Real Estate Joint Ventures in Tennessee: How Co-Investors Hold and Govern One Property or Project

Most real estate joint ventures are one deal: a rental building, a parcel to develop, a house to renovate and sell. The co-investors have two basic ways to hold it. They can own the land directly, each holding a share of the title, or they can form an LLC that owns the land while they own the LLC. Tennessee law treats those choices differently on survivorship, exit, authority, and tax.

Owning the property directly: tenancy in common is the default

Tennessee abolished the automatic right of survivorship in joint tenancy. When a joint tenant dies, that tenant's share passes to the tenant's heirs or estate, the same as in a tenancy in common (Tenn. Code Ann. § 66-1-107). The Tennessee Supreme Court has explained that a tenancy in common results if no contrary intent is expressed, and that co-owners who want survivorship in either a joint tenancy or a tenancy in common must include clear language to that effect in the granting instrument (Bryant v. Bryant, 522 S.W.3d 392, 404 (Tenn. 2017)).

Express survivorship is also less secure than many investors assume. In Bryant, the Court held that a joint tenancy with an express right of survivorship may be severed by the unilateral action of one co-tenant, which converts the estate into a tenancy in common and destroys the survivorship interests (522 S.W.3d at 396). So a survivorship deed alone does not settle who ends up with the property. Bryant involved a joint tenancy; the Court noted, without deciding the point for Tennessee, that some states treat a tenancy in common with a right of survivorship as not severable (522 S.W.3d at 406 n.12).

When co-owners become partners without meaning to

Tennessee's partnership statute says that joint tenancy, tenancy in common, or other part ownership does not by itself establish a partnership, even if the co-owners share profits made by the use of the property (Tenn. Code Ann. § 61-1-202(c)(1)). The same statute defines business to include the holding or ownership of property for profit (§ 61-1-101(1)). So co-ownership is not enough, but co-ownership combined with conduct that looks like carrying on a business together can be. The general test, the profit-share presumption, and the default rules that follow are covered in partnership agreements in Tennessee.

Partition: the exit every co-owner has, and how far a contract can limit it

A person who holds an estate in land as a tenant in common or otherwise with others is entitled to partition, or to a sale for partition (Tenn. Code Ann. § 29-27-101). The Court of Appeals has said this right is generally not absolute where the parties have contracted otherwise (McGahey v. Wilson, No. M2000-01931-COA-R3-CV (Tenn. Ct. App. July 17, 2001)). The limits come from that decision:

• In McGahey, former spouses agreed to keep a house as tenants in common and that it could not be sold unless both agreed. The court held the clause unenforceable because it had no time limit and the record showed no purpose for it. The court held that the rule of an Ohio decision, Raisch v. Schuster, should control: an agreement restricting partition or sale is enforced when it has an express limitation to a term reasonably related to its purposes, and an agreement with no stated duration must show a purpose from which a court can determine a reasonable duration.

McGahey involved former spouses, and it is an unpublished opinion, which Tennessee Supreme Court Rule 4 treats as persuasive rather than controlling authority. I am not aware of a Tennessee appellate decision applying the McGahey rule to a co-tenancy agreement between real estate investors.

A written partition agreement can matter in another way. Tennessee's Uniform Partition of Heirs Property Act applies only to property where, among other requirements, there is no agreement in a record binding all the cotenants that governs partition (Tenn. Code Ann. § 29-27-302(5)(A)). For how partition cases proceed, and what the 2022 Act changed for inherited land, see partition actions in Tennessee.

Recording is a separate question. Agreements for the conveyance of real property may be registered, and since April 27, 2026 they must carry the authenticated signatures of the owner and the proposed purchaser and an expiration date to be registered (Tenn. Code Ann. § 66-24-101(a)(29), added by 2026 Tenn. Pub. Acts ch. 865). An unregistered instrument is void as to creditors of, and bona fide purchasers from, the makers without notice (§ 66-26-103). Whether a co-tenancy agreement, or a memorandum of it, fits those categories, and whether its restrictions bind a later buyer of one co-owner's share, are not answered by the statute alone, and I am not aware of a Tennessee appellate decision on them.

Holding the deal in an LLC instead

When an LLC takes title, the analysis changes. All property transferred to or acquired by an LLC is property of the LLC, a membership interest is personal property, and a member has no interest in specific LLC property (Tenn. Code Ann. § 48-249-502(a)). As I read § 48-249-502(a) together with the partition statute, a member does not hold the kind of estate in land that § 29-27-101 describes. I am not aware of a Tennessee appellate decision addressing that point.

Exit works differently too. A member's written notice of withdrawal terminates the membership interest (§ 48-249-503(a)(1)). If the LLC continues, the former member loses all governance rights and is considered merely a holder of the financial rights owned before the termination (§ 48-249-505(a)(1)). Unless the termination came from a transfer of all of the member's financial rights or certain trust, estate, or custodial distributions, the former member is also entitled to the fair value of the interest, less damages for a wrongful termination, on terms the LLC documents can fix (§§ 48-249-505(c), 48-249-506). On death, the appointment of a personal representative, or incapacity, the personal representative and then the LLC have an option to require a purchase instead (§ 48-249-505(b)). A member who terminates membership in contravention of the LLC documents forfeits governance rights and is liable for the resulting damages, and the Act recognizes that the LLC documents can negate a member's power to withdraw (§ 48-249-504). The death, withdrawal, or bankruptcy of a member does not by itself dissolve the LLC (§ 48-249-601(b)).

