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

Different ownership interest portions between co-owners can affect one's obligations for typical expenditures and levels of disbursement on a sale. A fiduciary relationship between joint owners can interfere with 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 concerns we will try to deal with in this post about the financials of tenancies in typical.

Developing Co-Owned Residential Or Commercial Property

At the outset, it is necessary to keep in mind the essential features for holding title as renters in typical. A "tenancy in typical simply requires, for development, equal right of ownership or unity of belongings." (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 belongings of the entire residential or commercial property." (Kapner v. Meadowlark Ranch Assn. (2004) 116 Cal.App.4 th 1182, 1189.) But since equivalent belongings is the only requirement, this suggests that renters in common can hold title in various ownership percentages. (see Donnelly v. Wetzel (1918) 37 Cal.App.741 [occupants in common held a one-third and two-thirds percentage of ownership, respectively])

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

If each renter in common can have the residential or commercial property, does that mean each is equally accountable 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.) Grant enhancements, however, does not affect a last accounting in a partition action. "Although one cotenant does not approval to the making of the enhancement ... a court of equity is required to take into account the enhancements which another cotenant, at his own cost in great faith, positioned on the residential or commercial property which enhanced its worth." (Wallace v. Daley (1990) 220 Cal.App.3 d 1028, 1036 (Wallace).) Enhancement to worth is a notable term. Case law recommends that common expenses, like those for upkeep 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 freely spend on such ordinary expenditures, even without the permission of co-owners, they may not be recoverable.

Financing Residential Or Commercial Property Development

There is also a question of how a cotenant may fund developments to co-owned residential or commercial property. Suppose two tenants in common got a mortgage in the process of buying genuine residential or commercial property. But consequently, among them obtained a second encumbrance on their interest for more enhancements. This is the precise scenario 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 liable on the note secured by the first trust deed on the residential or commercial property.

However, without the understanding or approval of the Caitos, the Caponis secured particular 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 independently encumbered his interest in the residential or commercial property and, as here, such encumbrance is among the secondary liens, it attaches only to such cotenant's interest." (Id.) In essence, one may encumber his interest in the residential or commercial property, however that encumbrance impacts 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 may sell their interest in the residential or commercial property without approval or authorization 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 permission of the other"]) But a tenant in common 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 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 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 outright. (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 undivided interest of a cotenant need to 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 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 expenses in excess of the cotenant's fractional share for required repairs, improvements that improve the worth of the residential or commercial property, taxes, payments of principal and interest on mortgages, and other liens, insurance coverage for the common advantage, 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 preserve the typical estate, his financial investment in the residential or commercial property boosts by the entire 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 pointing out 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 forces the ownership percentages of the residential or commercial property to be put at problem.

In a suit for partition, "all parties' interest in the residential or commercial property may be put in issue 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 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 claim to hold title to the residential or commercial property as joint tenants, the court "may think about the fact the celebrations have contributed different amounts to the purchase rate in figuring out whether a real joint occupancy was meant." (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 an occupancy in common, rather than a joint tenancy is discovered, the court might either order compensation or identify the ownership interests in the residential or commercial property in proportion to the quantities contributed." (Milian, 181 Cal.App.3 d at 1196.)

This held true in Kershman. There, two former partners had actually purchased a home for $16,000. The wife installed $8,000, while the partner set up only $1,000 of his own cash and obtained the rest with a mortgage. The agreement appeared to give 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 ever did. On that evidence, the high court decreased the husband's supposed ownership share to 6.7% based on his real quantity contributed being just $1,000. "This testimony amply supports the suggested finding that the plaintiff and offender had actually concurred that their interests were not to be equal till the defendant had paid his share and that their interests were to represent at any given point of time the contemporaneous percentage of their respective 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, provided no oral arrangement or understanding between the cotenants offered otherwise.

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

Partition actions get quite made complex when ownership interests end up being a concern. An agreement can negate unequal payments, mortgages can impact distributions, and prolonged accounting procedures can swell lawsuits costs. 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 Office, P.C., our experienced lawyers are here to assist. If you are concerned about the title to your residential or commercial property, what expenses may be recoverable, or if you just have concerns, please do not think twice to contact our office.