Tag Archives: Joint Tenancy

Real Estate

Why Tenancy In Common Agreements Should be Specific

Agreements must be drafted specifically and if they are not, relief cannot be granted in the manner that the parties thought should have occurred. In Leg Investments v. Boxler, the California Court of Appeals found that a tenancy in common agreement should have been specific 

In 1976 Carl and Judith Bumpass and the Boxler family purchased the lakefront property at 4960 North Lake Boulevard, Carnelian Bay, California with an undivided interest of 50% to each couple. In 1993, the Bumpass couple transferred their 50% interest to the Schwerdtfeger couple and five years later LEG Investments purchased their fifty percent share.

The Tenancy in Common Agreement

In 1993, when the Bumpass couple transferred their interest to the Schwerdtfeger couple, the Schwerdtfegers and the Boxlers entered into the Tenancy in Common (“TIC”) agreement “to establish their rights and duties with respect to each other as tenants in common.” In the TIC Agreement there were sections spelling out the specifics of the tenancy. “If and when either Owner decides to sell their Interest in the Property and that Owner receives a bona fide offer for its purchase from any other person or entity, the other Owner shall have the first right of refusal to purchase the selling Owner’s Interest in the Property for the price and on the terms provided for in such bona fide offer” was established in the TIC Agreement and also if the issue arose that the right was refused, “ the selling Owner may enter into an agreement to sell the Interest to the offeror at the price and under terms no less favorable than those set forth in the notice of offer given to the other Owner.” The term of the agreement was thirty years, with five year extensions until termination of the agreement was agreed upon by both parties. Also an integral part of the agreement was that it said that it was to be binding upon and inure to the benefit of the parties hereto, their heirs, devisees, transferees, executors, administrators, successors, assigns, and all other persons hereafter holding an Interest in the Property. Also, the covenants herein shall be deemed to run with the land. Basically this ties the agreement to the land and not only to the signing parties.

Dispute

LEG Investments, represented by Eppie Johnson, who is a general partner, stated that problems arose between the two parties as soon as LEG Investments purchased. LEG tried to sell their share to the Boxler couple, but the Boxler couple refused. There was also an instance where a buyer had come forth to purchase the share owned by LEG Investments, but the buyer did not approve of the Boxler’s as co-owners because of their lack of wanting to contribute to repairs to the property.

In May of 2006, LEG Investments filed for a complaint to have a partition by sale, which allows a property owned by partners to be sold and proceeds from the sale to  be divided among co-owners when a property cannot be physically separated. LEG Investments had filed the complaint because in March 2006 when they had asked the Boxlers to list the property or to buy the interest owned by LEG Investments.

The trial court determined the right of first refusal in the tenancy in common agreement waived the right to partition because the sale of partition would be unfair to the Boxler couple. The court denied LEG’s motion for summary judgment or summary adjudication on the right to partition due to them being able to purchase the interest at a lower than market price, and granted the Boxlers’ motion for summary adjudication on the affirmative defenses of express and implied waiver. The cause of action in their cross-complaint for a judicial declaration that the owners of the property had waived the right to partition was also granted and they received $86,955. LEG Investments appealed the decision thereafter.

Appeal

The appeal brought by LEG Investments was based on their contending the trial court made a mistake in granting summary adjudication as to the affirmative defenses of waiver. LEG contends the right of first refusal in the Tenancy in Common Agreement is not an absolute waiver of the right to partition, but requires only that the selling cotenant first comply with the right of first refusal by offering its interest to the other cotenant before seeking partition. LEG Investments states that they had complied with all the requirements necessary. LEG also contends the trial court made a mistake in denying summary adjudication on its cause of action for partition. Lastly, LEG contends the award of attorney fees must be reversed because there was a section in the agreement that stated, “any action between the parties seeking enforcement or interpretation of any of the terms and conditions of this Agreement” shall be awarded court costs and reasonable attorney fees.

The court of appeals finds that the right of first refusal in the Tenancy in Common Agreement modifies the statutory right to partition, but does not permanently waive it. Since the Boxlers refused the offered right of first refusal, LEG Investments may proceed with the partition action. Also because the offer of Gibb was deemed a real bona fide offer, the Boxlers failed to dispute LEG’s undisputed fact that the Boxlers declined to exercise their right of first refusal on the bona fide offer. LEG set forth this fact in its separate statement of undisputed facts in support of its motion for summary judgment or summary adjudication.

The judgment was that the awarding of attorney’s fees to the Boxlers was reversed, the trial court was directed to to vacate its orders granting the Boxlers’ motion for summary adjudication and denying LEG’s motion for summary adjudication, to enter a new order granting LEG’s motion for summary adjudication on its first cause of action for partition by sale, and to deny the Boxlers’ motion for summary adjudication on that cause of action and on its first cause of action in its cross-complaint for declaratory relief, and to enter an interlocutory judgment directing partition of the Property by sale. LEG Investments shall also recover its costs on appeal.

Conclusion

This case is important to demonstrate that an agreement should be properly drafted to reflect the intention of the parties. Although the type of agreement for partners who own real estate together is recommended, the terms must be specific to the parties’ desires. Please give Anthony a call at 818-839-5229 for more information.

Estate Planning

Holding Title as Joint Tenants

Joint Tenancy is a type of ownership of real estate by two or more persons in which each owns an undivided interest in the whole property. Joint tenancy is often touted as one method of estate planning; however, there are consequences you may not be aware of that could not make it the best option available.

When a joint tenant dies, the interest in the property is then vested into the interest of the surviving joint tenant or joint tenants. Simply put, if one of two joint tenants passes away, the second party of the joint tenancy gains all the percentage of interest of the party who passed away and has one hundred percent of the property.

