A Guide To Tenants-in-Common In California Civ. Code § 682
Co-owning residential or commercial property as renters in common 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 issues that are not present in the other types of joint ownership acknowledged by the state. (see California Civil Code, § 682.)
Different ownership interest percentages between co-owners can affect one's responsibilities for typical costs and levels of dispensation on a sale. A fiduciary relationship between joint owners can interfere with a co-owner's capability to acquire an encumbrance. Payments for improvements to the residential or commercial property might not be recoverable in an accounting action if considered "unneeded." These are just some of the concerns we will attempt to attend to in this post about the financials of occupancies in common.
Developing Co-Owned Residential Or Commercial Property
At the beginning, it is very important to keep in mind the crucial features for holding title as occupants in typical. A "tenancy in typical merely needs, for creation, equal right of ownership or unity of ownership." (S.L. Rey (1993) 17 Cal.App.4 th 234, 242.) In essence, "all renters in typical can 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 since equivalent possession is the only requirement, this means that occupants 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 discussion on the differences between tenancies in common and joint occupancies, please see our prior post on the subject.
If each tenant in common has the right to have the residential or commercial property, does that suggest each is similarly responsible for enhancements? The response is no. "Neither cotenant has any power to compel the other to unite with him in erecting buildings or in making any other improvements upon the typical residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Grant improvements, nevertheless, does not affect a final accounting in a partition action. "Despite the fact that one cotenant does not approval to the making of the improvement ... a court of equity is needed to take into consideration the improvements which another cotenant, at his own expense in great faith, positioned on the residential or commercial property which improved 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 regular expenditures, like those for maintenance and repairs, are unrecoverable in accounting actions if made by and for the advantage of the cotenant in possession of the residential or . (see Gerontopoulos v. Gerontopoulos (1937) 20 Cal.App.2 d 261, 265.) Therefore, while an occupant in common can easily invest in such ordinary expenses, even without the permission of co-owners, they might not be recoverable.
Financing Residential Or Commercial Property Development
There is also a concern of how a cotenant may fund advancements to co-owned residential or commercial property. Suppose 2 occupants in common obtained a mortgage in the procedure of purchasing genuine residential or commercial property. But consequently, one of them got a second encumbrance on their interest for further improvements. This is the exact scenario 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 protected by the very first trust deed on the residential or commercial property.
However, without the knowledge or permission of the Caitos, the Caponis protected certain notes by positioning a second trust deed on the Caponis' interest in the residential or commercial property. The court held that "when a cotenant has actually individually overloaded his interest in the residential or commercial property and, as here, such encumbrance is one of the secondary liens, it attaches just to such cotenant's interest." (Id.) In essence, one cotenant might overload his interest in the residential or commercial property, however 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 tenant may deal with his interest without the approval of the other"]) But a renter in common might not offer the whole residential or commercial property without the approval 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 entire residential or commercial property requires to be offered, then they might bring a partition action. By statute, a co-owner of individual residential or commercial property is licensed to begin and maintain a partition action. (CCP § 872.210.) Moreover, this right is absolute. (Lazzarevich v. Lazzarevich (1952) 39 Cal.2 d 48, 50.) And "such best exists even where the residential or commercial property goes through liens, and whoever takes an encumbrance upon the concentrated interest of a cotenant must take it based on 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 consists of a last accounting according to the concepts of equity for both charges and credits upon each cotenant's interest. Credits consist of expenses in excess of the cotenant's fractional share for required repairs, improvements 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 benefit, and protection and preservation of title." (Wallace, 220 Cal.App.3 d 1028, 1036-1037.) These credits are secured of the net proceeds before the sales balance is divided similarly. (Southern Adjustment Bureau, Inc. v. Nelson (1964) 230 Cal.App.2 d 539.) "When a cotenant advances from his own pocket to protect the common estate, his financial investment in the residential or commercial property boosts by the whole amount advanced. Upon sale of the estate, he is entitled to his repayment 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 important feature of an accounting is that its inevitability forces 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 might be put in problem no matter the record title." (Milian v. De Leon (1986) 181 Cal.App.3 d 1185, 1196 (Milian).) "The deed ... [is] just one item of evidence to be thought about by the court in connection with other probative facts." (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 tenants, the court "might think about the truth the celebrations have contributed different amounts to the purchase cost in figuring out whether a real joint occupancy was planned." (Milian, 181 Cal.App.3 d at 1196.)
A tenancy in typical is different in this regard. Ownership interests are not presumed to be equivalent, as the unity of interest is not a requirement for its development. (CCP § 685.) "If an occupancy in common, instead of a joint occupancy is discovered, the court might either purchase compensation or determine the ownership interests in the residential or commercial property in proportion to the amounts contributed." (Milian, 181 Cal.App.3 d at 1196.)
This was the case in Kershman. There, 2 former partners had actually acquired a home for $16,000. The better half put up $8,000, while the spouse set up just $1,000 of his own cash and borrowed the rest with a mortgage. The arrangement appeared to give both celebrations ownership of the residential or commercial property in equivalent shares of 50%. Yet, this was not to be up until the partner settled the mortgage, which he never did. On that proof, the trial court reduced the husband's supposed ownership share to 6.7% based on his real quantity contributed being only $1,000. "This testament amply supports the indicated finding that the complainant and offender had concurred that their interests were not to be equivalent until the offender 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 overall." (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 arrangement or understanding between the cotenants offered otherwise.
How can the Attorneys at Underwood Law Practice, P.C. Assist You?
Partition actions get quite made complex when ownership interests become a problem. An arrangement can negate unequal payments, mortgages can impact circulations, and prolonged accounting treatments can swell litigation costs. As each case is distinct, residential or commercial property owners would be well-served to look for experienced counsel familiar with the ins-and-outs of partitions. At Underwood Law Firm, P.C., our experienced attorneys are here to assist. If you are concerned about the title to your residential or commercial property, what expenses may be recoverable, or if you simply have questions, please do not be reluctant to contact our workplace.