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.