Compensatory Adjustments In Partition Actions Under California Law
Updated January 2019
By Ethan Watts
Compensatory Adjustments Generally
In a partition action, a cotenant is entitled to an accounting and compensatory adjustments for expenditures in excess of the cotenant’s fractional share for necessary repairs, improvements that enhance the value of the property, taxes, payments of principal and interest on mortgages and other liens, insurance for the common benefit and protection and preservation of title. Code Civ. Proc. § 872.140. Section 872.140 of the Code of Civil Procedure states: "The court may, in all cases, order allowance, accounting, contribution, or other compensatory adjustment among the parties according to the principles of equity." Code Civ. Proc. § 872.140.
Thus partition actions are governed by broad principles of equity jurisprudence, and what is awarded to a cotenant in any given action depends on the facts and circumstances of the particular case. Code Civ. Proc. § 872.140; see also Wallace v. Daley (1990) 220 Cal. App. 3d 1028 at 1035.
A cotenant is entitled to credit for good faith improvements she has made which enhance the value of the subject property. See Code Civ. Proc. § 873.220 ("As far as practical, and to the extent it can be done without material injury to the rights of the other parties, the property shall be so divided as to allot to a party any portion that embraces improvements made by that party or that party’s predecessor in interest." "In such division and allotment, the value of such improvements shall be excluded."); see also Wallace at 1036; Mercola v. Chester (1950) 97 Cal.App.2d 140, 143.
Wallace v. Daley (1990) 220 Cal. App. 3d 1028 involved a partition action where the plaintiff had acquired an interest in real property as a tenant in common from an original co-owner. Id. at 1033. The court held that the plaintiff was to be credited for improvements made by her predecessor in interest and that such improvements did not require the consent of the other cotenant. Id. at 1036; see also Mercola v. Chester (1950) 97 Cal.App.2d 140, 143 (holding that credit for improvements does not require the other cotenant’s consent to the improvement); Ventre v. Tiscornia (1913) 23 Cal. App. 598, 604-605 (stating that with or without consent, a cotenant who has made good faith improvements should be credited for such improvements). The court held that if a cotenant made improvements in good faith, then essential principles of equity require that the cotenant be credited for such improvements provided that it can be done without material injury to the rights of the other parties. Id. at 1038. The court also noted that although Code of Civil Procedure section 873.220 pertains to an allotment of improvements in case of a division, a court’s determination to proceed by sale rather than division does not alter the court’s requirement to credit a cotenant with improvements. Id. at 1038. In determining how much to credit the cotenant for good faith improvements, the court should award the amount such improvements enhance the value of the property. Id. at 1036.
Therefore a cotenant should receive credit for any improvements he has made in good faith to the property which have enhanced the value of the property. The credit awarded to the cotenant should be the amount the improvements have enhanced the value of the property. Id.
Taxes, Insurance, Repairs and Mortgage Payments
In addition to credit for improvements, courts have routinely awarded credit for taxes, insurance, necessary repairs, and payments of principal and interest on mortgages and other liens. Id. at 1035-1036; Southern Adjustment Bureau, Inc. v. Nelson (1964) 230 Cal. App. 2d 539, 539-541; Hunter v. Schultz (1966) 240 Cal. App. 2d 24. As stated by the court in Wallace: "[e]very partition action includes a final accounting according to the principles of equity for both charges and credits upon each cotenant’s interest. Credits include expenditures in excess of the cotenant’s fractional share for necessary repairs, improvements that enhance the value of the property, taxes, payments of principal and interest on mortgages, and other liens, insurance for the common benefit, and protection and preservation of title." Id. at 1035-1036.
Therefore a cotenant should be entitled to credit for any expenditures he has made on the property which fall into one of the above mentioned categories. In fact, given that partition actions are governed by broad principles of equity jurisprudence, a cotenant could make an equitable argument for credit for virtually any expense he has incurred in connection with the property.
