What is the Partition of Real Property Act?

Underwood-Blog-Images-1-1-300x300The Partition of Real Property Act (PRPA) is an exciting new development in real estate law only recently passed by the California Legislature. Its effects are far-reaching, and its changes to the procedure for partitions cannot be understated. 

At Underwood Law Firm, our attorneys are more than familiar with partitions and the complexities such lawsuits can entail. With the PRPA and its provisions set to go into effect early in 2023, our attorneys are already keeping track of the way it will change to partition law so that we can best assist you in achieving your litigation objectives. 

When does the Partition of Real Property Act go into Effect? 

The PRPA is not the newest law on partition procedures in California. In 2021, the Legislature enacted the Uniform Partition of Heirs Property Act (UPHPA). This new bill created a number of key changes to the way partitions are handled in California, but only for “heirs’ property.” 

This meant that the statutory changes to partition law only reached inherited property that was jointly owned. But shortly thereafter, the Legislature decided to expand the statute’s reach. They amended the UPHPA during the 2022 regular session and passed Senate Assembly Bill 2245: the Partition of Real Property Act. 

No longer would the UPHPA be limited to heirs’ property. Instead, the PRPA changed the law so that the provisions of the UPHPA now apply to all co-owned property held in tenancy in common. 

This change is monumental in the field of partition law. What’s more is that the PRPA goes into effect next year, starting January 1, 2023. 

How do Partitions Work Under Current California Law? 

Currently, partitions are governed by the provisions under the Code of Civil Procedure section 872.010 and those that follow. These statutes set out a general process by which a property may be partitioned. 

Crucially, there is one key aspect that the PRPA is changing. First, when a co-owner of the real property decides to partition the co-owned property, there’s no rule that says they must agree with a buyout of their property interest. 

Most partitions end in a forced judicial sale of the property at issue. While the result is equitable insofar as it allows all parties to leave with cash in hand, reflecting their equity in the property, it is not perfect. Often, the party fighting the partition doesn’t want to sell because it’s the place where they live. 

There does exist a remedy for this instance, called a partition by appraisal. These special partitions are for instances where one party wants to stay on the property, and the other co-owner(s) is fine with merely selling their interest. This allows co-owners to terminate their differences while permitting one co-owner to retain the property without the expenses associated with a sale. (Cummings v. Dessel (2017) 13 Cal.App.5th 589, 598.) 

That said, partitions by appraisal can only occur when all parties to the lawsuit agree to it. If a party doesn’t agree, then the property will be sold (or physically divided). This is a feature of partition law that the PRPA is changing.

What is the partition process under the UPHPA? 

As the partition process currently stands, the process of actually getting the property sold can be a slog. The parties will fight over the terms of the sale, the partition referee and their respective recommendations on selling the property, and whether to confirm a sale once it is done. This process is expensive and time-consuming, eating up the resources of the parties and the courts. 

Under the PRPA, the court instead appoints an appraiser to do the heavy lifting. The new statute states that the court “shall determine the fair market value of the property by ordering an appraisal.” (CCP § 874.316.) The court doesn’t have to be the one to order the appraisal, but this is only if all the co-owners agree to a different method of valuation. 

If, however, an appraisal occurs, it shall be conducted by a disinterested third-party real estate appraiser licensed to determine the fair market value of properties. After the appraisal is conducted, parties may file objections to the value and can even offer additional evidence of value to the court. 

After the valuation is complete, parties will be introduced to the key feature of the new statute: the buy-out option. If a co-owner requests a partition by sale, then the court will notify the other co-owners that they may buy all the interests of the cotenant that requested the partition. (CCP § 874.317.) 

This is, essentially, a right of first refusal. The co-owners who don’t want the property sold now have the option to simply buy out the requesting party. Additionally, the buy-out price will be based on the property’s valuation, determined earlier in the litigation. And if one or more parties exercise the buy-out, then the court will reapportion ownership percentages based on the price paid.  

What If a Co-Owner Cannot Buyout the Other Parties? 

While the buyout is a much-needed option for partition actions, sometimes parties will simply not have the ability to buy out the party requesting partition. If this happens, the statutes mandate a partition proceed according to the provisions already in place but subject to another key statutory addition. 

Under current partition law, partitions in kind are favored. (Butte Creek Island Ranch v. Crim (1982) 136 Cal.App.3d 360, 365.) A partition in kind is the literal physical division of property in accordance with ownership interest. Under the current law, parties must make a showing that partition in kind is not equitable. But now, the PRPA gives explicit guidelines to the court on making this determination. 

In determining whether a partition in kind would prejudice the cotenants as a group, the courts shall now consider: (1) whether a partition in kind is practicable, (2) whether the partition in kind would substantially diminish the fair market value of the property as a whole, (3) evidence of the collective duration of ownership, (4) a cotenant’s sentimental attachment, (5) the lawful use being made of the property, (6) the degree to which the cotenants have contributed their share of property expenses, and (7) any other relevant factor. (CCP § 874.319.) 

Thus, parties now have an increased ability to force a partition in kind instead of being subjected to a forced sale of the property. 

How does the Partition of Real Property Act Affect the Cost of Litigation? 

There’s an “under the radar” change to the partition statutes that will doubtlessly eat up litigation time in future partition actions under the PRPA. As it currently stands, both parties pay for the cost of partition in accordance with their ownership percentages. 

The “costs” of a partition action include attorney’s fees, the referee’s expenses, the cost of a title report, and any other money expended toward the “common benefit” of the property. But the PRPA changes this framework. Now, any party who opposes the partition will not be responsible for any of the partition costs unless the court decides that it would be equitable to do so. (CCP § 874.321.5.) 

How can the Attorneys at Underwood Law Assist You? 

Partitions are already fairly common in California, particularly among unmarried couples and business partners. But the changes coming to partition law as a result of the PRPA could cause additional headaches to first-time litigants. Partitions are already emotional procedures, and the time, money, and legalese associated with getting them started can be a significant barrier to exercising one’s property rights. 

As each case is unique, property owners would be well-served to seek experienced counsel familiar with the ins and outs of partitions and co-ownership. At Underwood Law, our knowledgeable attorneys are here to help. If you are concerned about facing a partition action, if you’re interested in seeking one yourself, or if you just have questions, please do not hesitate to contact our office.

 

 

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