Co-owning residential or commercial property as renters in common is the favored form of joint ownership in California. (Wilson v. S.L. Rey, Inc. (1993) 17 Cal.App.4 th 234, 242 (S.L. Rey).) Yet, residential or commercial property held in tenancy in common brings with it a distinct set of possible problems that are not present in the other kinds of joint ownership recognized by the state. (see California Civil Code, § 682.)
Different ownership interest percentages in between co-owners can affect one's duties for common expenses and levels of disbursement on a sale. A fiduciary relationship in between joint owners can interfere with a co-owner's capability to get an encumbrance. Payments for improvements to the residential or commercial property might not be recoverable in an accounting action if considered "unnecessary." These are just a few of the concerns we will try to address in this post about the financials of tenancies in common.
Developing Co-Owned Residential Or Commercial Property
At the start, it is very important to keep in mind the crucial features for holding title as renters in typical. A "tenancy in typical merely requires, for production, equivalent right of belongings or unity of ownership." (S.L. Rey (1993) 17 Cal.App.4 th 234, 242.) In essence, "all tenants in common deserve to share similarly in the ownership of the entire residential or commercial property." (Kapner v. Meadowlark Ranch Assn. (2004) 116 Cal.App.4 th 1182, 1189.) But because equal possession is the only requirement, this suggests that renters in common can hold title in various ownership portions. (see Donnelly v. Wetzel (1918) 37 Cal.App.741 [tenants in typical held a one-third and two-thirds proportion of ownership, respectively])
For an in-depth conversation on the differences in between tenancies in common and joint occupancies, please see our previous post on the subject.
If each tenant in typical can have the residential or commercial property, does that indicate each is similarly responsible for improvements? The response is no. "Neither cotenant has any power to oblige the other to unify with him in erecting structures or in making any other improvements upon the typical residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Consent to enhancements, nevertheless, does not impact a last accounting in a partition action. "Despite the fact that one cotenant does not authorization to the making of the improvement ... a court of equity is required to take into account the improvements which another cotenant, at his own cost in great faith, put on the residential or commercial property which enhanced its value." (Wallace v. Daley (1990) 220 Cal.App.3 d 1028, 1036 (Wallace).) Enhancement to worth is a noteworthy term. Case law suggests that regular expenses, like those for repair and maintenance, are unrecoverable in accounting actions if made by and for the advantage of the cotenant in possession of the residential or commercial property. (see Gerontopoulos v. Gerontopoulos (1937) 20 Cal.App.2 d 261, 265.) Therefore, while a tenant in common can freely invest on such ordinary expenditures, even without the authorization of co-owners, they might not be recoverable.
Financing Residential Or Commercial Property Development
There is likewise a question of how a cotenant might fund advancements to co-owned residential or commercial property. Suppose two renters in common obtained a mortgage in the process of acquiring real residential or commercial property. But consequently, among them got a 2nd encumbrance on their interest for further improvements. This is the exact circumstance that occurred in Caito v. United California Bank (1978) 20 Cal.3 d 694. There, there were 2 liens overloading the residential or commercial property. The cotenants, the Caitos and the Caponis, were both liable on the note secured by the first trust deed on the residential or commercial property.
However, without the understanding or permission of the Caitos, the Caponis protected certain notes by putting a 2nd trust deed on the Caponis' interest in the residential or commercial property. The court held that "when a cotenant has actually separately encumbered his interest in the residential or commercial property and, as here, such encumbrance is among the secondary liens, it attaches only to such cotenant's interest." (Id.) In essence, one cotenant may overload his interest in the residential or commercial property, however that encumbrance affects his interest only. (Schoenfeld v. Norberg (1970) 11 Cal.App.3 d 755, 765.)
Selling Residential Or Commercial Property as Tenants in Common
As a basic rule, each cotenant may offer their interest in the residential or commercial property without approval or consent from the other cotenants. (Wilk v. Vencill (1947) 30 Cal.2 d 104, 108-109 [" One joint tenant might deal with his interest without the permission of the other"]) But a tenant in common might not offer the entire residential or commercial property without the permission of the other co-owners. "A cotenant has no authority to bind another cotenant with respect to the latter's interest in typical residential or commercial property." (Linsay-Field v. Friendly (1995) 36 Cal.App.4 th 1728, 1734.)
