July 3, 2012

Partition Action

When a person inherits real property, they often do so jointly with another. For example, a parent might equally devise the family home to son and daughter. The problem with this scenario, which frequently arises, is that one child will want to keep the property and one child will want to sell the property. The legal term used for a child wishing to sell their co-ownership interest, despite the objections of the other co-owner, is known as a "partition action."

In a partition action, three possible avenues are available for the parties:
  1. Physical division of the property
  2. Sale of the property and allocation of the proceeds; and
  3. Partition by appraisal 
For (1), a court-appointed referee will literally carve up the real property and award the severed parcels to the parties in proportion to their interests. In other words, a person draws lines on a map and tells each party which side of the lines he, she or it owns. This method is rarely utilized except in cases of raw land because it is clearly quite difficult to divide a a house into halves or thirds. Trust me on this one.

For (2), a court-appointed referee will sell the parcel at public or private sale and distribute the proceeds. For example, assume Able owned 40% and Baker owned 60% of Blackacre. Reggie, the court-appointed referee, sold the property for $100,000. Following deductions for expenses, Able would be entitled to 40% and Baker 60% of the sale proceeds. 

For (3), the parties essentially agree to have one buy the other out for a price set by the court-appointed referee. For instance, from (2) above, Able could purchase Baker's share for $60,000. Thus, Able would become the sole owner and Baker would be $60,000 richer.

One key aspect to remember is that a tenant in common or a joint tenant has an absolute right to sever his or her interests from those of other co-owners, unless a waiver has been signed. Lazzarevich v Lazzarevich (1952) 39 C2d 48. In the case of inherited real property, it is highly unlikely that such a waiver is ever signed. The reason being is that the parties often do not share the same goals. They are co-owners by chance. In contrast, in many business arrangement, co-owners often agree to waive the right to partition because of shared interests. One would like to think that business partners have roughly the same objectives.

A partition action is in a sense the nuclear option. It is seldom in the best interests of either party to undertake a partition action because of the associated fees with the procedure. For instance, the  attorney fees for a partition action are typically in the thousands of dollars. Still, many people use the the threat of a partition action as a bargaining chip when negotiating with co-owners as to the property's future.