Co-owning residential or commercial property as tenants in common is the preferred 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 kept in tenancy in common brings with it an unique set of possible problems that are not present in the other forms of joint ownership acknowledged by the state. (see California Civil Code, § 682.)

Different ownership interest percentages between co-owners can affect one's obligations for common expenses and levels of dispensation on a sale. A fiduciary relationship between joint owners can disrupt a co-owner's ability to get an encumbrance. Payments for enhancements to the residential or commercial property may not be recoverable in an accounting action if considered "unnecessary." These are just a few of the issues we will attempt to resolve in this post about the financials of tenancies in common.

Developing Co-Owned Residential Or Commercial Property

At the start, it is necessary to keep in mind the key functions for holding title as renters in common. A "tenancy in typical simply requires, for creation, equivalent right of possession or unity of ownership." (S.L. Rey (1993) 17 Cal.App.4 th 234, 242.) In essence, "all tenants in typical deserve to share equally in the possession of the entire residential or commercial property." (Kapner v. Meadowlark Ranch Assn. (2004) 116 Cal.App.4 th 1182, 1189.) But since equal possession is the only requirement, this implies that tenants in common can hold title in different ownership percentages. (see Donnelly v. Wetzel (1918) 37 Cal.App.741 [tenants in typical held a one-third and two-thirds percentage of ownership, respectively])

For an in-depth discussion on the distinctions in between tenancies in common and joint occupancies, please see our previous post on the subject.

If each tenant in common deserves to 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 setting up buildings or in making any other improvements upon the common residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Consent to enhancements, however, does not impact a final accounting in a partition action. "Despite the fact that 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 good faith, put 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 notable term. Case law recommends 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 possession of the residential or commercial property. (see Gerontopoulos v. Gerontopoulos (1937) 20 Cal.App.2 d 261, 265.) Therefore, while a renter in common can easily invest on such common expenditures, even without the consent of co-owners, they may 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 two occupants in common obtained a mortgage in the procedure of purchasing real residential or commercial property. But consequently, one of them got a second encumbrance on their interest for further improvements. This is the precise situation that occurred in Caito v. United California Bank (1978) 20 Cal.3 d 694. There, there were two liens overloading the residential or commercial property. The cotenants, the Caitos and the Caponis, were both accountable on the note protected by the first trust deed on the residential or commercial property.

However, without the knowledge or approval of the Caitos, the Caponis protected certain notes by placing a 2nd trust deed on the Caponis' interest in the residential or commercial property. The court held that "when a cotenant has actually individually encumbered his interest in the residential or commercial property and, as here, such encumbrance is one of the subordinate liens, it connects just to such cotenant's interest." (Id.) In essence, one cotenant might encumber 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 general guideline, each cotenant might sell 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 deal with his interest without the approval of the other"]) But an occupant in typical may 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 regard to the latter's interest in common residential or commercial property." (Linsay-Field v. Friendly (1995) 36 Cal.App.4 th 1728, 1734.)

If, however, 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 start and preserve 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 undivided interest of a cotenant should 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 conducts 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 expenses in excess of the cotenant's fractional share for needed repairs, enhancements that enhance the value of the residential or commercial property, taxes, payments of principal and interest on mortgages, and other liens, insurance for the typical benefit, and defense and preservation of title." (Wallace, 220 Cal.App.3 d 1028, 1036-1037.) These credits are gotten 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 common estate, his financial investment in the residential or commercial property increases by the whole amount advanced. Upon sale of the estate, he is entitled to his reimbursement before the balance is similarly divided." (Nelson, 230 Cal.App.2 d, at 541 pointing out 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 forces the ownership percentages of the residential or commercial property to be put at problem.

In a fit for partition, "all parties' interest in the residential or commercial property might be put in concern despite the record title." (Milian v. De Leon (1986) 181 Cal.App.3 d 1185, 1196 (Milian).) "The deed ... [is] only one product of proof 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 occupants, the court "might consider the truth the parties have contributed various total up to the purchase price in identifying whether a real 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 development. (CCP § 685.) "If a tenancy in common, instead of a joint occupancy is discovered, the court may either buy compensation or identify the ownership interests in the residential or commercial property in percentage to the quantities contributed." (Milian, 181 Cal.App.3 d at 1196.)

This held true in Kershman. There, 2 previous partners had actually purchased a home for $16,000. The spouse put up $8,000, while the hubby set up just $1,000 of his own cash and obtained the rest with a mortgage. The contract appeared to give both parties ownership of the residential or commercial property in equivalent shares of 50%. Yet, this was not to be till the hubby paid off the mortgage, which he never did. On that proof, the trial court lowered the other half's alleged ownership share to 6.7% based upon his real amount contributed being just $1,000. "This testimony amply supports the implied finding that the complainant and offender had agreed that their interests were not to be equal up until the offender had actually paid his share which their interests were to represent at any given point of time the synchronous proportion of their particular contributions in relation to the total." (Kershman, 192 Cal.App.2 d at 27.)

Thus, a cotenant's unequal down payment might impact their ownership interest in the residential or commercial property, offered no oral agreement or understanding in between the cotenants supplied otherwise.

How can the Attorneys at Underwood Law Firm, P.C. Assist You?

Partition actions get rather made complex when ownership interests end up being a problem. A contract can negate unequal payments, mortgages can impact distributions, and lengthy accounting procedures can swell litigation costs. As each case is unique, residential or commercial property owners would be well-served to look for skilled counsel knowledgeable about the ins-and-outs of partitions. At Underwood Law Practice, P.C., our well-informed attorneys are here to help. If you are worried about the title to your residential or commercial property, what expenditures might be recoverable, or if you just have questions, please do not be reluctant to call our office.