Tennessee Co-Ownership Agreements: Prevent Disputes Before They Start

Last reviewed: 2025-10-13 | Jurisdiction: Tennessee

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Why a Co-Ownership Agreement Matters in Tennessee

When two or more people own property together—whether a home, a rental, land, or an interest in a closely held business—Tennessee default rules fill gaps if there is no written agreement. Those defaults may not reflect your expectations about use, expenses, improvements, or exit rights. A tailored co-ownership agreement clarifies rights and duties, reduces the risk of deadlock, and can provide a clear pathway to resolve disagreements without going to court.

Common Forms of Co-Ownership

Tennessee recognizes multiple ways to hold title, including joint tenancy with right of survivorship and tenancy in common. Unless the deed clearly states survivorship, co-owners generally hold as tenants in common, meaning each owner has an undivided interest that can be transferred or inherited. See Tenn. Code Ann. § 66-1-107. Your choice affects what happens on death, how interests can be conveyed, and how courts may address partition.

Key Terms to Include in a Co-Ownership Agreement

• Purpose and use: Define intended use (primary residence, rental, investment) and occupancy schedules.
• Contributions: Spell out down payments, operating costs, taxes, insurance, repairs, capital improvements, and how future contributions are calculated and documented.
• Ownership percentages: Tie to contributions or another agreed formula; address sweat equity and services.
• Decision-making: Identify decisions each owner can make alone versus those requiring consent; add tie-breakers or deadlock mechanisms.
• Expense sharing and reimbursements: Allocate routine costs, emergency repairs, and improvement approvals; set timelines for reimbursement and interest on advances.
• Maintenance standards: Establish maintenance schedules, vendor selection, warranties, and reserves.
• Income and tax reporting: Allocate rental income and losses; specify who issues 1099s/K-1s if using an entity; address depreciation and basis adjustments with CPA input.
• Use restrictions and house rules: Noise, guests, pets, smoking, short-term rentals, and HOA compliance.
• Insurance and risk management: Property, liability, and umbrella coverage; require proof of coverage and named insureds or additional insureds as appropriate.
• Records and access: Banking, bookkeeping, inspection rights, and information sharing.
• Transfers, liens, and encumbrances: Require consent for mortgages, prohibit unauthorized liens, and address creditor claims.
• Buy-sell and exit rights: Right of first refusal, buyout pricing formula (appraisal, broker opinion, or agreed schedule), payment terms, and closing mechanics.
• Dispute resolution: Escalation steps (meeting, mediation, arbitration or court), and interim rules to keep bills paid while a dispute is pending.
• Partition waiver and remedies: Address how the parties will handle exit and whether they agree to limit or waive partition rights to the extent permitted by Tennessee law.
• Death, disability, and divorce: Coordination with estate planning, survivorship, and valuation on life events.

Avoiding Deadlock and Forced Sales

Without an agreement, co-owners who cannot agree may face a partition action, which can result in a court-ordered division or sale of the property. See Tenn. Code Ann. Title 29, Chapter 27 (Partition). Your agreement can minimize that risk by setting clear voting thresholds, appointing a manager for routine matters, using appraisals to break pricing impasses, and providing a buy-sell process that is fair and workable. Consider requiring mediation before litigation and establishing interim payment obligations so taxes, insurance, and mortgages stay current.

Entity Options: LLCs and Operating Agreements

Many Tennessee co-owners hold property through a limited liability company (LLC). An LLC can simplify decision-making, allocate profits and losses in an operating agreement, and provide liability protection if properly maintained. If you choose an LLC, align the co-ownership agreement with the operating agreement to avoid inconsistencies. Observe formalities: separate bank accounts, required filings, and written consents for major actions.

Financing, Refinancing, and Liens

Address how new loans or refinances will be approved, who will sign, and whether personal guarantees are required. Prohibit an owner from pledging the shared property as collateral for personal debts. If one owner advances funds to prevent default, specify whether that creates a priority repayment right or adjusts ownership percentages.

Maintenance, Improvements, and Sweat Equity

Distinguish ordinary maintenance from capital improvements and set approval requirements for each. Decide how to value labor contributed by an owner and whether it earns reimbursement, increased equity, or neither unless pre-approved. Require written scopes, budgets, and permits for larger projects to limit surprises and mechanics’ liens.

Exit Planning and Buyout Formulas

Pre-negotiate how a co-owner can exit: notice procedures, appraisal or pricing methods, closing timelines, and who pays transaction costs. Consider discounts or premiums for control, marketability, or if one owner has provided a disproportionate guarantee. Clarify whether a defaulting owner can be bought out on different terms and how disputes about value will be resolved.

Taxes and Reporting

Co-ownership has tax consequences. Your agreement should address allocation of income and deductions, Form 1098 mortgage interest, depreciation if the property is rented, and recordkeeping. Coordinate with your CPA—especially if using an LLC taxed as a partnership—to avoid unintended allocations.

What Happens If We Don’t Have an Agreement?

Tennessee courts apply state statutes and common law when co-owners disagree. That can include appointment of commissioners, accounting between co-owners, and, in some cases, partition by sale or division. These outcomes can be expensive and disruptive. See Tenn. Code Ann. Title 29, Chapter 27. A well-drafted agreement often costs less than a single contested hearing and gives you more control over the result.

Getting Started

Use this checklist to jump-start your drafting:

• Identify the property and intended use.
• List all anticipated expenses and who will handle payments.
• Decide decision-making rules and deadlock breakers.
• Select an exit and buy-sell framework.
• Coordinate with an attorney and CPA to align your deed, any LLC operating agreement, and the co-ownership agreement.
• Keep everything updated as circumstances change.

FAQs

Does Tennessee presume tenancy in common?

Yes. Unless the deed clearly creates survivorship rights, Tennessee generally treats co-owners as tenants in common under Tenn. Code Ann. § 66-1-107.

Can we waive partition rights in our agreement?

You can agree to procedures that limit or delay partition and establish buy-sell mechanisms, subject to Tennessee law and public policy.

Should we use an LLC?

An LLC can centralize management and limit liability. If you use one, align the co-ownership terms with the LLC operating agreement.

What if one owner stops paying?

Your agreement should provide for advances, interest, priority repayment, and potential buyout or default remedies, plus interim rules to keep essential bills current.

When to Speak With a Tennessee Attorney

Consult counsel before closing on a jointly owned property, when adding or removing an owner, if a co-owner stops paying, or if you receive a demand related to partition, liens, or HOA violations. Early advice can preserve options and reduce the risk of litigation. Request a consultation.

References

• Tenn. Code Ann. § 66-1-107 (construction favoring tenancy in common absent clear survivorship language).
• Tenn. Code Ann. Title 29, Chapter 27 (Partition).

Disclaimer: This blog post provides general information about Tennessee co-ownership agreements and is not legal, tax, or financial advice. Laws change and outcomes depend on specific facts. Consult a licensed Tennessee attorney for advice about your situation. Contact us at /contact.