individual owners and are related to maintenance and improvement of their dwelling units, as well as personal property insurance and separately metered utilities.
  • Common expenses are paid through a TIC group bank account and include insurance, property taxes, maintenance and improvements to common areas, and shared utilities such as water and trash removal.

Mortgage expenses may be either individual if each owner obtains fractional TIC mortgages or common if the TIC group obtains a single shared mortgage. It is important for TIC owners to keep track of both individual and common expenses and ensure timely payments to maintain the financial health of the TIC group.

How Does the TIC Group Make Decisions?

Decision-making power is distributed among the individual TIC owners. In most cases, each owner has one vote on routine matters, and majority rule prevails. However, significant decisions such as the sale or refinancing of the property, building changes or improvements, and TIC decisions in 2-unit buildings typically require unanimous consent or, in larger properties, a super-majority vote. These safeguards ensure that each owner has a voice in the most important decisions affecting their shared investment.

How Do You Create a New TIC?

TICs may be formed by a group of homebuyers, or by a single owner dividing the property to be sold. When you're part of a group of potential TIC buyers eyeing a multi-unit property, it's crucial to assess each other's financial capabilities to shoulder the shared financial responsibilities. This means taking a close look at each other's financial statements, tax returns, and other relevant documents to ensure that everyone's on the same page. Think of it as a self-approval process that's just as important as the standard property inspections and loan approvals. However, many TICs are created by developers who acquire entire properties wholesale, improve them, and then sell them as individual TIC interests. As a result, there may be fewer opportunities for buyers to evaluate the capacities of their soon-to-be co-tenants.

What Should a TIC Agreement Include?

If you're planning on buying into a tenancy-in-common (TIC) property, it's important to have a well-drafted TIC agreement that covers all the bases. Here's a rundown of some of the things your TIC agreement should address:

  • Who gets to use which parts of the property? This is important if, say, one TIC owner has a balcony and another doesn't.
  • How will the common areas be shared and maintained? Who's responsible for cleaning the hallways, for example?
  • How will shared financial obligations be allocated? This includes everything from the mortgage to property taxes to utilities.
  • What are the rules for refinancing a group mortgage loan when someone sells their TIC share?
  • What are the rules for converting the property to condominiums, if that's something you want to do down the line?
  • What happens if someone defaults on their obligations? Are there consequences, and is there a default reserve fund to cover them?
  • Are there any rules around how the property can be used? Can you have pets? Rent out your unit on Airbnb?
  • What happens if a member dies or declares bankruptcy?
  • How will individual interests be sold, and under what conditions?
  • Finally, how will disputes be resolved if they arise? Mediation? Arbitration?

That's just a partial list, but you get the idea. Bottom line: a good TIC agreement is essential to making sure everyone is on the same page and any potential issues are addressed upfront.

What’s the Process to Prepare a TIC Agreement?

When it comes to TIC agreements, it's important to remember that each agreement is unique. Simply using another group's agreement or online template may not be right for your specific needs and could lead to disputes down the road. That's why it's crucial for TIC members to take a professional, by-the-book approach when drafting their agreement.

Typically, an attorney will represent the entire TIC group, guiding them through the process of crafting a customized agreement that takes into account their unique situation and needs. During this process, potential TIC members can meet to feel out their potential to make group choices and collaborate. The attorney will suggest alternatives and facilitate discussions around various approaches to resolving potential future disputes. The end result should be a comprehensive written agreement that helps forestall disagreements and serves the needs of the entire group.

It's worth noting that individual TIC members may also seek separate review by their own accountants and attorneys to ensure that their interests are adequately represented in the final agreement. By taking a collaborative and thorough approach to drafting a TIC agreement, members can increase the likelihood of a smooth and successful co-ownership experience.

How Do You Resolve TIC Disputes?

As much as we’d like to say that TIC ownership is always smooth sailing, that's unfortunately not the case. In fact, internal disputes between TIC members can be one of the biggest challenges of co-owning a property. As you might imagine, there are many types of disputes that may arise, and covering it all could be its own article (or ten). Suffice to say, though, that California courts are not generally involved with TIC disputes. Disputes will usually be resolved through mediation and binding arbitration as set out in the TIC agreement.

