Co-owning residential or commercial property as renters in typical is the favored type 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 special set of prospective concerns that are not present in the other forms of joint ownership acknowledged by the state. (see California Civil Code, § 682.)
Different ownership interest portions in between co-owners can affect one's responsibilities for typical expenses and levels of disbursement on a sale. A fiduciary relationship between joint owners can interrupt a co-owner's ability to get an encumbrance. Payments for improvements to the residential or commercial property may not be recoverable in an accounting action if deemed "unneeded." These are simply a few of the issues we will attempt to address in this post about the financials of tenancies in common.
Developing Co-Owned Residential Or Commercial Property
At the beginning, it is very important to note the key functions for holding title as renters in common. A "occupancy in typical simply requires, for production, equal right of ownership or unity of possession." (S.L. Rey (1993) 17 Cal.App.4 th 234, 242.) In essence, "all tenants in common deserve to share similarly in the possession of the whole residential or commercial property." (Kapner v. Meadowlark Ranch Assn. (2004) 116 Cal.App.4 th 1182, 1189.) But due to the fact that equivalent ownership is the only requirement, this implies that tenants in common can hold title in various ownership portions. (see Donnelly v. Wetzel (1918) 37 Cal.App.741 [renters in common held a one-third and two-thirds percentage of ownership, respectively])
For an in-depth conversation on the differences in between tenancies in typical and joint tenancies, please see our prior post on the subject.
If each renter in common has the right to possess the residential or commercial property, does that imply each is equally responsible for improvements? The response is no. "Neither cotenant has any power to compel the other to join with him in putting up buildings or in making any other enhancements upon the typical residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Grant improvements, however, does not affect a last accounting in a partition action. "Even though one cotenant does not grant the making of the enhancement ... a court of equity is required to take into account the enhancements which another cotenant, at his own expense in great faith, put on the residential or commercial property which boosted its worth." (Wallace v. Daley (1990) 220 Cal.App.3 d 1028, 1036 (Wallace).) Enhancement to worth is a noteworthy term. Case law suggests that normal expenditures, like those for repair and maintenance, are unrecoverable in accounting actions if made by and for the advantage of the cotenant in ownership 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 easily spend on such common 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 may finance developments to co-owned residential or commercial property. Suppose 2 tenants in common got a mortgage in the process of purchasing real residential or commercial property. But consequently, one of them got a second encumbrance on their interest for additional improvements. This is the exact scenario that happened in Caito v. United California Bank (1978) 20 Cal.3 d 694. There, there were two liens encumbering 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 approval of the Caitos, the Caponis secured particular 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 one of the secondary liens, it connects just to such cotenant's interest." (Id.) In essence, one cotenant may overload his interest in the residential or commercial property, but that encumbrance impacts 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 permission from the other cotenants. (Wilk v. Vencill (1947) 30 Cal.2 d 104, 108-109 [" One joint occupant may dispose of his interest without the approval of the other"]) But an occupant in common may not offer the whole residential or commercial property without the consent of the other co-owners. "A cotenant has no authority to bind another cotenant with regard 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 entire residential or commercial property requires to be sold, then they might bring a partition action. By statute, a co-owner of personal residential or commercial property is licensed to commence and keep a partition action. (CCP § 872.210.) Moreover, this right is absolute. (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 concentrated interest of a cotenant must take it subject to the right of the others to have such a partition. (Lee v. National Debt Collection Agency, 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 final accounting according to the concepts of equity for both charges and credits upon each cotenant's interest. Credits include expenditures in excess of the cotenant's fractional share for needed repair work, enhancements that enhance 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 taken out of the net proceeds 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 common estate, his financial investment in the residential or commercial property boosts by the entire amount advanced. Upon sale of the estate, he is entitled to his reimbursement before the balance is equally 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 important 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 parties' interest in the residential or commercial property might be put in concern regardless of the record title." (Milian v. De Leon (1986) 181 Cal.App.3 d 1185, 1196 (Milian).) "The deed ... [is] just one product 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 two co-owners declare to hold title to the residential or commercial property as joint renters, the court "might think about the fact the celebrations have contributed different total up to the purchase cost in identifying whether a real joint tenancy was intended." (Milian, 181 Cal.App.3 d at 1196.)
A tenancy 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 development. (CCP § 685.) "If a tenancy in typical, instead of a joint tenancy is found, the court might either order reimbursement or determine the ownership interests in the residential or commercial property in percentage to the amounts contributed." (Milian, 181 Cal.App.3 d at 1196.)
This was the case in Kershman. There, two previous partners had bought a home for $16,000. The wife installed $8,000, while the other half set up only $1,000 of his own money and borrowed the rest with a mortgage. The agreement seemed to grant both celebrations ownership of the residential or commercial property in equal shares of 50%. Yet, this was not to be till the other half paid off the mortgage, which he never did. On that proof, the high court minimized the partner's alleged ownership share to 6.7% based upon his real quantity contributed being just $1,000. "This statement amply supports the suggested finding that the plaintiff and offender had actually concurred that their interests were not to be equivalent until the accused had actually paid his share which their interests were to represent at any provided 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 down payment may impact their ownership interest in the residential or commercial property, provided no oral agreement or understanding in between the cotenants offered otherwise.
How can the Attorneys at Underwood Law Firm, P.C. Assist You?
Partition actions get quite made complex when ownership interests end up being an issue. An agreement can negate unequal payments, mortgages can affect distributions, and prolonged accounting procedures can swell lawsuits costs. As each case is distinct, residential or commercial property owners would be well-served to seek experienced counsel familiar with the ins-and-outs of partitions. At Underwood Law Office, P.C., our experienced attorneys are here to help. If you are worried about the title to your residential or commercial property, what costs may be recoverable, or if you just have concerns, please do not think twice to contact our office.
