Owning a beach house, a mountain house, or even a piece of land out in the country is a dream for many families. But due to sky-high purchase prices and maintenance costs, it can remain just that...only a dream. Buying property with someone or receiving property through a relative’s estate can allow two families to own a piece of property without it costing them an arm and a leg. Owning property with another “co-tenant” allows each of the owners to share in the purchase price, taxes, and costly annual maintenance.
With joint ownership, each family is free to use or benefit from their vacation property year round, and hopefully the only dispute is whose turn it is to stock the fridge. Yet, many times joint owners cannot agree on the simplest of issues like who gets which weekend or who is in charge of the necessary repairs. As a result, the once-happy joint owners no longer want to share or own the property with each other.
Generally, the quickest and most inexpensive way to resolve the conundrum is to settle the matter outside of litigation. Once a fair market value of the property is derived, one owner can agree to buy out the other, all owners can agree to sell the property to a third-party, or, if the property is large enough, the owners can actually split up the property creating multiple, distinct tracts.
Sometimes the relationship between the owners is so irrevocably damaged that a mutually beneficial agreement cannot be found. Enter, the Partition Proceeding.
With the Partition Proceeding, each owner of property is entitled to a partition of that property as a matter of right. An owner may terminate joint ownership in property without consent of the other property owner by filing a petition to partition real property. A partition proceeding is a proceeding before the Clerk of Superior Court where the Clerk can order the actual division or sale of property held by two or more people. Essentially, the property owner who wants to force the actual division or sale of property will petition the Clerk to either physically divide the property and give each owner their own separate parcel or to appoint a commissioner to sell the entire property to a third party and divide the sale proceeds.
The default rule for a partition is that property will be partitioned “in-kind” (actual division of the property), unless the division of the property would negatively affect the interests of one of the owners. In determining whether there may be substantial injury to an owner, the court can consider whether the fair market value of each owners share in the actual partition would be materially less than the amount each owner would receive from a sale, and whether an actual partition would result in a material impairment of one of the owner’s rights.
Common examples of property that if partitioned in kind would result in substantial injury to an owner can be where the property is a small lot most of which is covered by a single house or where if the property were actually divided one owner would receive effectively useless land—such as swampland— and the other owner would receive good, viable land.
In the partition proceeding, the property or the proceeds of the sale will be distributed to the owners based on their percentage share of the ownership of the property.
But, what if a property owner has made considerable improvements to the property, paid all of the taxes, made mortgage payments, or incurred other costs associated with the property without contribution from the other owners? A partition proceeding is an equitable proceeding where the court has the power to balance the equities between the parties by adjusting the disbursement of proceeds of a sale. Thus, in situations where one owner has made improvements to the property or expended considerable capital for the benefit of the other owners of the property, the court can adjust the share of either the property or sale proceeds allocated to each owner.
Owning property with another can be cost-effective and a great way to have access to a piece of property that you could not otherwise afford on your own. But remember, friends or family may be poor business partners. Joint property ownership issues can be frustrating and may cause bad blood; fortunately a petition to partition property is available if your dream property turns into a nightmare.
Davis Puryear joins Hutchens Law Firm as an associate attorney at law. A merit scholar, he recently earned his Juris Doctor degree from Campbell University, Norman Adrian Wiggins School of Law, graduating cum laude. Puryear brings his strong academic achievements to the firm and will be working on business law and civil litigation cases.