There’s no denying the fact that Los Angeles home prices have soared over the past five years. Record highs leave the current median price sitting at a hefty $715k, compared to just $516k at the end of 2014.
Some counties saw increases as significant as 63%, putting current and future affordability into question for buyers.
A new emerging form of co-ownership called tenancy in common (TIC) is becoming an appealing choice for buyers who can’t afford sole ownership of a property. TIC is somewhat controversial and may have negative effects on the Los Angeles real estate and rental market.
What is tenancy in common?
Tenancy in common allows multiple buyers to purchase a property of interest, most commonly a multi-unit building or subdivided home. Each tenant obtains their own financing and property taxes are split between all owners. Each individual owns title to a percentage of the building in common with the other owners of the property.
The drafted Tenancy in Common Agreement legally assigns each co-owner a portion of the property they will own/occupy.
Where did tenancy in common originate?
As prices in the San Francisco Bay area shot up in the 1980s, local lawyer Andy Sirkin developed an alternative method to become a homeowner. Sirkin pioneered industry standards for tenancy in common with occupancy rights.
What are the risks of tenancy in common?
While TIC creates a realistic path to homeownership for some, the agreement is not without its issues and risks. For example, disagreements in managing the property, new owners, unequal shares in the property, and failure to meet financial obligations are all potential issues with tenancy in common agreements.
What are the financing options?
Currently, Sterling Bank and National Cooperative Bank are the only options to obtain the specific type of loan needed for a TIC purchase in Los Angeles
Why are TIC agreements controversial for Los Angeles?
When converting a rental property to a TIC the landlord needs to have vacant units in order to sell them. This typically involved the landlord using the Ellis Act or negotiating directly with the tenants for a solution that works for both parties. Another option landlords can take is to see if the current tenant is interested in becoming an owner instead of a renter and be a purchaser of one of the TIC units.
An increasing number of landlords are looking to ditch the rental business as Assembly Bill 1482 goes into effect this year. The provisions of this bill will set certain rent limits and prevent evictions for a variety of reasons. Advocates of the bill say TICs have the power to displace low-income tenants and reduce affordable housing in Los Angeles.
How is Los Angeles addressing the potential issues with TICs?
Because tenancy in common has yet to have a large impact thus far, the Los Angeles City Council passed a motion in October 2019 requesting the city to monitor and collect information on tenancy in common conversions. Only time will tell if tenancy in common poses a significant problem for the city and warrant further policy.