Attorney Carteret County and Craven County
Tenancy in Common in Real Property
Many times, we have clients come in with questions about what to do with real property they own with another person or persons. Co-ownership of property arises in a number of different contexts, but it often occurs when someone has passed away and left real property to his or her heirs or beneficiaries (typically the children) in equal shares. The heirs or beneficiaries then own the property as “tenants-in-common.” Under “tenants-in-common” ownership, each co-owner owns their respective percentage interest in the whole of the property.
Because tenants-in-common own an interest in the whole of the property, any one of them may occupy and use the property as he or she sees fit. This includes taking possession for the purposes of renting the property to a third party. The general rule is that one co-tenant does not owe the other co-tenant any rent for doing so. However, in situations in which one co-tenant occupies and uses the property to total exclusion of the other owners, then one of the other owners may have the right to maintain a claim for “ouster.” In an action for ouster, a co-tenant can recover his or her percentage of the reasonable rental value of the property, corresponding to the co-tenant’s percentage interest in the property.
As for expenses, each co-tenant generally bears the responsibility of contributing to the expenses relative to the property, such as maintenance costs, property taxes, insurance, utilities, and any mortgage on the property. These expenses are paid pro rata, according to the owner’s percentage interest in the property. One major exception is that should one co-tenant seek to improve the property, the other co-tenants are not obligated whatsoever to participate in the expense of doing so.
Unlike other types of joint tenancy, such as Tenants by the Entirety or Joint Tenancy with Right of Survivorship, a person’s interest in a Tenancy in Common is freely devisable, meaning that the interest can be left to the owner’s heirs by will or through intestacy. Interests are also freely alienable, meaning they can be sold. Unlike the other forms of joint ownership, a Tenancy in Common is not “severed” or terminated by the death of one of the owners or the sale of an owner’s interest.
There are two ways to terminate a Tenancy in Common. One is the sale of the property, with the approval of all co-tenants as to the price and other important terms. This is not possible in all cases, as the owners often have very different ideas about a potential sale. Also, when the property is ‘family property’ that has been passed from generation to generation by devise or inheritance, there may be many parties holding an interest in the real estate. In such cases, it may be difficult to come to a consensus about what to do with the property: how to market it, when to market it, what to accept as a sale price.
Luckily, the law provides an absolute right to a co-tenant to sever the Tenancy-in-Common through the mechanism of partition. Partition is a legal proceeding, brought before the Clerk of Court in the county in which the property is located. The co-tenant simply petitions the clerk for an Order directing that the property be partitioned, so that each co-tenant may receive his or her interest in the property, either in land or in money. There is no defense to a co-tenant’s right to seek partition. It is an absolute right. Instead, the proceeding before the clerk determines whether the property will partitioned “in-kind” (the property is divided into lots according to percentage ownership) or partitioned “by-sale” (the property is sold and the proceeds are divided amongst the owners according to their interests). The partition process also includes the appointment of commissioners who then have the duty of inspecting the property and coming to a determination as to the value of the property, the feasibility of an in-kind division of the property, or that of a sale. Typically this will involve surveys and appraisals of the property.
Although “in-kind” partition is in fact favored under the common law, it rarely happens in modern times as the property often does not lend itself to an actual division into smaller parcels. In-kind partition or true partition occurs in cases in which the size, shape, location, and other features of the property will provide the co-tenants with a division which adequately reflects and protects the relative percentage interest of every owner. For example, if the family property consists of several hundred acres of forested lands in a rural area, and is square or rectangular in shape, an in-kind partition will likely be approved, as it is possible to divide the property in such a manner as will appropriately reflect the various interests of the co-tenants. On the other hand, if a property consists of mother’s old home and lot in a subdivision in town, then partition by-sale will be the way to go, as it is impossible to divide such a property among the children.
Within the partition process, the co-owners may also ask for an accounting. It is at this point that one may bring an action for ouster against a co-tenant who occupied the property to the exclusion of the others. Also, if one co-tenant has been exclusively using the property for rent, without sharing the proceeds with the other co-tenants, or if one co-tenant has been paying the expenses of the property without any contribution from the other owners, then those issues may also be raised in a counterclaim for accounting in the partition proceeding. These claims then offset the value of the property which would otherwise be paid to the other co-tenants. In a partition in-kind, the commissioners will take these claims into account, and adjust the percentage (the size) of the property to be given to the co-tenants after partition. In a partition by-sale, the dollar amount of the claims simply offset the dollar amount of the proceeds to be received from the sale.
The partition sale is typically performed at the courthouse steps. The sale is either a private sale, or a public sale, depending on whether notice of the sale is published in the paper. In either case, the prospective purchaser submits a bid at the courthouse, and other purchasers have ten days in which to tender an upset bid. The co-tenants may bid on the property. When no further bids are received after ten days, the sale period closes, and the commissioner or commissioners move for an Order confirming the sale. When the Order is granted, the Commissioner will distribute the proceeds to the co-tenants, making any adjustments as ordered by the court, and after deducting expenses such as court costs, publication expenses, surveys, appraisals, attorney fees, and a statutory commission for the Commissioner, from the gross proceeds of the sale. Accountings of these items are filed with the Court, and the Commissioner tenders a Commissioner’s Deed to the purchaser.