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 kept in tenancy in common 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 portions in between co-owners can affect one's obligations for common expenses and levels of disbursement on a sale. A fiduciary relationship between joint owners can interrupt a co-owner's ability to obtain an encumbrance. Payments for enhancements to the residential or commercial property may not be recoverable in an accounting action if deemed "unnecessary." These are just a few of the issues we will try to address in this post about the financials of tenancies in typical.

Developing Co-Owned Residential Or Commercial Property

At the start, it is essential to keep in mind the key features for holding title as tenants in common. A "tenancy in typical merely needs, for production, equivalent right of belongings or unity of belongings." (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 whole residential or commercial property." (Kapner v. Meadowlark Ranch Assn. (2004) 116 Cal.App.4 th 1182, 1189.) But due to the fact that equivalent possession is the only requirement, this suggests that occupants in common can hold title in different ownership portions. (see v. Wetzel (1918) 37 Cal.App.741 [renters in common held a one-third and two-thirds proportion of ownership, respectively])

For a thorough discussion on the differences between occupancies in typical and joint tenancies, please see our prior post on the subject.

If each renter in typical has the right 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 compel the other to join with him in putting up structures or in making any other improvements upon the typical residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Consent to improvements, nevertheless, does not affect a last accounting in a partition action. "Although one cotenant does not grant the making of the enhancement ... a court of equity is required to take into consideration the improvements which another cotenant, at his own expense in good faith, put on the residential or commercial property which enhanced its value." (Wallace v. Daley (1990) 220 Cal.App.3 d 1028, 1036 (Wallace).) Enhancement to value is a notable term. Case law recommends 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 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 spend on such ordinary expenses, even without the consent of co-owners, they might 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 renters in typical got a mortgage in the process of buying genuine residential or commercial property. But subsequently, one of them obtained a 2nd encumbrance on their interest for more enhancements. This is the precise situation that happened 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 secured by the very first trust deed on the residential or commercial property.

However, without the understanding or approval of the Caitos, the Caponis protected certain 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 one of the secondary liens, it connects just to such cotenant's interest." (Id.) In essence, one cotenant may overload his interest in the residential or commercial property, however 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 rule, each cotenant may offer 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 may dispose of his interest without the permission of the other"]) But an occupant in typical might not offer the entire residential or commercial property without the authorization of the other co-owners. "A cotenant has no authority to bind another cotenant with regard 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 whole residential or commercial property requires to be sold, then they could bring a partition action. By statute, a co-owner of individual residential or commercial property is authorized to commence 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 undergoes 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 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 consist of expenses in excess of the cotenant's fractional share for necessary repairs, improvements that improve 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 security and preservation of title." (Wallace, 220 Cal.App.3 d 1028, 1036-1037.) These credits are secured of the net earnings 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 preserve the common estate, his 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 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 crucial feature of an accounting is that its inevitability forces the ownership percentages of the residential or commercial property to be put at problem.

In a suit for partition, "all celebrations' interest in the residential or commercial property may 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 product 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 2 co-owners declare to hold title to the residential or commercial property as joint renters, the court "might think about the truth the parties have contributed different total up to the purchase cost in figuring out whether a true joint tenancy was planned." (Milian, 181 Cal.App.3 d at 1196.)

An occupancy in typical 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, rather than a joint occupancy is discovered, the court may either order compensation or figure out 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 bought a home for $16,000. The better half put up $8,000, while the partner set up only $1,000 of his own money and obtained the rest with a mortgage. The agreement appeared to approve both parties ownership of the residential or commercial property in equivalent shares of 50%. Yet, this was not to be till the other half paid off the mortgage, which he never did. On that proof, the trial court decreased the husband's alleged ownership share to 6.7% based upon his actual amount contributed being just $1,000. "This testament amply supports the suggested finding that the complainant and offender had concurred that their interests were not to be equivalent up until the accused had actually paid his share which their interests were to represent at any given point of time the coexisting percentage 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 between the cotenants supplied otherwise.

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

Partition actions get rather made complex when ownership interests become an issue. A contract can negate unequal payments, mortgages can affect circulations, and prolonged accounting treatments can balloon litigation 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 Office, P.C., our well-informed lawyers are here to help. If you are worried about the title to your residential or commercial property, what costs may be recoverable, or if you simply have concerns, please do not be reluctant to contact our office.