In order for the property to pass the surviving joint tenant, the surviving joint tenant would be required to record an Affidavit of Death of Joint Tenant with a copy of the deceased joint tenant’s death certificate. It avoids probate and trust administration, and is a relatively short and easy process to acquire property after a death.

A joint tenant cannot pass on the property through a will or revocable living trust, so there are no other options as to who will receive the property except to the surviving joint tenants.

One of the main drawbacks in owning a property in joint tenancy is that any joint tenant can file a partition action to force the sale of the property. Further, if a joint tenant has a judgment against him or her, that judgment can attach to the property.

I generally do not recommend using joint tenancy as an estate planning tool but to draft a will and revocable living trust because ultimately it gives you control during your lifetime without relinquishing that control to another. Further, if there is a dispute between you and your joint tenants, any joint tenant can file a partition lawsuit and require that the property be sold, even if you live on the property.

Please contact Attorney Anthony Marinaccio at 818-839-5220 for more information regarding joint tenancy properties.

Estate Planning, Real Estate

Using Joint Tenancy as an Estate Planning Tool

I often hear from clients and potential clients that they want to add a relative’s name to a piece of real estate as “joint tenants” in order to avoid probate. Although this is probably the cheapest estate planning tool you can do in the short term, it is the least favorable for most circumstances for several reasons. This article highlights the disadvantages of using joint tenancy as an estate planning tool.

What is Joint Tenancy? 

Under joint tenancy, each co-owner of real estate owns an undivided equal interest in the real estate. Upon the death of one joint tenant, the deceased joint tenant’s interest passes on to the other surviving joint tenants. This is accomplished after a joint tenant’s death by recording an Affidavit of Death of Joint Tenant in order to remove the deceased joint tenant’s name from the real estate.

For several reasons, joint tenancy is not the best method to pass on property after your death.

Loss of Control and Creditor Protection

First and foremost, you lose control of the real estate because you will now own the property with co-owners.If a co-owner wants to sell, he can force the sale through a partition action. Relationships can change over years that could alter the relationship co-owners have with the real estate owned together.

Further, if the co-owner has judgments against him, a creditor can put a lien on the real estate. This can be extremely disadvantageous because even if you do not have judgments or liens, a creditor can attach a lien to the property because of a co-owner’s debt and potentially force a sale.

Tax Implications

A great estate planning tool is to take advantage of the “step up in basis” of real estate when it is within a trust or passed through probate. Generally, if real estate is inherited, the heirs receive a “step up in basis” meaning that their basis for the asset is the value of the property upon the death of the previous owner. For example, John purchases an apartment building in 1980 for $100,000. It is currently worth $1,000,000. If he sells it today, he will pay capital gains taxes on $900,000 (this is oversimplifying it because you also have to take into account depreciation). However, if he dies and his children inherit it and then sell it, they do not pay any capital gains taxes because the children’s basis is $1,000,000.

However, if you own real estate in joint tenancy, the surviving joint tenant assumes the deceased joint tenant’s basis. So in the example above if John owned the apartment building with his children as joint tenants and John’s children decide to sell upon his death, they would be liable for capital gains taxes on the $900,000 gain.

There is an also an issue of gift taxes when you “give” an asset away during your lifetime.

What to do instead?

By drafting a revocable living trust, there is still a way to avoid probate without adding co-owners to any real estate you own. If you are interested in learning more, please contact Attorney Anthony Marinaccio at (818) 839-5220 for more information.

 

Real Estate

What Happens When a Co-Owner Wants to Sell

The right of one owner to sell real estate owned with partners is nearly absolute under California law. It does not even require a majority of the partners to agree to sell. As long as one owner wants to sell and that owner files a partition lawsuit, the real estate could be sold. Often times when a disagreement arises one co-owner will say “You can’t make me sell.” However, California law does not support that statement. In fact, under California law any partner in real estate can force a sale using a partition action.

Partners who own real estate generally either own it as joint tenants or tenants in common. Under both types of real estate ownership, the right of partition is nearly absolute. If one partner refuses to sell or purchase the other partner’s share of the real estate, often times the only option will be to file a partition lawsuit. Often times prior to filing a lawsuit, the parties can agree to settle or mediate their dispute.

Starting a Partition Action

The requirements of a partition action can be found in California Code of Civil Procedure Section 872.020, et seq. When filing the Complaint, the party must also record a Notice of Lis Pendens on the property. After a Complaint is served on the defendants, the defendants must then respond. Generally, a complaint, in addition to seeking to force the sale of the real estate in question, can also seek damages for expenses incurred by the partner in the property. For example, if one partner in real estate has paid for property taxes, repairs, or maintenance he can be reimbursed for those expenses.

Referees, Appraisals, and Moving Forward

Depending on the hostility among the parties, a referee can be selected to handle various issues that will arise during the partition action. The referee is a neutral with quasi-judicial responsibilities and duties. A referee can be used to collect rents, handle the day-to-day maintenance of the real estate, and supervise the sale process.

Once a property is sold (and just to get to this point can take considerable time), Code of Civil Procedure Section 873.020 requires the proceeds from the sale be used for (1) expenses for the sale; (2) other costs for partition; (3) liens in order of priority; and (4) distribution of each partner’s share.

A partition action can be time consuming and expensive. Often times these matters can be resolved using a settlement agreement that could either require a sale to a third party or a buy-out by one partner. If you own real estate and would like to know your rights or are facing a dispute with partners over real estate you own, please contact Attorney Anthony Marinaccio at (818) 839-5220.