Changes in Partition Action Laws
When multiple people own real estate together, any owner can generally force the property to be divided or sold to end the co-ownership. California law calls this process “partition.” Effective January 1, 2023, California passed a series of laws named the Partition of Real Property Act (“PRPA”) that substantially changed the partition process. (Code Civ. Proc. “CCP” § 874.311.) The legislature designed these changes to prevent co-owners from being forced into unfair property sales, particularly when it involved inherited property. This article explores these important changes.
When a co-owner of real property desires to sell their share of the property, the most profitable and speedy way is often to work with the other owners to sell the land. However, when only one or some of the co-owners want to sell, the law provides the option of forcing the sale or division of the property through a partition action. In California, the right of a co-owner to withdraw their equity from a jointly owned property through partition is almost absolute.
The partition process provides an outlet for someone who no longer wants to co-own property with others and protects that co-owner from having to sell their fractional interest in the property at a substantial discount. However, this process was also ripe for abuse as it allowed entities and individuals to obtain a minority share in properties, then force the majority of owners to sell their shares or buy the minority owner at a premium just to avoid the sale. This tactic disproportionally affected lower income landowners who inherited property, preventing them from building wealth through property ownership. The legislature intended to curb this practice by giving the non-partitioning co-owners more protection.
The PRPA applies to all partition actions brought after January 1, 2023, involving property held in a tenancy-in-common which do not have a partition agreement in place. (CCP § 874.311). The PRPA requires the Court to order an appraisal of the property by a licensed appraiser, regardless of whether the property was going to be partitioned by sale or “in kind” (i.e., dividing the property itself up so that all co-owners own an individual portion of the property outright). (CCP § 874.316). Exceptions to this requirement exist when the co-owners have already agreed to the fair market value of the property, or the court determines it is more effective to determine market value through an evidentiary hearing. (CCP §§ 874.313, 874.316).
The PRPA then gives the non-partitioning owners a “right of first refusal” to buy the partitioning owner’s shares at their appraised value. (CCP § 874.317.) This deviates significantly from the old partition process, in which the non-partitioning co-owners were forced to bid at sale for the whole property if they wished not to lose it. This process offers substantial advantages over the old system by creating an incentive for co-owners to avoid litigation by directly offering for their co-owners to buy out his or her interest in the property. This incentivizes the parties to settle their differences before incurring the headache and costs of partition.
Notably, if a partition action is pursued, the PRPA also ensures that non-partitioning co-owners are protected. Generally, the court will not allocate any of the legal expenses of partition to the non-partitioning co-owners (meaning the legal costs will all come out of the partitioning owner’s share of the sale proceeds). (CCP §874.312.5.) Further, a partitioning co-owner cannot buy out their co-owners share under this process, preventing the partition process from being used for “take overs” of property by one co-owner, or “ousters” of only certain co-owners. (CCP § 874.317.)
While these laws have been on the books for over two years now, there is very little case law interpreting it, likely due to the lengthy nature of partition actions and the appellate process. To date, it does not appear that any published appellate court cases have been issued interpreting the changes, although trial court level cases are beginning to wind their way through the court system. Any clients looking to partition their property should discuss the implications of the PRPA with their attorneys, including any new developments in the case law interpreting it.
Water Law
“Water, Water, Everywhere, but not a drop to drink.” This classic line from Samuel Coleridge’s The Ancient Mariner seems particularly apt on the Monterey Peninsula, where despite being surrounded by the ocean, water scarcity has limited building and expansion for decades. The history of this issue is important for any Peninsula property or business owner to understand.
The Monterey Peninsula derives its water primarily from two sources: The Seaside Basin Aquifer (a coastal basin aquifer), and the Carmel River. In the early 1990s, the privately owned utility California American Water Company (“CalAm”) annually diverted 10,730 acre-feet of water in excess of its legal right from the Carmel River. The excess diversion resulted in ecological harm to the river and led to four entities filing complaints against CalAm with the State Water Resources Control Board (“SWRCB”). The SWRCB initiated an investigation against CalAm, eventually issuing Order 95-10 in 1995 (“WR 95-10”). WR 95-10 ordered CalAm, in part, to cease its illegal diversions from the Carmel River, and to find an alternate source of water to replace the volume of water it illegally diverted. In 2009, the SWRCB brought further enforcement proceedings against CalAm for failure to comply with the requirements of WR 95-10, and issued a Cease and Desist Order (“2009 CDO”), which prohibited the diversion of water from the Carmel River for any new service connections or “for any increased use of water at existing service addresses resulting from a change in zoning or use.”