Down Payments and Purchase Price
The In re Marriage of Leversee (1984) 156 Cal. App. 3d 891 case involved a married couple who prior to marriage had purchased a residence as joint tenants. Id. at 894. The court of appeal held that the lower court erred when it characterized the property as community property, and that the property’s disposition must be pursued in a partition action. Id. at 897. The court stated that in such a partition action “the court may order an equitable compensatory adjustment to compensate [the plaintiff] for her use of separate funds for the down payment on the residence.” Id. Similarly in Demetris v. Demetris (1954) 125 Cal. App. 2d 440 where one cotenant had paid more than his fair share of the purchase price the court held that the cotenant was entitled to a credit. Id. at 444 - 445. Therefore, one cotenant may be awarded credit for having paid more than her share of the down payment or purchase price.
Interest on Payments Made
If one cotenant makes payments and is entitled to credit for such payments, the cotenant may also be entitled to interest on the payments made. However, a cotenant is only entitled to interest on payments made after she makes a demand on her cotenant for contribution. The court in Willmon v. Koyer (1914) 168 Cal. 369 stated the rule: “a tenant making payments is only entitled to interest after a demand on his cotenant for contribution.” Id. at 374. Therefore, unless a paying cotenant made a demand to the other cotenant for contribution, the paying cotenant would not be entitled to any interest on payments he has made.
Tenants in common have the right to occupy the subject property. Brunscher v. Reagh (1958) 164 Cal.App.2d 174, 176. When one tenant in common occupies the property, the out-of-possession cotenant is generally not entitled to recover the imputed rental value of the property from the cotenant in possession. See e.g. Id. at pages 176–177. There are three exceptions to this rule under California law: (1) when there is an agreement between the cotenants to share the rents and profits from the property (Black v. Black (1949) 91 Cal.App.2d 328, 332); (2) when one cotenant has been ousted from possession by the other (Estate of Hughes (1992) 5 Cal.App.4th 1607, 1611–1612); or (3), in a partition action, when recovery of the imputed rental value by the cotenant out of possession would be “just and consonant with equitable principles.” (See Hunter v. Schultz (1966) 240 Cal.App.2d 24, 32.)
Method of Awarding Credits and Adjustments
The court in Southern Adjustment Bureau, Inc. v. Nelson (1964) 230 Cal. App. 2d 539 discussed the method of awarding credits and making adjustments. The court stated that “[w]hen 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 be reimbursed his entire advancement before the balance is equally divided.” Id. at 541. Therefore, a cotenant will be entitled to a reimbursement for any credits or adjustments before the balance of any proceeds is divided between the two cotenants.
A Non-Paying Cotenant's Potential Counter Arguments
A non-paying cotenant may argue that he and the paying cotenant had an implied or oral agreement that he perform domestic or other services which would constitute the non-paying cotenant's share of the upkeep of the property. Cases such as Marvin v. Marvin (1976) 18 Cal. 3d 660 and Milian v. De Leon (1986) 181 Cal.App.3d 1185 generally hold that non-married couples can enter into such agreements. If a non-paying cotenant were able to establish such an agreement, he could claim entitlement to credits and adjustments for his services.
If one of the cotenants was in exclusive possession of the property for a period of time, then the out-of-possession cotenant may also claim a defensive offset for the reasonable value of the in-possession cotenant’s use of the property while in exclusive possession. While a cotenant cannot bring a separate action for the rental value of a cotenant’s exclusive use, California courts have allowed defensive offsets where the tenant in possession is claiming credits and adjustments for improvements and/or upkeep of the property. Hunter v. Schultz (1966) 240 Cal. App. 2d 24. A tenant in possession could counter argue that it would be inequitable to credit one cotenant for the use of the property by the other since both cotenants are entitled to possession. See Yakavonis v. Tilton (1998) 93 Wash. App. 304, 311-312.
If the court orders a division or sale, then a paying cotenant will be entitled to an accounting and compensatory adjustments for expenditures in excess of his fractional share for necessary repairs, improvements that enhance the value of the property, taxes, payments of principal and interest on mortgages and other liens, insurance for the common benefit and protection and preservation of title. The paying cotenant will be entitled to these credits and adjustments before the proceeds of the sale are divided between the two cotenants.
The above discussion is intended to be a general commentary on legal issues. Each situation is different and this article is not intended as legal advice. Further, nothing in this article is intended to create an attorney-client relationship.