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How to Read a TIC Agreement: Key Clauses to Understand

Hollywood Living

How to Read a TIC Agreement: Key Clauses to Understand

Why Your TIC Agreement Matters

When you buy into a Tenants in Common (TIC) property—especially a SACO TIC where each co-owner has exclusive occupancy rights to a specific unit—you’re not just buying a share of real estate. You’re entering into a legal relationship with your co-owners. That relationship is governed by the TIC agreement, a private contract that defines your rights, responsibilities, and remedies.

Reading a TIC agreement carefully is crucial. It’s not a standard real estate form—it’s a custom document that replaces many of the rules a condo’s HOA would otherwise impose. In this blog, we’ll walk through the key clauses every buyer should understand, offer red flags to watch for, and empower you to ask the right questions before signing on the dotted line.

What Is a TIC Agreement?

A TIC agreement is a legal contract between co-owners of a shared property that:

  • Assigns exclusive occupancy rights (in SACO TICs)

  • Details financial responsibilities like expenses, reserves, and insurance

  • Outlines decision-making processes and dispute resolution

  • Protects each owner’s rights and sets limits on use and resale

Unlike a condo, where rules are set by the HOA and public bylaws, a TIC agreement is privately negotiated. It replaces and redefines many of the protections a condo buyer might take for granted.

Why the TIC Agreement Is Just as Important as the Property

You could fall in love with the unit—but if the TIC agreement is poorly written, outdated, or legally weak, you might face serious issues later, including:

  • Inability to get financing

  • Disputes with other owners

  • Limitations on resale, rentals, or renovations

  • Risk of being dragged into another owner’s financial problems

A professionally drafted TIC agreement—especially one written by experts like SirkinLaw APC—is non-negotiable for a smooth ownership experience.

Key Clauses to Understand in a TIC Agreement

1. Exclusive Occupancy Rights

This section clarifies which portion of the property you have the exclusive right to occupy. Look for:

  • A specific description of your unit (e.g., “Unit B, upstairs 2-bedroom apartment”)

  • Diagrams or exhibits confirming the unit layout

  • Shared areas outlined (e.g., garden, garage, driveway)

Without this clause, your right to your home is legally ambiguous—and that can derail financing or cause future disputes.

2. Ownership Shares

The agreement should clearly state each owner’s:

  • Percentage interest in the property

  • Proportion of property tax, insurance, and repair obligations

  • Voting weight (if different from ownership share)

Ensure your share reflects your unit’s size, value, or negotiated position. Misaligned shares can lead to unfair expense burdens or governance imbalances.

3. Mortgage and Financing Rules

Especially in SACO TICs, this section outlines whether:

  • Fractional loans are allowed (recommended)

  • Group loans are restricted or prohibited

  • Co-owners must disclose refinancing plans to each other

  • Lender approval is needed for agreement changes

Make sure the agreement supports independent financing, so you’re not financially tied to your neighbors.

4. Maintenance and Repair Responsibilities

This clause should:

  • Allocate responsibility for unit maintenance vs. common area repairs

  • Outline how decisions are made for big-ticket items (e.g., roof replacement)

  • Explain reserve fund contributions, if any

It’s vital to know who pays for what—and what happens if someone doesn’t pay.

5. Monthly Contributions and Budgeting

TICs often function like informal HOAs. The agreement should describe:

  • Monthly contribution amounts or formulas

  • Due dates and payment methods

  • Penalties for late or missed payments

  • How the annual budget is created and shared

Review the budget and ensure your share is reasonable based on your unit and share of ownership.

6. Decision-Making and Voting Rights

Good TIC agreements create clear, fair decision-making rules. This section should define:

  • What decisions require majority vs. unanimous votes

  • How votes are counted (equal per owner or weighted by share?)

  • Whether meetings are held, and how they’re documented

  • Tie-breaking processes or mediation options

Ambiguity here can lead to gridlock—or one owner dominating the group.

7. Rental Restrictions and Owner Occupancy

This clause covers:

  • Whether you can rent your unit (short or long term)

  • How tenants must be approved, if at all

  • Occupancy rules (e.g., no more than 2 unrelated adults per unit)

Rental restrictions affect resale, refinancing, and investment flexibility. If you plan to lease your unit or eventually move out, this section is crucial.

8. Transfer and Sale Rights

The TIC agreement should spell out:

  • Whether you need approval to sell your unit

  • If other owners have a right of first refusal

  • What documentation must accompany a sale

  • Whether there are minimum listing or valuation terms

You want flexibility to sell—but with fair safeguards that protect the group’s stability and avoid unwanted buyers.

9. Dispute Resolution Process

No matter how harmonious a group is at purchase, disagreements can arise. A good TIC agreement includes:

  • A clear dispute resolution clause (e.g., mediation → arbitration)

  • Steps and timelines for resolution

  • Legal costs or fee-sharing responsibilities

Without this, conflicts can escalate to litigation—and fracture the ownership group.

10. Amendment Process

Finally, the agreement should include a clause outlining how changes can be made. Typically:

  • Some clauses require unanimous approval

  • Others can be changed with a majority or supermajority

Understanding amendment thresholds helps protect your rights while allowing for flexibility as circumstances evolve.

Red Flags to Watch For in a TIC Agreement

Beware of agreements that:

  • Are outdated or lack legal review

  • Leave unit descriptions vague or incomplete

  • Have no clear dispute resolution or sale procedure

  • Include group loans or tie owners’ finances together

  • Grant too much power to a single owner or sponsor

These issues can complicate financing, resale, and peaceful co-ownership.

Should You Hire an Attorney to Review the TIC Agreement?

Yes—especially if the agreement wasn’t drafted by a specialist or hasn’t been updated in years. A TIC-savvy real estate attorney can:

  • Translate dense legal language

  • Flag high-risk clauses

  • Suggest amendments before closing

  • Coordinate with your lender or agent

For high-value transactions in Los Angeles, a TIC legal review is a smart investment in your ownership peace of mind.

 

OLIVER THORNTON
CO-CEO AND R.E AGENT | HOLLYWOOD ESTATES
PARTNER | THORNTON DEVELOPMENT GROUP

310.704.1794
[email protected]
DRE# 01969227

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