Yes. A party may be able to receive credits and/or offsets for upgrading a property in a partition action under many circumstances. In a partition lawsuit, two parties disagree about what to do with jointly-owned property.
In those circumstances, one party can seek the sale of the property, and then have the equity divided between all of the owners. Once the property is sold, the parties can make claims to the money left from the proceeds from the house.
One issue that often arises, however, is whether an improvement to the property—as opposed to a repair—is subject to an offset as part of the partition action. For example, if one party remodels a bathroom, would they have the right to an offset for that work?
What is an offset?
Code of Civil Procedure section 874.140 states that the “court may, in all cases, order allowance, accounting, contribution, or other compensatory adjustment among the parties according to the principles of equity.”
The court in Hunter v. Schultz (1966) 240 Cal.App.2d 24, stated that the payments for interest, taxes, and insurance made by any co-tenant could be subject to reimbursement. These claims for reimbursement are commonly known as “offsets” in a partition action.
Generally, a partition action has two parts with a determination of the parties’ interests in the real estate followed by an accounting action that determines each owner’s share of the proceeds from the sale of the property. During this second part of the partition action, an “offset” comes into play.
What costs can be offset in a partition action?
Code of Civil Procedure section 874.040 addresses the “apportionment of costs” by stating that “the court shall apportion the costs of partition among the parties in proportion to their interests or make such other apportionment as may be equitable.”
Since a partition action is equitable in nature, “a court of equity is required to take into account the improvements which another cotenant, at his own cost in good faith, placed on the property which enhanced its value and to award such cost to him.” (Mercola v. Chester (1950) 97 Cal.App.2d 140, 143; Ventre v. Tiscornia (1913) 23 Cal.App. 598, 605.”
Similar to many other legal theories involving partitions, it is important that any cost that you are trying to recoup or offset is equitable to the other parties. In Mercloa, an action for a partition of a 99-year leasehold interest in real estate, the plaintiffs were entitled to recoup the costs they incurred in acquiring the lease and constructing a building on the property. In Scott v. Staggs (1954) 129 Cal.App.2d 54, 58-59, the defendants were entitled to a credit for labor and materials they furnished to paint the rental units on the property following the property’s sale, where the trial court reasonably could infer the improvements made a sale more likely and actually enhanced the property’s value. (see Williams v. Miranda (1958) 159 Cal.App.2d 143, 159 [Finding that a trial court properly awarded the plaintiff reimbursement for repairs that increased the property’s value and brought a better sales price].)
As the court stated in Wallace v. Daley (1990) 220 Cal.App.3d 1028, 1035-1036, the “credits can include expenditures in excess of the co-tenants fractional share for necessary repairs, improvements that enhance the value of the property, taxes, payments of principal, interest on the mortgage…”
Further, the court under Milian v. De Leon (1986) 181 Cal.App.3d 1185, announced that a co-tenant who expends money for the preservation of the property, or with the [acceptance] of their co-tenant(s) is entitled to reimbursement for those expenditures before the division of the proceeds among the property owners.
That is, the general rule is that compensatory adjustments are appropriate for improvements that enhance the value of the property for all owners’ benefit. (see Wallace v. Daley (1990) 220 Cal.App.3d 1028, 1035-1036.)
This means that the right to get reimbursed or compensated for necessary impairs or improvements that enhance the value of the property is allowed in a partition action. Additionally, if the other co-tenants expressly agree to the upgrades or renovations, then it is plausible that you will be reimbursed for these expenditures before the division of the property sale proceeds.
Thus, any improvements that enhance the value of the property for all the parties’ benefit are subject to reimbursement in a partition action.
What is the process for obtaining compensation for upgrades?
Before the sales proceeds are distributed among the parties, a court-ordered accounting will determine the charges and credits upon each co-owner’s interest. These credits are taken out of the net proceeds before the balance is divided equally. (Southern Adjustment Bureau, Inc. v. Nelson (1964) 230 Cal.App.2d 539 (“Nelson”).)
“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 his reimbursement before the balance is equally divided.” (Nelson, 230 Cal.App.2d, at p. 541, citing William v. Koyer, (1914) 168 Cal.369.)
As such, a party to a partition action must produce gather their evidence and make sure that it is presented to the court so they can receive the full credit for the value that they have added to the property. While a party may have a right to these credits under the law, ultimately they will not be counted unless they can be presented in the proper form.
How can the attorneys at Underwood Law Firm assist you?
Whether you are faced with a partition action you did not wish for, or you wish to assert a partition action against your co-owners, it is a good idea to have a knowledgeable and experienced attorney by your side, like the ones at Underwood Law Firm There are a lot of different legal deadlines and submission guidelines for partition actions in real estate litigation actions, and it may behoove you to consult with an attorney to see for yourself how they could assist you in maintaining compliance with all of the guidelines and regulations of partition actions.