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Co-owning residential or commercial property as renters in common is the preferred 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 kept in tenancy in common brings with it a special set of prospective issues that are not present in the other types of joint ownership recognized by the state. (see California Civil Code, § 682.)

Different ownership interest percentages between co-owners can impact one's obligations for common expenditures and levels of disbursement on a sale. A fiduciary relationship in between joint owners can interfere with 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 considered "unnecessary." These are simply some of the problems we will try to deal with in this post about the financials of tenancies in common.

Developing Co-Owned Residential Or Commercial Property

At the start, it is essential to keep in mind the essential features for holding title as occupants in common. A "occupancy in common simply requires, for development, equivalent right of belongings or unity of belongings." (S.L. Rey (1993) 17 Cal.App.4 th 234, 242.) In essence, "all occupants 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 since 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 [renters in common held a one-third and two-thirds proportion of ownership, respectively])

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

If each renter in common deserves to possess the residential or commercial property, does that indicate each is equally responsible for improvements? The response is no. "Neither cotenant has any power to oblige the other to join with him in setting up buildings or in making any other enhancements upon the common residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Grant enhancements, however, does not affect a final accounting in a partition action. "Although one cotenant does not grant the making of the improvement ... a court of equity is needed to take into consideration the enhancements which another cotenant, at his own expense in good faith, placed 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 suggests that ordinary expenses, like those for repair and maintenance, are unrecoverable in accounting actions if made by and for the benefit 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 an occupant in common can freely invest in such normal expenditures, even without the approval 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 advancements to co-owned residential or commercial property. Suppose two occupants in common acquired a mortgage in the procedure of buying real residential or commercial property. But consequently, among them obtained a second encumbrance on their interest for more improvements. This is the specific situation that occurred in Caito v. United California Bank (1978) 20 Cal.3 d 694. There, there were 2 liens encumbering the residential or . The cotenants, the Caitos and the Caponis, were both liable on the note protected by the first trust deed on the residential or commercial property.

However, without the understanding or approval of the Caitos, the Caponis secured specific notes by positioning a 2nd trust deed on the Caponis' interest in the residential or commercial property. The court held that "when a cotenant has individually encumbered his interest in the residential or commercial property and, as here, such encumbrance is among the subordinate liens, it connects just to such cotenant's interest." (Id.) In essence, one cotenant may encumber his interest in the residential or commercial property, but 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 guideline, each cotenant might 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 authorization of the other"]) But an occupant in common may not sell 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 common 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 needs to be offered, then they could bring a partition action. By statute, a co-owner of personal residential or commercial property is authorized 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 best exists even where the residential or commercial property undergoes liens, and whoever takes an encumbrance upon the concentrated interest of a cotenant need to 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 carries out 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 include expenses in excess of the cotenant's fractional share for necessary repairs, 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 benefit, and defense and conservation 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 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 investment in the residential or commercial property increases by the whole amount advanced. Upon sale of the estate, he is entitled to his repayment 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 fit 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] only one item of evidence to be considered 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 occupants, the court "may consider the fact the parties have actually contributed various total up to the purchase rate in figuring out whether a true joint occupancy was planned." (Milian, 181 Cal.App.3 d at 1196.)

An occupancy in common is various 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 an occupancy in common, instead of a joint occupancy is discovered, the court might either buy repayment or determine 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, two former partners had actually acquired a home for $16,000. The other half installed $8,000, while the husband put up just $1,000 of his own cash and borrowed the rest with a mortgage. The agreement appeared to approve both parties ownership of the residential or commercial property in equal shares of 50%. Yet, this was not to be till the hubby paid off the mortgage, which he never ever did. On that proof, the high court lowered the hubby's alleged ownership share to 6.7% based on his actual amount contributed being only $1,000. "This statement amply supports the indicated finding that the complainant and defendant had actually concurred that their interests were not to be equal till the accused had paid his share which their interests were to represent at any offered point of time the simultaneous proportion of their particular 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 arrangement or understanding between the cotenants provided otherwise.

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

Partition actions get quite made complex when ownership interests become an issue. An arrangement can negate unequal payments, mortgages can affect circulations, and prolonged accounting treatments can swell lawsuits expenses. As each case is distinct, residential or commercial property owners would be well-served to seek experienced counsel knowledgeable about the ins-and-outs of partitions. At Underwood Law Firm, P.C., our educated attorneys are here to help. If you are concerned about the title to your residential or commercial property, what expenses might be recoverable, or if you just have questions, please do not think twice to contact our workplace.