For many farm and ranch families, the question of how to transfer the operation from one generation to the next becomes one of the most important and emotional topics they will face. While there is no single “right way” to pass assets, some methods tend to generate more conflict than others. One of the most challenging structures is when assets, particularly land, are titled as common tenancy or “tenants in common.”
What is common tenancy?
Common tenancy is a form of shared ownership in which two or more people own undivided interests in a property. These ownership shares do not have to be equal. Importantly, common tenancy does not include rights of survivorship. Therefore, if one of the owners dies, their share does not automatically go to the remaining owner(s).
An example
Consider a landowner wanting to leave an equal inheritance to their two children. Fairness is often the driving factor: should each child receive the same number of acres or the same value of land? Rather than dividing the property into two separate parcels, the parent leaves the land to both children as “tenants in common”. In this scenario, each child owns 50% of every acre, not specific tracts or fields.
Where problems begin
At first glance, common tenancy may seem like a simple and equal solution. However, this ownership structure can produce tension quickly.
Common tenancy forces co-owners to jointly manage property without offering any management rules or hierarchy. Tenants in common must agree on major decisions. Ownership percentages do not necessarily translate into voting power or management authority, which can be especially challenging when one heir actively operates the farm or ranch and the others do not. These decisions include when and how the land will be used including leasing, selling or making improvements such as conservation practices, upgrades or maintenance of irrigation equipment or fencing.
Daily business activities can also become complicated. USDA program enrollment, financing, lease agreements, and other operating decisions often require signatures from all co-owners.
A further challenge is the lack of protection against creditors. Unlike property held through a trust or an LLC, a common tenancy structure offers little insulation if a co-owner encounters financial or legal issues.
When the tenants in common cannot agree, the situation can escalate. Any tenant can petition the court for a partition, a judicial process that divides the property. In many cases, partition results in family land being sold outside the family, an outcome few parents intend when planning their estates.
Avoiding the pitfalls
If common tenancy is the chosen route, supporting agreements can help clarify expectations and protect the operation. Supporting documents such as long-term lease agreements, rights of first refusal, or purchase options can provide structure and protect the family operation.
Parents rarely intend to create tension or force heirs into joint business arrangements that don’t work. Yet without a clear plan, common tenancy can set the stage for conflict, legal action, or the loss of family land.
This article has been peer reviewed.