If, nevertheless, a cotenant feels the whole residential or commercial property needs to be sold, then they might bring a partition action. By statute, a co-owner of personal residential or commercial property is authorized to commence and preserve a partition action. (CCP § 872.210.) Moreover, this right is outright. (Lazzarevich v. Lazzarevich (1952) 39 Cal.2 d 48, 50.) And "such right exists even where the residential or commercial property undergoes liens, and whoever takes an encumbrance upon the undistracted interest of a cotenant should take it subject to the right of the others to have such a partition. (Lee v. National Debt Collector, Inc. (N.D. Cal 1982) 543 F.Supp. 920, 922.)
Accounting
At the end of every partition action, the court performs an accounting. "Every partition action includes a last accounting according to the principles of equity for both charges and credits upon each cotenant's interest. Credits consist of expenditures in excess of the cotenant's fractional share for necessary repairs, enhancements that boost the worth of the residential or commercial property, taxes, payments of principal and interest on mortgages, and other liens, insurance for the typical advantage, and defense and preservation of title." (Wallace, 220 Cal.App.3 d 1028, 1036-1037.) These credits are secured of the net profits before the sales balance is divided equally. (Southern Adjustment Bureau, Inc. v. Nelson (1964) 230 Cal.App.2 d 539.) "When a cotenant advances from his own pocket to preserve the typical estate, his investment in the residential or commercial property increases by the whole amount advanced. Upon sale of the estate, he is entitled to his compensation before the balance is similarly divided." (Nelson, 230 Cal.App.2 d, at 541 citing William v. Koyer (1914) 168 Cal.369.)
Can Unequal Contribution Payments Affect Accounting?
Yes. The most essential function of an accounting is that its inevitability requires the ownership portions of the residential or commercial property to be put at issue.
In a suit for partition, "all celebrations' interest in the residential or commercial property may be put in issue regardless of the record title." (Milian v. De Leon (1986) 181 Cal.App.3 d 1185, 1196 (Milian).) "The deed ... [is] only one item of proof to be thought about by the court in connection with other probative realities." (Kershman v. Kershman (1961) 192 Cal.App.2 d 23, 26.) If 2 co-owners claim to hold title to the residential or commercial property as joint tenants, the court "may think about the reality the celebrations have contributed various total up to the purchase price in figuring out whether a true joint tenancy was planned." (Milian, 181 Cal.App.3 d at 1196.)
An occupancy in common is different in this regard. Ownership interests are not presumed to be equal, as the unity of interest is not a requirement for its production. (CCP § 685.) "If an occupancy in common, rather than a joint occupancy is found, the court may either buy reimbursement or figure out the ownership interests in the residential or commercial property in percentage to the quantities contributed." (Milian, 181 Cal.App.3 d at 1196.)
This was the case in Kershman. There, 2 former partners had actually bought a home for $16,000. The spouse put up $8,000, while the husband installed only $1,000 of his own cash and borrowed the rest with a mortgage. The arrangement seemed to approve both parties ownership of the residential or commercial property in equivalent shares of 50%. Yet, this was not to be up until the partner paid off the mortgage, which he never did. On that proof, the high court lowered the husband's alleged ownership share to 6.7% based upon his actual amount contributed being just $1,000. "This statement amply supports the suggested finding that the complainant and offender had actually concurred that their interests were not to be equal till the offender had actually paid his share which their interests were to represent at any given point of time the simultaneous proportion of their respective contributions in relation to the total." (Kershman, 192 Cal.App.2 d at 27.)
Thus, a cotenant's unequal deposit might affect their ownership interest in the residential or commercial property, provided no oral contract or understanding between the cotenants provided otherwise.
How can the Attorneys at Underwood Law Practice, P.C. Assist You?
Partition actions get quite complicated when ownership interests end up being a concern. A contract can negate unequal payments, mortgages can affect circulations, and prolonged accounting procedures can balloon litigation costs. As each case is unique, residential or commercial property owners would be well-served to seek experienced counsel familiar with the ins-and-outs of partitions. At Underwood Law Practice, P.C., our well-informed lawyers are here to assist. If you are concerned about the title to your residential or commercial property, what costs might be recoverable, or if you simply have concerns, please do not be reluctant to contact our office.
