Not every business owner wants to buy a building alone. Splitting the down payment with a partner, a fellow practice owner, or another company in your building can make an otherwise out-of-reach purchase possible. But co-ownership only works if the structure is right. Get it wrong and a great property turns into a slow-moving dispute.
Two Ways to Hold Title Together
When two or more parties buy a commercial building together, there are two structures worth understanding: an LLC that owns the property as a single entity, and tenants-in-common (TIC), where each party holds a direct, deeded fractional interest in the real estate itself.
Most business owners default to the LLC without weighing the alternative, and for good reason: it is simpler to run day to day. But TIC ownership solves a real problem the LLC structure cannot, and it is worth knowing when each one fits.
The LLC Structure
Under an LLC, the entity buys and holds title to the building. Each partner owns a membership interest in the LLC rather than a piece of the real estate directly. An operating agreement governs how decisions get made, how profits and losses are allocated, and what happens if someone wants out.
This is the cleaner option for most partnerships. It centralizes liability inside the entity, simplifies lender relationships since the bank underwrites one borrower, and makes day-to-day management (leasing, maintenance, capital calls) straightforward because the operating agreement, not a patchwork of individual owners, controls decisions. It also pairs naturally with the OpCo/PropCo structure if one or more partners' operating businesses will lease space from the LLC.
The tradeoff is exit flexibility. If one partner wants to sell their stake and do a 1031 exchange into a different property, they cannot easily do that from inside an LLC. The IRS generally does not allow a partial membership interest to qualify for 1031 treatment; the partner would need to sell their interest outright or the LLC would need to sell the whole building.
The Tenants-in-Common Structure
TIC ownership puts each partner directly on the deed with a specified percentage interest, say 60/40 or 50/50/... across however many owners. There is no single entity in between. Each owner can finance, sell, gift, or exchange their individual interest independently of the others, subject to the co-ownership agreement.
This matters most when partners have different time horizons or estate plans. If your partner in the building wants to retire in five years and roll their share into another property tax-deferred, TIC ownership lets them do that with a 1031 exchange on just their fractional interest, without forcing a sale of the whole building or unwinding your partnership.
The cost of that flexibility is complexity. Lenders are more cautious with TIC deals because they are underwriting multiple borrowers against one asset, often requiring cross-default provisions so that one owner's financial trouble does not jeopardize the others' interests. Property and casualty insurance, tax filings, and even something as simple as approving a roof repair require more coordination than a single-entity LLC.
What Lenders Want to See
Regardless of which structure you choose, if you are financing the purchase with an SBA 504 loan, expect the lender to require a personal guarantee from every owner holding 20% or more of the entity. That means your partners are not just financially exposed through their equity; they are on the hook personally for the debt, same as you are.
This is exactly why partnership terms need to be nailed down before closing, not after. Lenders also want ownership percentages, capital contributions, and management authority clearly documented, since ambiguity here is a common reason commercial loan underwriting stalls.
The Agreement Terms That Actually Matter
Whether you use an LLC operating agreement or a TIC co-ownership agreement, a handful of provisions do the real work of preventing future disputes.
Capital calls. Define upfront how additional funding gets raised if the roof needs replacing or a tenant improvement is required. Specify what happens if a partner cannot or will not contribute their share; typically their ownership percentage dilutes, or the other partners can advance the funds as a loan to the entity.
Buy-sell provisions. Set the mechanism for what happens when a partner wants out, becomes disabled, divorces, or dies. A well-drafted buy-sell clause includes a valuation method (agreed appraisal, formula, or third-party broker opinion) and a funding mechanism, sometimes backed by life or disability insurance on each partner.
Right of first refusal. Before a partner can sell their interest to an outside party, give the remaining partners the right to buy it on the same terms. This keeps control of the building among people you chose to go into business with.
Deadlock resolution. A 50/50 split can freeze decisions entirely. Build in a tiebreaker: a swing vote on specific issues, mediation, or a buy-sell trigger if partners cannot agree within a set period.
Management authority. Decide who signs leases, approves repairs under a certain dollar threshold, and handles day-to-day operations. Requiring unanimous consent for every decision sounds fair but grinds routine management to a halt.
A Practical Example
Two independent medical practices, each needing roughly 3,500 square feet, decide to jointly purchase a 7,000 square foot medical office building rather than each searching for smaller, harder-to-find spaces alone. They form an LLC, each contributing 50% of the down payment and holding a 50% membership interest. The LLC signs a market-rate lease with each practice, similar in spirit to the tenant subsidy strategy, except here both tenants are also owners.
Their operating agreement specifies unanimous consent for refinancing or selling the building, majority consent for capital expenditures over $15,000, and a buy-sell provision triggered by an independent appraisal if either practice is sold or a partner wants to exit. Five years in, when one practice owner is ready to retire and sell her practice, the buy-sell provision lets the remaining partner buy out her real estate interest at a pre-agreed valuation method, with financing lined up in advance. No dispute, no fire sale, no scramble.
Get the Structure Right Before You Make an Offer
The building is the easy part. The partnership terms are what determine whether co-ownership builds wealth for everyone involved or becomes the reason two good businesses stop being on speaking terms. Involve a real estate attorney to draft the operating agreement or TIC agreement before you go under contract, not after you have already found the building. The due diligence period is not the time to be negotiating with your own partners for the first time.
Chapter 6 covers partnership and entity structuring in depth, including sample operating agreement language, capital call mechanics, and how to think through an exit before you ever close on the building. Get your copy.
Related Reading
- The OpCo/PropCo Split: How to Use Two Entities to Buy Your Business Building
- SBA 504 Loans: Your Path to Building Ownership
- The Personal Guarantee: What You're Really Signing When You Finance Your Building
- The Tenant Subsidy Strategy: Let Your Tenants Pay Your Building's Mortgage
- The 1031 Exchange: How Business Owners Trade Up Without Paying Capital Gains