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Co-owning residential or commercial property as renters 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 kept in occupancy in typical brings with it an unique set of prospective problems that are not present in the other types of joint ownership recognized by the state. (see California Civil Code, § 682.)

Different ownership interest portions in between co-owners can affect one's duties for common costs and levels of dispensation on a sale. A fiduciary relationship between joint owners can interfere with a co-owner's ability to obtain an encumbrance. Payments for improvements to the residential or commercial property may not be recoverable in an accounting action if deemed "unnecessary." These are just some of the problems we will try to resolve in this post about the financials of occupancies in common.

Developing Co-Owned Residential Or Commercial Property

At the outset, it is essential to keep in mind the crucial features for holding title as tenants in typical. A "occupancy in common simply needs, for development, equal right of belongings or unity of possession." (S.L. Rey (1993) 17 Cal.App.4 th 234, 242.) In essence, "all occupants in typical have the right 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 ownership is the only requirement, this indicates that renters in common can hold title in various ownership portions. (see Donnelly v. Wetzel (1918) 37 Cal.App.741 [renters in typical held a one-third and two-thirds proportion of ownership, respectively])

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

If each occupant in common deserves to possess the residential or commercial property, does that imply each is similarly responsible for enhancements? The answer is no. "Neither cotenant has any power to compel the other to unify with him in erecting structures or in making any other improvements upon the common residential or commercial property." (Higgins v. Eva (1928) 204 Cal.231, 238.) Grant enhancements, nevertheless, does not affect a final accounting in a partition action. "Although one cotenant does not authorization to the making of the enhancement ... a court of equity is needed to take into consideration the enhancements which another cotenant, at his own cost in great faith, positioned 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 normal 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 an occupant in common can freely invest on 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 question of how a cotenant may finance advancements to co-owned residential or commercial property. Suppose two tenants in common acquired a mortgage in the procedure of buying real residential or commercial property. But subsequently, one of them obtained a 2nd encumbrance on their interest for further improvements. This is the exact scenario that happened in Caito v. United California Bank (1978) 20 Cal.3 d 694. There, there were two liens encumbering 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 understanding or approval of the Caitos, the Caponis protected specific notes by putting a 2nd trust deed on the Caponis' interest in the residential or commercial property. The court held that "when a cotenant has independently overloaded his interest in the residential or commercial property and, as here, such encumbrance is one of the secondary liens, it connects only 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 general guideline, 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 tenant may deal with his interest without the authorization of the other"]) But an occupant in typical might not offer 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 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 requires to be sold, then they could 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 undergoes liens, and whoever takes an encumbrance upon the undistracted interest of a cotenant must take it based on 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 principles of equity for both charges and credits upon each cotenant's interest. Credits include expenditures in excess of the cotenant's fractional share for required 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 common advantage, and defense 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 preserve the typical 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 repayment 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 crucial feature of an accounting is that its inevitability requires the ownership portions of the residential or commercial property to be put at problem.

In a match 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 item of proof 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 tenants, the court "may think about the truth the celebrations have contributed different amounts to the purchase rate in determining whether a real joint tenancy was meant." (Milian, 181 Cal.App.3 d at 1196.)

A tenancy in common is various in this regard. Ownership interests are not presumed to be equivalent, as the unity of interest is not a requirement for its creation. (CCP § 685.) "If a tenancy in typical, rather than a joint tenancy is discovered, the court may either buy repayment or figure out the ownership interests in the residential or commercial property in 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 spouse set up $8,000, while the partner installed just $1,000 of his own cash and borrowed the rest with a mortgage. The arrangement appeared to approve both parties ownership of the residential or commercial property in equivalent shares of 50%. Yet, this was not to be until the spouse paid off the mortgage, which he never did. On that evidence, the high court decreased the hubby's supposed ownership share to 6.7% based upon his actual amount contributed being just $1,000. "This testimony amply supports the implied finding that the plaintiff and defendant had actually 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 simultaneous percentage of their respective contributions in relation to the overall." (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, offered no oral arrangement or understanding in between the cotenants provided otherwise.

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

Partition actions get rather complicated when ownership interests become an issue. An agreement can negate unequal payments, mortgages can affect distributions, and lengthy accounting procedures can swell litigation expenses. As each case is unique, residential or commercial property owners would be well-served to seek skilled counsel knowledgeable about the ins-and-outs of partitions. At Underwood Law Firm, P.C., our experienced attorneys are here to assist. If you are worried about the title to your residential or commercial property, what costs may be recoverable, or if you simply have questions, please do not think twice to call our office.