Legal issues
Separating Tenancies In Common
By Joseph K. Bravo
Tenancy in common ownership of multi family units has enjoyed a favorable run in this last real estate boom. As home prices have risen, owning a tenancy in common (TIC) interest in a property where owners live condo-style has became enormously attractive. First time buyers who typically band together in twos or threes, or even by the dozen, have used their purchasing power to buy TIC interests in residential income properties that are priced far beyond their rental income value, but still well below the cost of a single family home.
A group of (TIC) owners who own a multi-family residential property are bound to each other by the terms of their TIC Agreement, assuming they have one, and their common property ownership. That common ownership requires, as with any other joint venture, cooperation in resolution of their disputes.
Cooperation among TIC owners is particularly important when their commonly owned building is owned and held for the purpose of converting its separate units into condominiums.
What Happens When Disputes Arise Among Tenants in Common
Disputes among TIC owners can present a disastrous problem if the disputes cannot be settled outside litigation. Unlike a condominium owner who has an ownership interest that can be separated from the title to a building, and separately sold in the event of a dispute or other reason for sale, TIC ownership in a building is not so easily separated in the absence of an agreement among all co-owners.
A Suit In Partition Lawsuit
When tenants in common confront a dispute that cannot be resolved among themselves, their choice may only be to ask the court to divide their property for them. This separation of interests is called a partition action and starts when one of the co-owners sues other co-owners to force a sale or division of the property because continued common ownership is no longer commonly desired. The court, in a process that is an old one, follows a procedure to divide the property, generally by sale, and orders that the money received from the sale is distributed in accord with each owner’s interest in the property. To make sure that the division of the proceeds from the sale is a fair one, an accounting is also performed.
A court ordered sale of a TIC owned property, owned by live-in owners, may not be desirable for all co-owners. Sale of an entire building held as a tenancy in common in a partition action can mean that resident owners may not be just compelled to sell a real estate investment in a partition action—they may also be compelled to sell their home.
TIC Agreements Are a Wise Precaution
To make sure that a partition action does not result in an unwanted sale of a property when one or more owners do not wish an entire property sold, TIC agreements are commonly drafted to dictate what happens in the event of a break up among the owners. In a TIC agreement, owners are free to work out “what-if” contingencies before entering into tenancy in common ownership, which is a wise course of action to follow. Considering that TIC ownership of multi-family rental buildings is commonly formed for the purpose of converting buildings into condominiums, the provisions in a TIC agreement can be tailored so that the ultimate goal of condominium conversion or undisturbed home ownership is not jeopardized when one or more owners seek to partition and sell commonly owned property.
Case Law On Tenancies In Common and Their Breakup
It happens that TIC owners find they have no TIC Agreement among them, as in the case where a property is owned in common by family members or where unrelated TIC owners find themselves without an enforceable TIC Agreement. In these situations, a partition action lawsuit that results in a court ordered sale of the property can be undesirable for co-owners who do not wish to sell their interest. The challenge for these owners is to convince the court that division of the property, and not sale of the property, is a proper method of separating all owner interests in the property. While the law is that a co-owner in a TIC has an absolute right to seek partition of a commonly owned property, the law is not without its exceptions. Whether those exceptions mean that a co-owner can ask a court in a partition action to order the sale of another owner’s interest, as if the other owner owned a separate and divisible part of a building, is not entirely clear.
However, case law seems to at least suggest that it can be done. In a case called Butte Creek Island Branch v. William H. Crim III (1982) 136 Cal.App3d 360, a California Court of Appeal held that it was not always the case that the trial court in a partition action must order the sale of a property in a partition action lawsuit — particularly if the sale meant that one of the co-owners would be unable to buy back his interest in the property upon sale — if the property could be divided some other way, without hurting its economic value. The case did not concern itself with TIC ownership of residential income properties that are commonly owned by live-in owners, but its precedent may be useful to TIC owners who find themselves in a dispute with each other that threatens their home ownership and condominium conversion plans.
