Tag Archives: Partnership

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.

Business, Real Estate

Investing in Real Estate With a Partner

Building 1

You have found a perfect property but you realize you need a partner to close a deal. Choosing to have a partner can be for a variety of reasons. It helps to shoulder some start-up costs, helps to offset the risk of the investment, you may not need to put as much money upfront, and a partner may have additional knowledge. Real estate deals big and small can involve partners. People become partners on small deals when first investing but people also gather partners for large deals as it disperses the risk. Having a partner is a great way to invest in real estate; however, certain precautions may be needed in order to ensure a smooth business arrangement.

There are countless stories of partners going into business together who eventually have a falling out. Partners who were once good friends, family, or business associates become hated enemies. Going into a real estate, if you have the proper documentation and have all agreements and understandings in writing to clarify what each partner to the deal intended.

General Partnership

A general partnership is the least formal method to invest in real estate with others. It does not need to be specially registered with California or the IRS. In fact, any business arrangement that you have with another person would be considered a general partnership if you do not have anything in writing. There are a number of reasons why a general partnership is the least favored method to own real estate together with someone else. First, a partner becomes personally jointly and severally liable for all liabilities involving the business venture. For example, if a person suffers an injury on a property you own with a partner, the injured person could collect on a judgment from your personal assets if the property is held in a general partnership. If you intend to have a continuing business relationship and hold the real estate, you should not consider a general partnership as a form to own real estate.

If you own property as tenants in common or joint tenants with someone else, it would be considered a general partnership and treated as a general partnership if there was a dispute.

Limited Liability Company

Most professional real estate investors prefer to hold real estate in a Limited Liability Company (“LLC”) because it offers the ease of management under a general partnership with the limited liability of a corporation. The LLC provides protection against personal liability as long as corporate formalities are held. An LLC is also advantageous because it is not taxed like a corporation but is taxed similar to a general partnership thus not requiring double taxation.

In order to form a LLC, you must file an Articles of Incorporation with the California Secretary of State and then draft an Operating Agreement which is the legal document that governs the operation of the LLC. Having an attorney draft the Operating Agreement for your LLC will help to ensure that it is legally enforceable and puts in writing what the parties intend. 

If you have questions involving the purchase of real estate or the forming of a business venture to purchase real estate, please contact Anthony at (818) 839-5220 for an initial consultation.