How Can I Sell My TIC Interest?

The good news is that you can sell your TIC percentage interest at any time for market value, unless you've agreed to hold title for a specific period to aid in condominium conversion. TIC interests are marketed and sold all over San Francisco using the Multiple Listing Service (MLS), and you can get appraisals of individual TICs too. If you are in a group loan, it is a bit more complicated. You’ll want to consult with your Realtor and qualified TIC attorney. 

How Do You Finance the Resale of a Fractional Mortgage TIC?

To refinance in connection with the sale of an individual TIC interest subject to a fractional TIC mortgage, the process is similar to that of condominium resales. The new buyer gets a new fractional mortgage in their name, and the seller uses the sale proceeds to pay off the original fractional mortgage loan. The other TIC owners are not involved in the refinancing process. However, the availability of fractional TIC mortgages in the future is not guaranteed, despite the growing number of lenders offering them.

Does San Francisco TIC Ownership Have Tax Benefits?

Yes! TIC ownership offers the same tax advantages as other homeowners enjoy. Provided that they follow the limitations imposed by the 2017 Tax Reform Act, owner-occupants may claim tax deductions for mortgage interest and property taxes, and they benefit from homeowner capital gains exclusions when they sell. However, it's worth noting that purchasing a TIC interest may not meet the requirements of Prop 60 in California, which enables senior homeowners to transfer the low property tax value of their primary residence to a replacement dwelling of equal or lesser value. This "equal or lesser" test applies to the entire replacement property, even if the buyer only acquires a partial TIC interest. For those considering investing in TIC property, it's advisable to seek advice from a tax specialist to understand the application of tax laws to TIC ownership.

What Laws Affect TICs in San Francisco?

San Francisco's rent control regulations can make it difficult for TIC owners to occupy their new homes if the property is tenant-occupied. In such cases, only one "owner move-in" eviction is permitted per building, and evictions of protected tenants such as the elderly, disabled or those with serious illnesses are generally not allowed. If multiple owner evictions are necessary, or if the owner does not meet the owner move-in requirements, all tenants in the building can be evicted under the state's Ellis Act, but the property's condominium conversion potential may be impacted, and subsequent rental of the property will be limited. Moreover, some San Francisco lenders have stopped offering mortgage loans for properties where tenants have been evicted under the Ellis Act due to pressure from tenants’ rights advocates. San Francisco's eviction laws are intricate and harsh, so those contemplating a TIC purchase of a tenant-occupied property should speak with a qualified attorney.

What Does California Require for Large TICs?

In California, the Department of Real Estate (DRE) mandates that buildings with five or more units seeking to establish TIC formations must obtain a "Public Report." The process of obtaining a Public Report from the DRE can be lengthy, taking anywhere from 4-6 months, and requires a professionally prepared budget and significant TIC reserve funds to be established. The cost of obtaining a Public Report will vary depending on the size of the building. Note that a Public Report is not necessary for the resale of an interest in an existing TIC, even if the TIC was never issued a Public Report.

When is a TIC Property Eligible for Condo Conversion?

Residential condominium conversions have been heavily curtailed in San Francisco since 2013, with the implementation of the so-called "Expedited Conversion Program." This program, which ended in January 2020, placed stringent restrictions on conversions, limiting them to only two-unit buildings where the units were separately owned and occupied by distinct individuals. These types of conversions, known as "Bypass" conversions, remain the only ones currently eligible for condominium status. The possibility of San Francisco's Condo Conversion Lottery returning in 2024 was previously tied to the Expedited Conversion Program, but with its recent termination, the future of the Lottery remains uncertain. The ultimate decision regarding the resumption and structure of the Lottery will continue to rest with the City's Board of Supervisors.

My TIC Group is Ready for Condo Conversion. What Next?