What a single-deal operating agreement has to answer

• Capital calls. A contribution agreement is not enforceable against the prospective contributor unless it is in writing and signed by that person (§ 48-249-301(b)). A member who agreed in writing to contribute is obligated to do so even if unable to perform personally because of death, disability, or another reason (§ 48-249-302(a)). The LLC documents may set consequences for a missed contribution, including reducing or eliminating the defaulting member's interest, subordinating it, forcing its sale, forfeiting it, letting other members lend the shortfall and repaying them from the defaulting member's distributions, or fixing its value by appraisal or formula (§ 48-249-302(d)). Compromising a contribution obligation requires the consent of all members (§ 48-249-401(f)(3)), and a creditor that relied on the obligation without notice of a compromise may enforce the original obligation (§ 48-249-302(c)).
• Manager authority. In a manager-managed LLC, business matters are decided by the manager, or by a majority of the managers, except for the short list of matters that require all members, and managers are designated and removed by a majority vote of the members (§ 48-249-401(b), (f)). A member is not an agent of a manager-managed LLC solely by reason of being a member (§ 48-249-402(b)(1)). The articles may name the persons authorized to sign instruments transferring real property, and that grant is conclusive in favor of a person who gives value unless the person knew or had notice it was rescinded (§ 48-249-402(e)).
• Transfers. A member's financial rights are transferable by default, but the transferee receives only profits, losses, and distributions and does not become a member (§ 48-249-507(a), (b)). Transferring governance rights to a non-member requires the unanimous consent of the other members, which may be unreasonably withheld (§ 48-249-508(b)(3)). A written transfer restriction set forth in the LLC documents may be enforced against a later transferee whether or not that person had actual notice (§§ 48-249-507(c)(2), 48-249-508(e)).
• Deadlock and buy-sell. The Act does not supply a deadlock-breaking or buy-sell mechanism among the members. Short of the fair-value payment to a member who withdraws (described above), which the operating agreement can negate or price, the end point of a true impasse is judicial dissolution, which a court may decree when it is not reasonably practicable to carry on the business in conformity with the LLC documents (§ 48-249-617(a)). Deadlock in a closely held business and when the operating agreement no longer matches reality cover what that looks like in practice.
• Ending when the deal ends. An LLC dissolves on an event specified in the LLC documents (§ 48-249-601(a)(2)), so a single-deal operating agreement can tie dissolution to the sale of the property or the completion of the project.

Taxes to raise with your CPA

• Franchise and excise tax. An LLC is on the statutory list of franchise and excise taxpayers and a general partnership is not, subject to the exemptions in § 67-4-2008 (Tenn. Code Ann. § 67-4-2004(36)).
• Recordation tax. Recording a transfer of realty carries a state tax of 37 cents per $100, based on the consideration or the value of the property, whichever is greater, paid by the grantee (Tenn. Code Ann. § 67-4-409(a)(1)(A), (F)). A deed that qualifies as a quitclaim under § 67-4-409(a)(1)(D) is taxed only on the actual consideration given. To qualify, the deed must use language substantially similar to the statutory quitclaim form and convey only the grantor's interest, whatever it may be, and a deed with general warranty language is taxed on the greater of consideration or value (Tenn. Code Ann. § 67-4-409(a)(1)(D), as amended by 2022 Tenn. Pub. Acts ch. 834). The exemptions listed in § 67-4-409(a)(1)(C) include a deed dividing in kind land formerly held by tenants in common, but I do not see one for a deed from co-owners into an LLC they own. Subsection (e) exempts instruments made pursuant to mergers, consolidations, and transfers of substantially all assets of corporations under plans of reorganization.
• Federal tax and 1031. Interests in a partnership are generally not real property for Section 1031 purposes, while co-ownership is listed as an interest in real property (Treas. Reg. § 1.1031(a)-3(a)(5)). Rev. Proc. 2002-22 sets the conditions under which the IRS will consider ruling that an undivided interest in rental real property is not an interest in a business entity (guidelines the IRS says are not substantive rules), and one condition is that each co-owner generally keeps the right to partition, subject to lender-required restrictions and an agreement to offer the interest to the others at fair market value first (§§ 3, 6.06). That can pull against a contractual partition limit. See 1031 exchanges in Tennessee and talk with your CPA before choosing a structure with a future exchange in mind.

Passive co-investors

If some co-investors will contribute money and leave the work to an operator, their interests can raise securities questions, discussed in raising private investor money through an LLC.

Whether co-ownership or an LLC fits depends on the property, the lender, the investors, and how long the deal is meant to last. If you are putting together a joint venture on Tennessee property, my office can draft or review the co-ownership agreement or the JV operating agreement before title is taken.

Educational disclaimer: This article provides general Tennessee educational information only and is not legal or tax advice for any specific property, investment, or transaction.