We are frequently asked to elaborate on the various ways in which real property may be owned by two or more persons.
This article provides an explanation of basic types of co-ownership of real property; it is not intended to give legal advice on how particular co-owners ought to hold title to their properties jointly. There are many relevant factors to take into consideration which include, for example, tax and estate planning and whether the property is owned by individuals, a partnership, an LLC or corporate entity, and which will significantly impact the manner in which co-owners decide to hold their title. This article, too, is not intended as a substitute for the advice of an attorney regarding any specific transaction. If you have a specific legal question or need legal advice, you should contact a competent real estate attorney. Our office will be glad to help.
TYPES OF CO-OWNERSHIP
Ownership of real property by two or more persons is often referred to as co-ownership,co-tenancy or concurrent ownership. The four traditional forms of co-ownership that are recognized in California are: (a) tenancy in common, (b) joint tenancy, (c) partnership, and (d) community property.
In addition to these four traditional forms of co-ownership, co-ownership issues can also arise in common interest developments or condominiums.
Generally speaking co-owners each have rights in the real property they own together including:
– The equal and unrestricted right to use and occupy the entirety of the property;
– The right to sell or encumber their individual interest in the property;
– The right to share in any profits from the property;
– The right to receive contribution from the other co-owners for common operating and maintenance expenses;
– The right to seek “partition” terminating the jointly owned interests in the property.
Co-owners’ rights and obligations can be altered by a written agreement. The rules which are described below apply unless there is a written agreement between them that provides differently.
TENANCY IN COMMON
Except for married couples or registered domestic partners — who are presumed to acquire all property as community property — persons who acquire real property jointly normally own the property as tenants in common, unless the legal instrument or deed under which the property is transferred to them provides otherwise. All co-tenancies between unmarried persons not expressly made joint tenancies or partnerships are tenancies in common. Some key features of a tenancy in common are:
Ownership and Transfer. Unlike joint tenants, tenants in common can own equal or unequal interests in the real property they own in common, and they may acquire their interests from different sources and at different times. Each tenant-in-common may sell or encumber (i.e., mortgage) his or her interest without the knowledge, approval or consent of the other co-tenant or co-tenants. A tenant-in-common has no right to convey out or deed to others the interest of any other co-tenant, and any such attempted conveyance will be void.
Equal Right to Occupy the Entire Property. Although tenants-in-common can own unequal interests, unless agreed otherwise in writing all tenants-in-common have an equal right to possess and use the entire jointly owned property. No co-tenant may exclude any other co-tenant from any part of the jointly owned property. Because all owners have an equal right to occupy and use the entire property, no tenant-in-common may collect rent from another.
No Survivorship Right. A key feature distinguishing a tenancy-in-common from a joint tenancy or a community property interest is that a tenant-in-common’s interest carries with it no right of survivorship. This means that upon the death of a co-tenant, the deceased co-tenant’s interest in the jointly owned property passes to his or her heirs or devisees through their estate. This is unlike a joint tenancy or community property, both of which feature ‘survivorship’ rights, which means that upon the death of any co-tenant, his or her interest will vest in the surviving co-tenant(s) automatically by operation of law.
Right to Share in Profits. Because tenants-in- common have an equal right to use and occupy the entire jointly owned property, any rent received from third parties belongs to all co-tenants according to their proportionate interest in the property. By the same token, all tenants-in-common share responsibility for property-related operating and maintenance expenses. However, a tenant in common cannot require his or her co-tenants to contribute or reimburse them for improvements to the property.
Right to Partition. Absent special circumstances, each tenant-in-common has an absolute right to obtain the partition of all jointly owned real property. Partition is a procedure for terminating and dividing jointly owned real property into individual interests that are separate and exclusive. Partition can occur in one of three ways: (1) the property is ordered by a court to be sold and the proceeds split in accordance with each owner’s percentage interest in the property; (2) physical division whereby each co-tenant acquires an exclusive interest in a portion of formerly jointly owned property; (3) one co-tenant acquires the interests of the other co-tenants based on a court ordered appraisal.
Joint tenancy is the co-ownership of real property by two or more persons that is created by a single transfer declaring joint tenancy to be the form of ownership. To create a joint tenancy the transfer or conveyance of the ownership of a property must at one and the same time, and must convey title to equal interests in the property and with the very same right of equal possession. A conveyance that fails to convey all four of the so-called “unities” (the unities of time, of title, of interest, and of possession) will create a tenancy in common, which is so to speak the default form of co-ownership. A joint tenancy can last only as long as the four unities continue to exist. One joint tenant’s conveyance of his or her interest, even if to his or her self, will destroy the joint tenancy insofar as it relates to that joint tenant. This results in a transfer (or severing) under which that owner becoming a tenant-in-common with the remaining – non-severing – joint tenants, who continue to remain joint tenants as between themselves.
Another key feature distinguishing joint tenancy from tenancy-in-common is the right of survivorship. A joint tenancy carries with it a right of survivorship. This means that upon the death of a joint tenant, his or her interest in the property which is has been held in joint tenancy vests in the surviving joint tenants automatically by operation of law. This has potential advantages and disadvantages – it allows the decedent’s interest in the property to avoid probate, but it prevents him or her from bequeathing what happens to their interest in the property when the die: their interest automatically vests in the remaining joint tenants by operation of law.
A third method by which real property can be acquired is by means of a partnership. A partnership is an association of two or more persons to carry on as co-owners a business for profit. Property is deemed to be partnership property if it is acquired in the name of the partnership, or by one or more partners with an indication in the transferring instrument that the person is acting in the capacity of a partner or that there is the existence of a partnership. Because a partnership is an ‘entity’ separate and distinct from the persons who are its partners, partnership property belongs to the partnership and not to the partners individually. The individual owners are not “co-owners” of the property; they have no interest in the property as individuals; they are simply partners in a partnership which holds title to a particular property.
Community property is all property, including real property, that is acquired by married persons or registered domestic partners while domiciled in California, unless the property is expressly acquired by them as “joint tenants” or as “tenants-in-common.”
Like joint tenants, spouses or registered domestic partners have equal interests in theirl community property. As such, each spouse or registered domestic partner has an equal right to possess, manage and control the property. Unlike joint tenants and tenants-in-common, however, spouses and registered domestic partners are “fiduciaries”: they therefore owe each other a duty of the highest good faith and fair dealing, including duties of care and loyalty in all matters relating to their community property.
Our recommendation to existing and potential clients is a legal consultation so as to plan proactively – ideally, before the transaction is consummated, for the purpose of avoiding unanticipated future problems.
It is critical for individuals to understand their potential duties and obligations before deciding to acquire real property jointly. This article is intended to emphasize some characteristics of the more common forms of co-ownership, but it does not by far address all of the issues that one must consider before acquiring property jointly: such as tax, estate planning and issues of liability. It is important for potential co-owners to understand that the “default” rules described above can be, and often are, modified by a written agreement between and among them, and that they only apply when such an agreement does not exist.
The Law Offices of Stan Stern has been engaged in the practice Real Estate Law for over 30 years, and assists owners, developers, contractors and realtors. We can be reached at (310) 487-9834, or by email firstname.lastname@example.org. This article is intended to provide a general overview of the distinguishing characteristics of different forms of co-ownership. It is not intended to express legal advice or address specific situations and should, therefore, not be relied on for the purpose of making legal decisions. If you have a specific legal question or need legal advice, call us for a consultation.