Understanding Tenants in Common Agreements and the Pitfalls of Partition
Are you thinking of purchasing property with a friend, family member, or business partner? Maybe you’re inheriting property with a relative or already own a home with someone you’re not married to. Co-owning property can be a rewarding experience, but without a Tenants in Common Agreement, disagreements can escalate into costly and contentious disputes.
Why is a Tenants in Common Agreement Important?
A Tenants in Common Agreement is a written document that clarifies the rights and obligations of co-owners, ensuring everyone understands their role and responsibilities. Crucially, it also sets out an exit plan for situations where a co-owner wants to leave or when a disagreement arises. Without such an agreement, co-owners are often left with no choice but to file a partition lawsuit to resolve disputes.
The Problems with Partition Lawsuits
A partition lawsuit divides ownership of a property, either by:
Partition in Kind: Judicially subdividing the property (e.g., farmland or large tracts of undeveloped land).
Partition by Sale: Selling the property, often through a sheriff's auction, and distributing the proceeds among the co-owners.
Partitions are time-intensive, expensive, and emotionally draining. Most residential properties and commercial structures will involve a partition by sale, as they are not easily divisible. This process often results in the property being sold at a below-market price, reducing the proceeds for all parties.
Key Concerns with Partition Lawsuits
Economic Impact: Instead of working to maximize the equity in the property, co-owners end up spending significant sums on attorneys and court fees.
Emotional Toll: Partitions often involve disputes between family members, ex-partners, or close business associates, turning a once-collaborative endeavor into a bitter conflict.
Judicial Discretion: At trial, courts use an equitable determination standard, which is complex and allows judges considerable discretion. Often, no party is fully satisfied with the court’s ruling.
How Can a Tenants in Common Agreement Help?
A Tenants in Common Agreement provides a roadmap for co-ownership, helping to avoid disputes and minimize the risk of a partition lawsuit. Key benefits include:
Clarifying Rights and Obligations: The agreement outlines each co-owner's contributions, ownership percentage, and responsibilities.
Dispute Resolution: Establishes clear processes for resolving disagreements, including alternative dispute resolution methods.
Exit Plans: Defines how a co-owner can exit the arrangement, whether by selling their share or buying out another party.
A Tenants in Common Agreement can even limit or waive the right to bring a partition action, ensuring co-owners focus on collaborative solutions rather than litigation.
What Happens Without a Tenants in Common Agreement?
In the absence of an agreement, disputes are resolved through the court system:
The court determines ownership shares and orders either a partition in kind (rare) or a partition by sale.
A sheriff’s auction often results in a sale below market value, with remaining proceeds divided per the court's order.
This process is lengthy, costly, and erodes the equity that co-owners could otherwise share. Worse, it often amplifies the emotional strain between parties.
Why Do You Want to Avoid a Partition?
Cost: Partition lawsuits can quickly become prohibitively expensive, eating into the property’s equity.
Time: The litigation process can drag on for months or years.
Stress: Disputes between co-owners are emotionally taxing and can permanently damage relationships.
Financial Loss: Properties sold through partition often fetch less than market value.
Conclusion
If you are contemplating co-ownership or already own property with someone else, a Tenants in Common Agreement is essential. This agreement safeguards your rights, clarifies responsibilities, and provides a clear exit strategy in case of disagreements. By addressing these issues upfront, you can avoid the costly, time-consuming, and emotionally draining process of a partition lawsuit.
Whether you’re planning to purchase property with others, inheriting property, or dealing with co-ownership challenges, taking the proactive step to create a Tenants in Common Agreement will ensure smoother co-ownership and protect your shared investment.
Contact GLO to learn how our expertise can help make your transaction as seamless as possible.
GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients through a specific fee agreement. GLO does not guarantee any results.