Buildings that are eligible for 2-unit conversion do not need to be updated with current building codes, seismic retrofitting, or parking requirements. However, as part of the conversion process, the city will require a building inspection. If you request a building inspection before submitting your conversion application, it can speed up the conversion process. In case you decide not to proceed with the conversion, you may cancel a requested inspection. If the city inspection has already taken place, you will be required to perform the cited work regardless of your decision to proceed with conversion. It may be helpful to seek pre-inspection by a private consultant who is familiar with the conversion requirements. They can provide advance notice of potential inspection issues, suggest ways to minimize remediation requirements, confirm the legality of pre-existing improvements, and assist you in obtaining building permits. If you need an experienced inspector, we are always happy to make a recommendation from our vetted professional network.

Will Evictions Impact a Condo Conversion?

Yes, evictions do affect condo conversion. San Francisco's tenant rights laws stipulate that properties where protected tenants—those who are elderly, disabled, or catastrophically ill—have been displaced after May 1, 2005, will be ineligible for condominium conversion. Furthermore, buildings where two or more evictions of non-protected tenants have occurred will also be barred from conversion for a period of ten years. It should be noted, however, that evictions resulting from tenant misconduct such as non-payment of rent or causing a disturbance do not impede condominium conversions.

Are There Risks to Owning a TIC in San Francisco?

Yes. Co-ownership arrangements, including TICs, condominiums, cooperatives, partnerships, and others, all come with inherent risks that arise from sharing the use of property with others and depending on each other to fulfill mutual obligations.

The extent of these risks can vary based on the portion of the property that is co-owned and the size of the shared obligations. For instance, because condominium owners co-own only the structural components, systems, and common areas of their building, they are responsible for relatively few obligations, such as upkeep and insurance of the co-owned areas. In contrast, TIC members co-own the entire property, making the TIC group collectively responsible for all property ownership obligations.

So, while condominium owners need to be concerned with whether their neighbors are good decision-makers, use common areas respectfully, and pay their HOA dues, they do not need to worry about their neighbors making mortgage payments. Conversely, if a TIC owner defaults on their share of a monthly mortgage payment and the lender forecloses on the entire building, all the other owners could lose their homes or suffer damage to their credit histories. Additionally, a lien or judgment against one TIC owner could interfere with the sale or refinancing of other TIC "units."

Finally, while California laws governing condominium HOAs are continuously updated to meet changing needs, there are no statutes governing TIC operation, and only general contract law mechanisms are available to enforce TIC rules, which are better suited for commercial disputes. If you are thinking about becoming a TIC owner, you should investigate the background and qualifications of co-owners, evaluate the property and financing carefully, decide how long you plan to own and occupy the property, create a customized TIC agreement that all group members understand, establish a default reserve fund, and observe and enforce your TIC agreement's rules.

How Do I Become Part of a TIC Group?

There are a few ways you might become part of a TIC group. You can be a founding member of a new TIC group, by:

  • Purchasing a single TIC interest that's for sale. One benefit of buying into an established TIC group is that you can assess if the group has a proven track record of making sound decisions and meeting its financial obligations. 
  • Gathering a group of friends or family and working with a qualified San Francisco Bay Area real estate agent to find a building that everyone likes. 
  • Joining an existing group in the process of buying a building that has an available unit. A realtor can help you find such a group and assess whether the potential co-owners are suitable for you.
  • Working with a realtor to identify a suitable multi-unit building, create a model TIC agreement, and then find qualified co-owners for the other units.

I Own a Vacant Multi-unit Building. How Do I Sell it as a Tenancy in Common?

If you already own a property, you can create a TIC framework for selling all or part of it. By preparing a model TIC agreement for potential buyers to review, you can avoid the need for them to agree to a TIC structure as a contingency of the purchase contract. You might also consider offering financing for the buyers. Additionally, you could market the property simultaneously as both TIC shares and a single investment property.

Have a TIC Question Not Answered Here?

We hope this FAQ blog about TICs in San Francisco has provided you with valuable information and insights into this unique form of property ownership. If you have any questions that were not answered here, please do not hesitate to reach out.

At Vivre, we are a boutique collective of seasoned real estate agents, marketing professionals and transaction coordinators dedicated to enhancing your home life. Our team has been serving San Francisco for over two decades, helping homebuyers and sellers of all property types—including TICs!—to achieve their long-term real estate goals.Get in touch today to learn how we can help you navigate the world of TIC ownership. Click here to contact us.

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