A tenants-in-common interest, or TIC, gives each investor an actual undivided fractional ownership share of real property, recorded on title alongside the other co-owners, rather than a beneficial interest in a trust that owns the property. This direct ownership is what qualifies a TIC interest as like-kind replacement property under Section 1031 without the special ruling framework a DST needs.
Because each owner holds a real, deeded fractional interest, TIC structures allow more investor involvement in major decisions than a DST does, but that same feature means co-owners have to reach agreement on financing, leasing, and sale decisions that a DST sponsor would otherwise handle alone.
A prospective TIC investor should review the co-ownership agreement's specific voting thresholds before committing, since agreements vary in whether they require unanimous consent, a supermajority, or some other formula for decisions like refinancing or accepting a purchase offer for the entire property.
Each co-owner's name appears on the deed for their percentage share, and each is legally responsible for their proportional share of the property's debt, generally through a separate, non-recourse carve-out loan structure common in these deals. This differs from a DST, where the trust alone holds title and the loan.
A TIC interest can typically be sold, gifted, or passed to heirs independently of the other co-owners' interests, since it is a separately deeded piece of real property rather than a security interest in a trust.
Because each TIC owner's name appears separately on both the deed and typically the loan documents, a TIC interest generally shows up more directly on an individual owner's personal balance sheet and credit profile than a DST beneficial interest does.
TIC agreements typically require unanimous or supermajority consent for major decisions such as refinancing, selling, or approving a new lease above a certain threshold, which protects minority co-owners from being forced into decisions they oppose but can also stall action when co-owners disagree.
Lenders generally require all TIC co-owners to be jointly and severally liable on the loan or to sign individual, cross-defaulted notes, meaning one co-owner's default can put the entire group's financing, and potentially the property itself, at risk.
Disputes among TIC co-owners over whether to sell, when to sell, or how to respond to an unsolicited purchase offer are among the most common sources of friction in these structures, particularly when co-owners entered the investment with different time horizons or liquidity needs.
IRS Revenue Procedure 2002-22 sets out conditions the IRS looks for when evaluating whether a TIC arrangement is genuine co-ownership rather than a disguised partnership, including limits on the number of co-owners, restrictions on the property manager's discretion, and requirements around unanimous consent for key decisions. A TIC offering that departs materially from these guidelines carries real reclassification risk.
Investors should confirm through the offering's legal documentation that the specific TIC structure being offered was designed to meet these conditions, since a reclassified interest could jeopardize the exchange's qualification after the fact.
A property manager operating under a TIC structure is typically constrained by the same Revenue Procedure 2002-22 guidelines that limit the manager's discretion, which differs meaningfully from a DST trustee's broader operating authority within the trust's fixed terms.
A DST sponsor makes operating decisions unilaterally within the trust's fixed terms, which removes co-owner disputes but also removes investor input entirely. A TIC gives investors a direct vote on major decisions, but that vote requires consensus among what can be a large group of co-owners, some of whom may want to sell while others want to hold.
TIC structures also tend to involve fewer co-owners per property than a typical DST offering, meaning any single TIC investor's vote carries more practical weight, for better or worse, than a DST beneficiary's proportional interest in a much larger investor pool.
Investors comparing a specific TIC offering to a specific DST offering should look past the general structural differences and compare the actual property, financing terms, and sponsor or manager track record involved, since either structure can be a strong or weak investment depending on the underlying asset.
Lenders evaluating a TIC loan generally underwrite the group of co-owners collectively, which can slow down financing when co-owners have different credit profiles, since a lender's terms are often set by the weakest credit in the group rather than an average across all owners.
Some lenders limit the number of co-owners they will finance on a single TIC loan, which can constrain how finely a property can be divided among investors and is worth confirming with a lender before a TIC offering's ownership structure is finalized.
