Ending Co-Ownership Fairly: What You Need to Know About Partition Accounting

Aug 4

Partition actions are often pursued by co-owners of real property when one can no longer agree on how to manage or dispose of jointly owned residential or commercial property. During the partition, the Court may oversee an equitable adjustment among co-owners for out-of-pocket expenses, improvements, and income, referred to as a partition accounting. Because the allocation of these credits for property-related contributions can determine how much a co-owner’s ownership is valued at, it is integral to have an experienced partition attorney help identify reimbursable contributions and maximize your financial recovery.

What Is Partition Accounting?

Under California Code of Civil Procedure 872.140, the ”court may, in all cases, order allowance or other compensatory adjustment among the parties in an action for partition according to the principles of equity.” As demonstrated in California’s Court of Appeal case, Milian v. De Leon, “upon partition a cotenant who has paid a disproportionate portion of the purchase price is entitled to reimbursement of the portion disproportionately paid.” (1986) 181 Cal.App. 3d 1185, 1195.

A partition accounting is the process by which a court determines what each co-owner is owed or must pay based on expenditures made for the benefit of the property when there were disproportionate payments by the co-owners. The general principle of offsets that co-owners are entitled to is: “When a cotenant makes advances from his own pocket to preserve the common estate, his investment in the property increases by the entire amount advanced. Upon sale of the estate he is entitled to be reimbursed his entire advancement before the balance is equally divided.” Southern Adjustment Bureau, Inc. v. Nelson (1964) 230 Cal.App.2d 539, 541.

This includes contributions toward:

Mortgage payments
Property taxes
Insurance
Repairs or improvements

In one California co-ownership dispute, the Court found that a co-owner’s consent to an improvement was not dispositive of whether the court would reimburse the co-owner who unilaterally advanced the improvement. The court found that “where the evidence ‘shows without conflict that the improvements to the common property were necessary to its preservation, and enhanced its rental value, then the plaintiff should have been put to his election, either to contribute equally to the undisputed cost of the improvements, or else relinquish all claim to a share of the increased rentals resulting therefrom.’” Ventre v. Tiscornia (1913) 23 Cal.App. 598, 606. The key is whether the improvement was necessary, and it may make a difference if rental profits have been collected at the improved property.

There are exceptions to what expenses the court will credit during the partition accounting. “Ordinarily one joint tenant cannot maintain an action against his cotenant for rent for occupancy of the property or for profits derived from his own labor. He may, however, compel the tenant in possession to account for rents collected from third parties.” Swartzbaugh v. Sampson (1936) 11 Cal.App. 2d 451, 458. This means that a co-owner, with no painting experience, who paints the property a unique shade of electric green will most likely not succeed in charging a co-owner for the “labor” of an act that did not appreciably increase the value of the co-owned property. Alternatively, if a co-owner who is a licensed plumber improves a rental property in a manner that allows co-owners to continue collecting rent from a tenant, that co-owner would most likely have a better chance of being awarded credits for the plumbing project during a partition accounting.

How Does a Partition Accounting Unfold?

If the co-owners can come to an agreement about the credits to be reimbursed to all of the parties for their property contributions, then the co-owners may stipulate to an accounting. In many cases, the parties cannot agree on the expenses to reimburse a co-owner for disproportionate contributions, and this gridlock is usually resolved with the appointment of a partition referee. Generally, the “court may appoint a referee to make a report on the facts and circumstances of the case, and make a recommendation to the court on precisely this primary determination. CCP § 872.820(b). The referee “serves as the initial examiner of the facts, and perhaps the law, in a partition action, under the aegis of the appointing court. The referee’s determinations are either accepted by the court, modified, or set aside.” CCP § 873.290(b).

For example, in the case of Rahgoshay v. Hongyun Luo, the court ordered that the “referee shall report to the court regarding the allocation and distribution of the net sales proceeds of the Property in accordance with Code of Civil Procedure § 873.850 et seq., including the allocation of the sale proceeds with respect to property costs, income and benefits among the parties.” (Cal. Ct. App., Sept. 19, 2019) No. G056735. The reference to “income” and “benefits” refers to the calculation of how much a co-owner receives after disproportionate expenses, like home improvements, and income, like rent, have been accounted for.

Contact Blake Law Firm

If your co-ownership has reached a point of inevitable termination, finding the right real estate attorney to represent you in your partition action can strengthen your partition accounting strategy and help you fully understand your rights as a residential or commercial real estate owner. At Blake Law, we help co-owners navigate complex partition actions by advising them on the evidence needed to build a strong case, maximize their share of the proceeds, and pursue the equitable reimbursements co-owners are entitled to.