Co-Ownership Agreement for Property in California: Tenant's Fractional Ownership & Ongoing Expenses

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Often, people do not understand the differences in the various forms of property co-ownership until it is too late to change them. When it comes to California real estate, there are a few ways people can enter into a co-ownership agreement to own a property. Individuals and entities can be joint tenants, and how they hold title to a property can depend on several factors. Co-ownership of real estate is prevalent in California, but it can also occur with other types of assets.

Various Types of Co-Ownership

The terms co-ownership, co-tenancy and concurrent ownership describe types of ownership of real estate property by two or more people or entities. In California, the four types of co-ownership are: tenancy in common, joint tenancy, partnership and community property. In addition to these forms of property co-ownership, a common interest development, or CID, is the co-ownership of condominiums, townhomes, co-ops, units in retirement communities, vacation timeshares or another type of structure that is individually owned with shared facilities and common areas.

Defining Tenancy In Common

Tenancy in common (TIC) describes co-ownership of property by people who aren't married couples or registered domestic partners. Joint tenants who buy property together own it under this definition, unless a deed or other conveyancing instrument says otherwise. Tenancy in common is the default definition of co-ownership between parties who also aren't explicitly joint tenants or partnerships.

The key features of tenancy in common are:

  • The right to ownership and transfer of property: TICs own equal or unequal interests in the property and can acquire interests from different sources at different times. They have the right to sell or encumber their portion of the property without the knowledge, approval or consent of their co-tenants, but a TIC cannot convey another co-tenant's interest. 
  • The right to equally occupy the entire property: All TICs have an equal right to possess and use the whole property unless another co-ownership agreement exists in writing. Co-tenants cannot keep one another from any part of the property they own together, nor can they collect rent from one another. 
  • TICs and survivorship rights: When a co-tenant dies, his interest in the property passes to his heirs or whomever else he leaves his portion of the property to.
  • A right to share in profits from the property: Rent received for the property belongs to all co-owners proportionate with their interest in it. TICs also share the responsibility for operating and maintenance expenses of the property, but cannot require other co-tenants to reimburse them or contribute to improvements. All tenants in common are responsible for property expenses such as taxes, mortgage payments and necessary repairs, but if one person pays the entire expense, the others must reimburse her with an amount equal to their share of ownership. 
  • A right to partition the property: Unless there are unique circumstances, TICs can partition all jointly owned property. This means a TIC can terminate and divide into separate and exclusive individual interests by sale, physical division or appraisal.  

Defining Joint Tenancy

Joint tenancy is the co-ownership of property by two or more individuals or entities made by a single transfer declaring this particular form of ownership. It must convey the same title at the same time to the same interest with the same right of equivalent possession. A transfer that does not express these four "unities" creates a tenancy in common and lasts only as long as time, title, interest and possession exist.

Joint tenancy is different from tenancy in common regarding the right of survivorship. Upon a joint tenant's death, her interest in the property passes to the surviving joint tenant or tenants by law. This has pros and cons to it. While allowing the deceased's interest to avoid probate, it prevents her from bequeathing her share of the property to any heirs or anyone else she might want to leave the property to.

Defining Partnership

People or entities can acquire property together through a partnership, which means they can co-own it as a business for profit. A property is under a partnership if acquired in the name of that partnership by one or more of the co-owners. When a partnership wishes to acquire a property, there must be either an indication in the transfer document of an individual's capacity as a partner or of the existence of the partnership itself.

A partnership is a distinct entity and the property purchased belongs to the partnership, not to any individual parties in that partnership. Individuals cannot be co-owners of the property or have an individual interest in it — they are partners in the partnership that holds title.

Defining Community Property

California law defines community property as property acquired by married persons or registered domestic partners while living together. If the property was purchased during a valid marriage or domestic partnership and not before the union was formed, both spouses own it. They have equal rights to possess, manage and control the property.

One spouse cannot transfer ownership of the property without the consent of the other. Unlike other types of property co-ownership, spouses and registered domestic partners are trustees. They, therefore, owe one another the duty to act in the "highest good faith and fair dealing." This includes care and loyalty in all matters concerning that property.

Common Interest Developments and HOAs

A community interest development describes the ownership of varying structures, including single-family detached houses, two-story townhouses, garden-style units and apartment-like, multistory high rises. CIDs are popular among homeowners who wish to enjoy amenities they may not be able to afford if they owned an individual property. A CID allows individual owners the use of shared facilities and allows for a system of self-governance through a homeowner's association (HOA), the most common type of which is the nonprofit mutual benefit corporation. Individual unit owners automatically become members of the association when they buy the property.

To address the maintenance issues of these common-interest amenities, residents of a CID typically pay a monthly fee to their HOA. They are often limited as to what they can do to their own unit by the HOA, which makes decisions about everything from monthly dues, pet ownership, yard appearance, exterior paint, landscaping, mailbox, noise and fences, among other issues. An HOA can levy fines or file lawsuits against property owners for not paying monthly dues, to enforce HOA rules, or to seek financial reimbursement for damages to common areas., with the more technical aspects of the HOA seen to by property management companies.

Ongoing Expenses

Regarding ongoing expenses after a co-owned property is acquired, all tenants in common are responsible for property expenses such as taxes, mortgage payments and necessary repairs. However, if one co-owner pays the entire expense, the others must reimburse her with an amount equal to their share of ownership.

Before Co-Owning a Property

Often, because the individuals interested in owning a property are friends or family, they do not put things in writing when making the commitment to co-own a property. Anyone interested in co-ownership must understand their responsibilities and obligations before formally entering into an agreement. There are many things to consider, including management, improvement, and how taxes and expenses get paid. Unforeseeable circumstances can cause disagreements between individuals or entities in property co-ownership and they will occur from time to time, so creating a written agreement with the co-owners intents, rights and obligations to each other is the best way forward to avoid conflict.

When disagreements do arise, co-owners should first look to their agreement to determine their rights and obligations to each other. If there is no co-ownership agreement or there is one, but the issues between the entities involved aren't something they can work out, all parties have a right to seek a judicial order to divide the property equitably.