The information provided here is only general in nature
and may not be relied upon as legal advice. You should contact an attorney
qualified in this area about your own specific circumstances if you have
any questions or seek any advice regarding the statements made here in
this article
Legal issues
Tenancy in common ownership of multi family units has enjoyed a favorable run in this last real estate boom. As home prices have risen, owning a tenancy in common (TIC) interest in a property where owners live condo-style has became enormously attractive. First time buyers who typically band together in twos or threes, or even by the dozen, have used their purchasing power to buy TIC interests in residential income properties that are priced far beyond their rental income value, but still well below the cost of a single family home.
A group of (TIC) owners who own a multi-family residential property are bound to each other by the terms of their TIC Agreement, assuming they have one, and their common property ownership. That common ownership requires, as with any other joint venture, cooperation in resolution of their disputes.
Cooperation among TIC owners is particularly important when their commonly owned building is owned and held for the purpose of converting its separate units into condominiums.
What Happens When Disputes Arise Among Tenants in Common
Disputes among TIC owners can present a disastrous problem if the disputes cannot be settled outside litigation. Unlike a condominium owner who has an ownership interest that can be separated from the title to a building, and separately sold in the event of a dispute or other reason for sale, TIC ownership in a building is not so easily separated in the absence of an agreement among all co-owners.
A Suit In Partition Lawsuit
When tenants in common confront a dispute that cannot be resolved among themselves, their choice may only be to ask the court to divide their property for them. This separation of interests is called a partition action and starts when one of the co-owners sues other co-owners to force a sale or division of the property because continued common ownership is no longer commonly desired. The court, in a process that is an old one, follows a procedure to divide the property, generally by sale, and orders that the money received from the sale is distributed in accord with each owner’s interest in the property. To make sure that the division of the proceeds from the sale is a fair one, an accounting is also performed.
A court ordered sale of a TIC owned property, owned by live-in owners, may not be desirable for all co-owners. Sale of an entire building held as a tenancy in common in a partition action can mean that resident owners may not be just compelled to sell a real estate investment in a partition action—they may also be compelled to sell their home.
TIC Agreements Are a Wise Precaution
To make sure that a partition action does not result in an unwanted sale of a property when one or more owners do not wish an entire property sold, TIC agreements are commonly drafted to dictate what happens in the event of a break up among the owners. In a TIC agreement, owners are free to work out “what-if” contingencies before entering into tenancy in common ownership, which is a wise course of action to follow. Considering that TIC ownership of multi-family rental buildings is commonly formed for the purpose of converting buildings into condominiums, the provisions in a TIC agreement can be tailored so that the ultimate goal of condominium conversion or undisturbed home ownership is not jeopardized when one or more owners seek to partition and sell commonly owned property.
Case Law On Tenancies In Common and Their Breakup
It happens that TIC owners find they have no TIC Agreement among them, as in the case where a property is owned in common by family members or where unrelated TIC owners find themselves without an enforceable TIC Agreement. In these situations, a partition action lawsuit that results in a court ordered sale of the property can be undesirable for co-owners who do not wish to sell their interest. The challenge for these owners is to convince the court that division of the property, and not sale of the property, is a proper method of separating all owner interests in the property. While the law is that a co-owner in a TIC has an absolute right to seek partition of a commonly owned property, the law is not without its exceptions. Whether those exceptions mean that a co-owner can ask a court in a partition action to order the sale of another owner’s interest, as if the other owner owned a separate and divisible part of a building, is not entirely clear.
However, case law seems to at least suggest that it can be done. In a case called Butte Creek Island Branch v. William H. Crim III (1982) 136 Cal.App3d 360, a California Court of Appeal held that it was not always the case that the trial court in a partition action must order the sale of a property in a partition action lawsuit — particularly if the sale meant that one of the co-owners would be unable to buy back his interest in the property upon sale — if the property could be divided some other way, without hurting its economic value. The case did not concern itself with TIC ownership of residential income properties that are commonly owned by live-in owners, but its precedent may be useful to TIC owners who find themselves in a dispute with each other that threatens their home ownership and condominium conversion plans.
The information provided here is only general in nature
and may not be relied upon as legal advice. You should contact an attorney
qualified in this area about your own specific circumstances if you have
any questions or seek any advice regarding the statements made here in
this article