In 2010 CalAm filed an application with the California Public Utilities Commission (“CPUC”) – a state body that regulates privately owned utilities, including CalAm – to allow it to implement the 2009 CDO requirement that no new or expanded service connections be allowed. In 2011, the CPUC issued Decision 11-03-048 (the “meter moratorium”) and granted CalAm’s application to recognize the 2009 CDO. The meter moratorium prohibits CalAm from installing new water meters or allowing increased water use at existing metered connections resulting from a change in use or zoning. In practice, the meter moratorium meant no new homes, buildings, or structures could be built if they needed a new or enlarged water meter, nor could property owners implement any changes in use that would increase the use of water on a parcel of land serviced by CalAm (i.e., the majority of the Monterey Peninsula).
These developments compounded the water regulations that already existed on the Monterey Peninsula. In the late 1970’s, the Monterey Peninsula Water Management District (“MPWMD”) created the water credit system that exists today. The water credit system assigned credits to each residential parcel of land in MPWMD’s jurisdiction based on the number of water fixtures located on the property at the time the system was created. Under this framework, a Peninsula property owner needs two things in order to build on land served by CalAm: first, a pre-existing water meter, and second, enough water credits to build the structure desired. Where there are not enough existing water credits allocated to a property, MPWMD Rule 25.5, which governs the water credit system, enables property owners to “free up” water credits by eliminating or reducing existing uses of water (for example, through the replacement of old household appliances with new, water-efficient household appliances). These “freed up” credits can be applied to new uses on the same property within ten years of the date they are received.
Since 2009, CalAm has taken action to comply with WR 95-10 and the 2009 CDO. CalAm became fully compliant with its legal water diversion limit in 2021 and has remained within its legal diversion limit ever since.
Despite the fact that CalAm is no longer illegally diverting water, the 2009 CDO and meter moratorium will likely remain in place until CalAm obtains a new permanent water supply to offset the volume of water it illegally diverted in the past. A number of water projects aiming to accomplish this goal have been in the works over the last decade, of which the Pure Water Monterey project and Marina desalination plant appear to be the most prominent.
Pure Water Monterey is a groundwater recycled water and aquifer storage project jointly developed by Monterey One Water and the MPWMD that has operated since 2020. The project recently broke ground and once complete, it is anticipated it will supply enough water to meet the Monterey Peninsula’s water needs for 30 or more years. In 2023 CalAm signed a purchase agreement committing to buy water from Pure Water Monterey.
The Marina desalination plant is CalAm’s solution to the water shortage. The proposed plant would convert ocean and brackish water to potable water. Unlike Pure Water Monterey, the desalination plant does not rely on “rainy” years to recharge underground aquifers and as such is touted to be “drought-proof.” The project has been plagued by public concern and criticism from environmental advocates. However, after a decade of development, in 2022, the project overcame a major hurdle when the California Coastal Commission issued a Coastal Development Permit for the project.
During its April 2024 Board meeting, MPWMD announced its intent to initiate proceedings in late 2024/early 2025 to request the SWRCB lift the 2009 CDO and the CPUC lift the meter moratorium. This timeline places the request approximately one year out from the expected completion of the Pure Water Monterey project, in hopes completion of the project will coincide with the moratoriums being lifted. When this occurs, it is possible MPWMD’s existing water credit system will undergo substantial change, or even be eliminated.
It is unknown whether CalAm will join MPWMD in this endeavor. CalAm has contended Pure Water Monterey is not drought-proof and will not produce enough water to ensure future needs are met, and that the desalination plant is therefore necessary before the 2009 CDO can be lifted. In either case, it is unlikely the State will lift the 2009 CDO until it is satisfied sufficient water is available to meet the future water needs of the Monterey Peninsula. Only time will tell when the Peninsula’s water woes will finally be resolved, but residents can likely trust what MPWMD General Manager David Stoldt had to say on the matter during the April 2024 MPWMD Board Meeting: “Expect delays.”