A tenants-in-common structure, often shortened to TIC, lets multiple 1031 exchange investors each hold an undivided fractional interest directly in a single property's title, rather than owning shares in an entity that owns the property. Each co-owner is on the deed. Revenue Procedure 2002-22 lays out fifteen conditions the IRS will treat as a safe harbor for respecting a TIC arrangement as separate real property interests rather than as a de facto partnership, which matters because an interest in a partnership does not qualify for 1031 treatment while direct real property ownership does.
This is the older, more hands-on cousin of the DST structure. Before DSTs became common, TIC arrangements were the primary way exchange investors pooled capital into larger properties while each retaining direct title, and TICs are still used today, particularly by smaller groups of investors, family members, or business partners who want more control than a DST trustee structure allows.
The fifteen conditions include limits on the number of co-owners, generally capped at 35 for the safe harbor to apply, a requirement that decisions on major matters like leasing, financing, and disposition require unanimous or specified supermajority co-owner consent rather than a single sponsor's discretion, restrictions on the property manager's authority and compensation, and a prohibition on the co-owners collectively conducting business through the arrangement in a way that looks like an operating partnership rather than passive co-ownership of real estate. Falling outside these conditions does not automatically disqualify a TIC exchange, but it removes the safe harbor's protection and shifts the burden onto the taxpayer to otherwise demonstrate the arrangement is not a disguised partnership interest.
Unlike a DST, TIC co-owners retain a real vote on property-level decisions, which is both the structure's appeal and its practical burden, since unanimous or near-unanimous consent requirements can make even routine decisions slow when co-owners disagree.
Because each co-owner holds direct title, lenders generally require every co-owner to be a party to the loan, often jointly and severally liable, or at minimum require the loan documents to address what happens if one co-owner wants to sell, refinance, or defaults on their share of debt service. This is more cumbersome than DST financing, where the trust itself, not the individual investors, is the borrower of record. Some lenders are reluctant to underwrite TIC loans with a large number of co-owners at all, which has pushed many multi-investor exchange deals toward the DST structure specifically to simplify financing, even though TIC ownership offers more direct control.
Co-owners considering a TIC purchase should confirm early in the process, not after signing a letter of intent, whether the lender they expect to use will actually finance a multi-owner TIC deed on the terms the group needs.
Selling a TIC-owned property, or one co-owner's interest in it, generally requires cooperation from every other co-owner, since the property is held under a single deed with undivided interests rather than separable trust units. A co-owner who wants out earlier than the others, whether for liquidity, a subsequent exchange of their own, or a change in circumstances, may need the group's consent to sell the whole property, or may need to find a buyer willing to step into a fractional interest alongside continuing co-owners, which is a much thinner market than selling a whole property outright.
This exit friction is the tradeoff for the direct control TIC ownership provides during the holding period, and it should be discussed explicitly among prospective co-owners, ideally documented in a co-tenancy agreement, before the purchase closes rather than left to be worked out if and when someone wants to leave.
Both structures let an investor own fractional interest in institutional-scale real estate through a 1031 exchange, but they trade control for simplicity in opposite directions. A DST offers no vote, no personal loan guarantee, and generally lower minimum investments, in exchange for a trustee making all operating decisions. A TIC offers a real ownership vote and more direct influence over major decisions, in exchange for loan liability, unanimous-consent friction, and a harder eventual exit. Neither is categorically better; the right structure depends on how much control an investor wants to retain and how comfortable they are being a loan co-signer alongside people they may not have chosen as business partners.
Groups of family members or existing business partners exchanging together often prefer TIC ownership precisely because they already have an established relationship and governance expectations, while unrelated investors pooling into an unfamiliar deal more often gravitate toward the passive DST structure.
A written co-tenancy agreement, separate from the property management agreement, should address decision-making procedures beyond the minimum required for the safe harbor, buyout mechanics if one owner wants out, how disputes among co-owners get resolved, and what happens if one co-owner defaults on their share of a joint loan while the others are current. Prospective co-owners who skip this step because everyone currently gets along are setting up the exact situation, a dispute with no pre-agreed process, that causes the most expensive and time-consuming TIC breakdowns. This agreement should be reviewed by an attorney experienced in TIC structures specifically, since a generic co-ownership form drafted for an unrelated deal will not address the safe-harbor consent requirements a 1031 TIC needs to preserve.
