What Happens When There Are Multiple Owners of a Property, and One wants to Sell?
It is not uncommon for properties to have more than one owner. In many cases, especially with larger commercial properties, the owners might not be individuals but different corporations. Even residential properties may have multiple owners. These owners could be spouses, family members, or even individuals sharing a property, whether it is the place they intend to live or it is the place they intend to rent out.
Whenever you have two more people or entities working together, at some point, there is going to be some conflict when the owners cannot agree on the best way to proceed in a specific circumstance. In many cases, there may be a compromise. However, compromise may not always be an option, especially when the disagreement is that one person wants to sell the property and the other doesn’t.
The easy solution to the problem is that the person who doesn’t want to sell can buy out the person who does.
The parties can accomplish this in the standard ways that real property is sold, such as a warranty deed or even a bargain and sale deed. In some cases, when the owners are family members, they may utilize a Quitclaim Deed.
Having one person or entity buy out the other may not be viable. For example, the person who wants to retain the property may not be able to afford it or may not secure the finances required for buying out the seller, especially at a time, such as in early 2022, when interest rates have climbed significantly.
Things can get complicated if the parties cannot come to an agreement and the party looking to sell files a partition action. A partition action is a lawsuit pertaining to the joint owners of real property. When the owners cannot agree on the disposition of the property, then one owner may file a partition action to rely on the court to resolve the issue. When a party brings a partition action to the court, the person looking to sell the property must show significant cause for wanting to sell the property.
If the court finds for the person who brought the action, in most cases, the court’s order will be to sell the property and have the proceeds divided according to the percentage of ownership. In some cases, it may be possible to divide the property. However, this is a rare case since you can’t split a house or a building. Even on an undeveloped property, there may be issues such as zoning laws or local statutes preventing the subdivision of the property. For example, in the Long Island Village of Muttontown, zoning laws require that residences in certain zones be of a minimum lot size ranging from a half-acre minimum lot to a 5-acre minimum lot.
There are times when a court may not be able to force the sale of a property.
The court may not be able to order the sale if there is a written, legally binding agreement between owners on how and when the property may be sold. In other cases, the parties may not directly own the property. In many cases, a separate LLC is formed. Each party will have a share of ownership, but technically, the LLC owns the property. When an LLC owns the property, one person may not have the legal ability to sell their stake in the property. Instead, they will have to follow the rules and guidelines as stated in the LLC’s documentation regarding the sale of the property.
Even under the best of circumstances, selling real property can be long and frustrating. In addition, when multiple individuals own real property, having one of the owners sell either to the other owner or a 3rd party can be a legally complicated process that can lead to the somewhat rare occurrence of a real estate deal ending up in court.
If you have questions regarding selling your interest in a property you own with others, or your partner is looking to sell their stake, call Taub and Bogaty. When it comes to buying and selling property, details are vital. So let us sort through the details and make the process as easy as possible.