Co-owning residential or commercial property as tenants in typical 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 held in tenancy in typical brings with it a distinct 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 portions in between co-owners can affect one's obligations for typical expenses and levels of dispensation on a sale. A fiduciary relationship between joint owners can disrupt a co-owner's capability to acquire an encumbrance. Payments for enhancements to the residential or commercial property may not be recoverable in an accounting action if considered "unneeded." These are just a few of the concerns we will try to resolve in this post about the financials of tenancies in common.

Developing Co-Owned Residential Or Commercial Property

At the outset, it is necessary to note the key features for holding title as renters in typical. A "occupancy in common merely needs, for development, equivalent right of belongings 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 belongings 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 implies that occupants in common can hold title in various ownership portions. (see Donnelly v. Wetzel (1918) 37 Cal.App.741 [tenants in common held a one-third and two-thirds proportion of ownership, respectively])

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

If each occupant in typical can possess the residential or commercial property, does that mean each is similarly responsible for enhancements? The response is no. "Neither cotenant has any power to compel the other to unify with him in putting up buildings or in making any other enhancements upon the common residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Consent to improvements, nevertheless, does not impact a final accounting in a partition action. "Even though one cotenant does not authorization to the making of the improvement ... a court of equity is required to consider the improvements which another cotenant, at his own cost in good faith, placed on the residential or commercial property which boosted its worth." (Wallace v. Daley (1990) 220 Cal.App.3 d 1028, 1036 (Wallace).) Enhancement to value is a noteworthy term. Case law suggests that common expenses, like those for repair and maintenance, are unrecoverable in accounting actions if made by and for the benefit of the cotenant in belongings 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 freely spend on such common expenses, even without the authorization of co-owners, they may not be recoverable.

Financing Residential Or Commercial Property Development

There is likewise a concern of how a cotenant might finance developments to co-owned residential or commercial property. Suppose 2 occupants in common got a mortgage in the procedure of buying genuine residential or commercial property. But subsequently, one of them acquired a second encumbrance on their interest for further improvements. This is the exact situation that took place 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 very first trust deed on the residential or commercial property.

However, without the understanding or approval of the Caitos, the Caponis secured specific notes by putting 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 subordinate liens, it attaches only to such cotenant's interest." (Id.) In essence, one cotenant might overload his interest in the residential or commercial property, but that encumbrance affects his interest just. (Schoenfeld v. Norberg (1970) 11 Cal.App.3 d 755, 765.)

Selling Residential Or Commercial Property as Tenants in Common

As a basic guideline, each cotenant may sell 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 occupant might get rid of his interest without the consent of the other"]) But an occupant in typical may not sell the entire 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, however, a cotenant feels the entire residential or commercial property needs to be sold, then they could bring a partition action. By statute, a co-owner of individual residential or commercial property is authorized to begin 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 right exists even where the residential or commercial property is subject to 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 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 consist of expenditures in excess of the cotenant's fractional share for essential repair work, enhancements that improve the value of the residential or commercial property, taxes, payments of principal and interest on mortgages, and other liens, insurance for the common advantage, and security 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 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 increases by the whole quantity 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 mentioning 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 fit 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] just one product of proof to be thought about by the court in connection with other probative truths." (Kershman v. Kershman (1961) 192 Cal.App.2 d 23, 26.) If 2 co-owners declare to hold title to the residential or commercial property as joint occupants, the court "may think about the truth the parties have contributed various amounts to the purchase rate in figuring out whether a real joint occupancy was intended." (Milian, 181 Cal.App.3 d at 1196.)

An occupancy in typical is different in this regard. Ownership interests are not presumed to be equal, as the unity of interest is not a requirement for its creation. (CCP § 685.) "If a tenancy in common, rather than a joint occupancy is found, the court may either order compensation or identify 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, 2 previous partners had purchased a home for $16,000. The wife set up $8,000, while the partner put up only $1,000 of his own cash and obtained the rest with a mortgage. The contract appeared to give both celebrations ownership of the residential or commercial property in equivalent shares of 50%. Yet, this was not to be until the other half paid off the mortgage, which he never ever did. On that evidence, the high court reduced the partner's supposed ownership share to 6.7% based on his real amount contributed being only $1,000. "This statement amply supports the indicated finding that the plaintiff and offender had concurred that their interests were not to be equal up until the offender had actually paid his share and that their interests were to represent at any offered point of time the coexisting 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 affect their ownership interest in the residential or commercial property, offered no oral arrangement or understanding between the cotenants offered 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 an issue. A contract can negate unequal payments, mortgages can impact distributions, and prolonged accounting procedures can swell litigation expenses. As each case is unique, residential or commercial property owners would be well-served to look for skilled counsel familiar with the ins-and-outs of partitions. At Underwood Law Office, P.C., our educated lawyers are here to help. If you are concerned about the title to your residential or commercial property, what costs may be recoverable, or if you just have questions, please do not think twice to call our office.