TIC Agreements and What Goes Into Them
The TIC agreement should spell out the processes and parameters that determine all pertinent issues relating to TIC ownership. It should be clear, detailed, well organized, and written with the assumption that the worst case scenario may actually occur.
In ideal situations, the TIC Agreement becomes less relevant as, for obvious reasons, things tend to go well when things are ideal. It’s only when issues arise among the owners that the TIC agreement truly becomes valuable. The TIC agreement can’t possibly dictate an exact solution to every problem. However it will shape the discussion among the owners and provide a framework for navigating issues that affect mutual ownership, property management, and shared financial responsibility. Some key elements to consider include:
- Define the process involved for making official decisions. Which decisions require majority approval and which require unanimous approval? What is the notification process for informing owners of proposed changes due for vote?
- Define process for how the owners will handle disputes that arise.
- Define process/policy for how owners will handle the bankruptcy or death of another owner.
- Define the TIC “property lines”. That is, specifically identify which areas are owner specific and which are common areas. Remember that the property as a whole is considered to be mutually owned by the TIC so each owners share of the property needs to be identified by the TIC owners in the agreement.
- Define rules that govern the property. This includes usage rights, common area access, noise/pet/parking/laundry type issues, as well as who is responsible for which recurring tasks (garbage, gardening, outside maintenance).
- Define the process for when one owner wants to sell a TIC share. This includes rights of first refusal and buyer approval by the non-selling owners.
- Define the process for paying group bills. Choose a bank for a group account.
- Define each owner’s monthly financial obligation including payments for the mortgage, building utilities, and taxes. Also determine how much reserve payment each owner must contribute to protect against default or emergency.
- Define the exact parameters that define “default” of payment for the mortgage, property taxes, or other property expenses. Also define what corrective or precautionary measures will be taken.
- Define who is responsible for managing the “books” of the TIC group. This includes paying group bills, collecting payments, and reporting to the owners the financial status of the books.