Tennessee Real Estate Co-Owners: How to Set Exit and Buyout Rules

Why Exit and Buyout Terms Matter

Even cooperative co-owners may face life changes, such as job moves, cash needs, or differing investment timelines. A written agreement that explains when and how a co-owner can exit, how the property will be valued, and how a buyout is funded can prevent impasse and reduce the risk of court involvement.

Know Your Tennessee Co-Ownership Forms

Common ways to hold title include tenants in common and, for married spouses, tenancy by the entirety. Tenants in common generally hold separate, transferable interests that may be unequal. Tennessee also generally recognizes tenancy by the entirety for married spouses, which typically includes survivorship, subject to the deed language and applicable law. Your deed and agreement should match your goals for transferability, survivorship, and creditor exposure. See Tennessee Code Title 66, Chapter 1 (Conveyances).

Core Clauses for an Exit and Buyout Agreement

• Triggers: Events that allow or require an exit (sale, death, disability, divorce, default, deadlock, or time-based windows).
• Right of first offer/refusal: Give remaining co-owners a first chance to buy before a third-party sale.
• Valuation method: Define appraisal standards, how appraisers are selected, and how to resolve gaps.
• Pricing formula: Choose appraisal value, a fixed formula, or a hybrid.
• Payment terms: Down payment, installments, interest, collateral, and remedies on default.
• Closing mechanics: Timeline, title/escrow, prorations, and cost allocations.
• Consent for third-party sales: Procedures and required approvals for listing or accepting offers.
• Operating costs until exit: Who pays mortgage, taxes, insurance, and repairs while the exit is pending.
• Improvements and credits: How to credit capital contributions and sweat equity.
• Use and access during exit: Showing access, lockbox rights, and occupancy.
• Dispute resolution: Mediation or arbitration steps before court.
• Deadlock breaker: Tie-breaking vote, rotating manager, or referee appraiser.
• Partition waiver/limitations: Address whether and how the parties limit filing for partition, to the extent permitted by Tennessee law and public policy.

Valuation Options That Hold Up

Appraisal-based pricing is common. You can:

• Use one licensed appraiser mutually selected.
• Use two appraisers and average them.
• Use a third appraiser if the first two differ beyond a set band, with a final value by averaging or selecting the closest.

Spell out assumptions (arm’s-length sale, as-is condition) and whether to adjust for recent capital improvements or, where appropriate, control premiums or fractional interest discounts.

Funding a Buyout

Plan realistic funding: cash, refinance proceeds, third-party loan, or seller financing secured by a deed of trust. Specify contingencies if financing fails, such as a short extension, a price hold, or converting to a sale of the entire property.

Handling Expenses and Income

Define how you will share mortgage, taxes, insurance, HOA dues, repairs, capital improvements, and reserves, and how rental income is applied. Consider naming a manager for bill payment and accounting, with quarterly reporting and access to records.

What If We Can’t Agree?

If there is no agreement, or it breaks down, co-owners of Tennessee property can ask a court to divide the property or sell it and divide proceeds. See Tennessee Code Title 29, Chapter 27 (Partition). Court processes are time-consuming and costly compared to a negotiated exit. Clear, pre-agreed procedures for buyout or sale can reduce the need for litigation.

Estate and Title Considerations

Coordinate your exit terms with title and estate plans. For married couples, confirm whether title is by the entirety and whether your agreement affects survivorship expectations. For all owners, align beneficiary designations, wills, or trusts with your buy-sell terms to avoid conflicts.

Practical Tips for Smoother Co-Ownership

• Keep a shared folder with the deed, loan statements, insurance, HOA docs, and invoices.
• Set a quarterly check-in to review expenses, reserves, and market conditions.
• Require written consent for capital improvements above a preset dollar amount.
• Use a neutral accountant or bookkeeper if contributions or reimbursements get complex.
• Pre-clear a preferred appraiser list to save time during exits.

Steps to Put Your Agreement in Place

• Identify ownership goals and time horizons.
• Confirm current title and any lender or HOA restrictions.
• Choose valuation and funding methods.
• Draft and sign a written co-ownership or buy-sell agreement.
• Update the deed and operating procedures if needed.
• Calendar periodic reviews and refresh valuation methods.
• Keep records of contributions, expenses, and major decisions.

FAQ

Can we stop a co-owner from forcing a sale?

You can agree to procedures that delay or channel exits into buyouts, but Tennessee law may still allow partition in some circumstances. Draft limits carefully and get legal advice.

How many appraisals do we need?

Many agreements use one mutually selected appraiser, with a two-appraiser fallback and a third only if results are far apart.

Do improvements increase my buyout price?

They can if your agreement provides credits or adjustments. Spell out eligible costs, documentation, and depreciation.

What if financing for a buyout falls through?

Include contingencies such as a short extension, a nonrefundable deposit, or converting to a sale of the entire property.

How Our Firm Can Help

We draft and review Tennessee co-ownership and buy-sell agreements, advise on partition risks, coordinate with lenders and title companies, and resolve disputes through negotiation or, if necessary, litigation. We can also align your agreement with estate planning and business structures.

Ready to get started? Contact us to schedule a consultation.

Legal References

• Tennessee Code Title 66, Chapter 1 (Conveyances) (general rules on estates in property and conveyances).
• Tennessee Code Title 29, Chapter 27 (Partition) (judicial partition and sale procedures).

Disclaimer for Tennessee Readers

This blog is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Laws change and outcomes depend on your specific facts. Consult a Tennessee-licensed attorney about your situation.

Last reviewed: 2025-10-13