Resolving Co-Ownership Disputes: Unveiling the Uniform Partition of Heirs Property Act

The complexities of "Heirs Property" - jointly owned real estate without a written partition agreement - have long posed challenges for co-owners. Disagreements over property management, unpaid expenses, and strained relationships often lead to partition actions, where a court determines the division of interests among cotenants. However, on July 21, 2021, California passed the Uniform Partition of Heirs Property Act ("Act"), reshaping the partition process for a more equitable outcome. Applicable to actions filed on or after January 1, 2022, the Act introduces significant amendments, granting co-tenants the right to buy out the filing cotenant, supporting "partition in kind" with consideration for non-economic factors, and establishing revised sales procedures for a fair market sale. If you own Heirs Property or are contemplating estate planning involving co-ownership, this article explores the Act's impact and the benefits it offers in fostering smoother co-ownership experiences.

What is "Heirs Property"?

"Heirs Property" is defined as property (i) for which there is no written agreement regarding partition that binds the cotenants of the property, (ii) where one or more of the cotenants acquired title from a relative, (iii) where 20% or more of the interests are held by relatives, or by an individual who acquired the interest from a relative, or (iv) 20% or more of the cotenants are relatives.

Owning Heirs Property as "tenants in common" with others can be problematic. Cotenants can disagree on what to do with the property (one or more cotenants may want to sell the property, while the other cotenants may want to keep the property), one or more cotenants may fail to pay their share of the property expenses, or the cotenants may simply not get along with each other. Such disputes may result in a partition action being filed with respect to the Heirs Property.

Partition Action

What is a partition action? A partition action is a legal process by which a court determines the division of real property between cotenants, resulting in individual ownership of the interests of each owner.

Types of partition actions:

1. Partition in Kind: The division of the Heirs Property into physically distinct and separately titled parcels. Partition in kind is normally used when the Heirs Property is empty or raw land where equally equitable portions of the land can be physically divided.

2. Partition by Sale: A court ordered sale of the entire Heirs Property, whether by auction, sealed bids, or open market sale. The proceeds of the sale are divided among the owners according to their equitable interests.

3. Partition by Appraisal: Courts may order a partition by appraisal if at least one party is willing to keep ownership of the Heirs Property. The owner wanting to keep ownership of the Heirs Property will buy the interests of the other owners. In order to determine a price for the ownership interests, the court will appoint an appraiser and the appraiser's valuation will set the official purchase price.

Uniform Partition of Heirs Act ("Act")

Under prior law, there was only one available process to partition real property: an owner of an estate in real property would file anaction for partition of the property against all person having or claiming an interest in the estate and this would force the sale of the property at auction, most times at a below­ market price, unless the property could be partitioned in kind. However, on July 21, 2021, Assembly Bill 633 was signed into law in California which enacted the Uniform Partition of Heirs Act ("Act") which governs the partition of Heirs Property and is applicable to partition actions filed on or after January 1, 2022. The Act amends Section 872.020 of, and adds Chapter 10 to Title 10.5 of Part 2 of, the California Code of Civil Procedure.

The three major amendments contained in the Act are:

1. When a cotenant files an action for partition of an Heir Property, the cotenants who did not request the sale are afforded the right to buy out the interest of the filing cotenant at a price based on the value of the entire Heirs Property multiplied by the cotenant's fractional ownership of the entire parcel. This mechanism will avoid the sale of the entire Heirs Property.
2. The Act supports the judicial preference for partition in kind by allowing the court to consider several factors of economic and non-economic value (i.e., duration of ownership, sentimental attachment, use of the property, contribution of property expenses) instead of solely the economics only value in determining the fractional ownership of the cotenants.
3. The Act provides for revised sales procedures including an "open market sale" option as the preferred sale option wherein a real estate broker is appointed to offer the Heirs Property for sale in a commercially reasonable manner, at a price no lower than the determination of value, and on the terms and conditions established by the court.

If you own Heirs Property and you would like to initiate a partition action, are concerned that another owner may or has initiated a partition action, or if you own real property and are considering leaving the property to several individuals in your estate planning, one of whom is a relative (making it an Heirs Property), you should consult with an attorney to understand the disadvantages of co-ownership of real property and estate planning alternatives to co-ownership as tenants in common.

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