Co-owning residential or commercial property as renters in typical is the favored kind 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 special set of prospective concerns that are not present in the other forms of joint ownership recognized by the state. (see California Civil Code, § 682.)

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

Developing Co-Owned Residential Or Commercial Property

At the outset, it is necessary to note the key functions for holding title as tenants in common. A "occupancy in typical simply requires, for development, equal right of possession or unity of belongings." (S.L. Rey (1993) 17 Cal.App.4 th 234, 242.) In essence, "all occupants in typical deserve to share equally 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 equivalent ownership is the only requirement, this implies that renters in common can hold title in different ownership percentages. (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 discussion on the differences between occupancies in common and joint tenancies, please see our previous post on the subject.

If each tenant in common has the right to possess the residential or commercial property, does that indicate each is equally accountable for improvements? The response is no. "Neither cotenant has any power to force the other to join with him in setting up buildings or in making any other enhancements upon the typical 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. "Although one cotenant does not approval to the making of the improvement ... a court of equity is required 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 value." (Wallace v. Daley (1990) 220 Cal.App.3 d 1028, 1036 (Wallace).) Enhancement to value is a noteworthy term. Case law suggests that ordinary expenses, like those for maintenance and repair work, 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 a tenant in common can easily invest in such ordinary expenditures, even without the authorization of co-owners, they might not be recoverable.

Financing Residential Or Commercial Property Development

There is also a concern of how a cotenant might finance advancements to co-owned residential or commercial property. Suppose 2 occupants in common acquired a mortgage in the process of purchasing real residential or commercial property. But subsequently, among them got a second encumbrance on their interest for further improvements. This is the exact 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 liable on the note secured by the very first trust deed on the residential or commercial property.

However, without the understanding or permission of the Caitos, the Caponis protected particular 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 encumbered 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, 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 general rule, 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 occupant might dispose of his interest without the consent of the other"]) But an occupant in typical might not offer the whole residential or commercial property without the authorization of the other co-owners. "A cotenant has no authority to bind another cotenant with respect 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 needs to be sold, then they might bring a partition action. By statute, a co-owner of individual residential or commercial property is licensed to begin and keep a partition action. (CCP § 872.210.) Moreover, this right is outright. (Lazzarevich v. Lazzarevich (1952) 39 Cal.2 d 48, 50.) And "such right 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 based on 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 consists of 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 work, enhancements that boost the worth of the residential or commercial property, taxes, payments of principal and interest on mortgages, and other liens, insurance coverage for the common benefit, and security and conservation 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 equally. (Southern Adjustment Bureau, Inc. v. Nelson (1964) 230 Cal.App.2 d 539.) "When a cotenant advances from his own pocket to maintain the common estate, his 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 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 percentages of the residential or commercial property to be put at concern.

In a fit for partition, "all parties' interest in the residential or commercial property may 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] only one product of evidence 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 claim to hold title to the residential or commercial property as joint occupants, the court "might consider the reality the parties have actually contributed various amounts to the purchase price in determining whether a true joint occupancy was intended." (Milian, 181 Cal.App.3 d at 1196.)

A tenancy 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 an occupancy in typical, rather than a joint occupancy is discovered, the court may either purchase repayment or figure out the ownership interests in the residential or commercial property in proportion to the quantities contributed." (Milian, 181 Cal.App.3 d at 1196.)

This was the case in Kershman. There, 2 former partners had actually bought a home for $16,000. The partner put up $8,000, while the husband set up just $1,000 of his own money and obtained the rest with a mortgage. The arrangement appeared to grant both parties ownership of the residential or commercial property in equal shares of 50%. Yet, this was not to be until the husband settled the mortgage, which he never ever did. On that proof, the high court minimized the partner's supposed ownership share to 6.7% based on his actual quantity contributed being only $1,000. "This testimony amply supports the implied finding that the plaintiff and accused had concurred that their interests were not to be equivalent until the defendant had actually paid his share which their interests were to represent at any given 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 may impact their ownership interest in the residential or commercial property, supplied no oral contract or understanding between the cotenants offered otherwise.

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

Partition actions get rather made complex when ownership interests become an issue. A contract can negate unequal payments, mortgages can impact circulations, and prolonged accounting procedures can balloon litigation expenses. As each case is distinct, residential or commercial property owners would be well-served to look for knowledgeable counsel familiar with the ins-and-outs of partitions. At Underwood Law Firm, P.C., our educated lawyers are here to assist. 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 hesitate to contact our office.