Dissolution of Joint Ownership in Real Estate

Dissolution of joint ownership in real estate is the process by which co-ownership of an apartment, a family property or land comes to an end. As a rule, the law grants every co-owner the right to demand dissolution of the joint ownership. Dissolution may be carried out by agreement – through division in kind, the purchase of one co-owner's share, or a sale on the open market – and, absent agreement, by filing a claim for dissolution of joint ownership before the competent court.

Joint ownership of a property may arise from a joint purchase, inheritance, a relationship, an investment or a business partnership. As long as the owners agree, the property can be managed, leased or sold. When relations break down, the co-ownership may become an ongoing source of dispute: who will use the property, who will pay the expenses, whether to lease it, how to determine its value and when to sell.

The manner in which the joint ownership will be dissolved – division in kind, purchase of a co-owner's share, sale to a third party, or sale within judicial proceedings – depends on the type of property, the feasibility of division, the agreements in place, the registered rights, and the family and planning circumstances.

The Or Rovner Law Office represents clients in dissolution-of-joint-ownership matters, both by agreement and in legal proceedings, including properties held among family members, heirs, former spouses and business partners.

Attempting Dissolution by Agreement

Before filing a claim, it is advisable to examine whether an agreed arrangement can be reached. An agreement may provide that one co-owner will purchase the other's share based on an appraisal, that the property will be sold on the open market through a broker, that a minimum price will be set, that expenses and rent will be allocated, or that division in kind will be carried out where that is possible.

An agreement allows the parties to control the price, the timetable and the costs, and reduces the risk of a forced sale. To prevent new disputes, the arrangement should regulate the appraisal mechanism, payment dates, financing, taxes, vacating the property, use of the property, and the consequences of failing to comply with the arrangement.

A Claim for Dissolution of Joint Ownership

Where there is no agreement, a claim is filed with the competent court. Which court has jurisdiction depends on the nature of the relationship and the source of the dispute; disputes among family members may be heard by the Family Court, while other cases will be heard by the Magistrates' Court or another forum as provided by law.

The claim sets out the rights in the property, the state of registration, the manner of use, the agreements between the parties, the feasibility of division and the ancillary remedies. The defendant may raise arguments regarding the manner of dissolution, the accounting between the parties, the validity of agreements, residency rights and other issues, but a general objection to a sale does not necessarily prevent the dissolution of the joint ownership.

The Main Routes to Dissolution

Division in Kind

Where the real estate can be divided into separate parts physically, in planning terms and legally, there is a principled preference for division in kind. The process may require a plan (survey drawing), planning approvals, measurement, balancing payments and appropriate registration. In a residential apartment registered as a single sub-parcel, a physical split does not in itself create two registered units; the permit, planning and registration position must be examined.

Sale and Distribution of the Proceeds

Where the property cannot be divided, or where division would cause considerable loss, the joint ownership may be dissolved by way of a sale and distribution of the proceeds according to the parties' rights, after the required accountings. The court may determine the method of sale that appears efficient and just in the circumstances.

Purchasing a Co-Owner's Share

Sometimes one co-owner wishes to remain in the property and purchase the other's share. This may be agreed upon, or a competitive bidding mechanism may be considered. A valuation, financing capability and a clear timetable are required. The fact that a co-owner lives in the property does not automatically grant them a right to purchase it at a reduced price.

Appointment of a Receiver

Where the parties are unable to carry out the sale themselves, the court may appoint a receiver. The receiver acts under supervision, commissions an appraisal, advertises the property, receives offers, conducts a competitive bidding process and seeks approval of the sale. After payment of the debts and expenses, the balance is distributed among the owners.

Ancillary Remedies and Accountings

Dissolution proceedings sometimes involve additional financial disputes:

• Fair use fees where one co-owner makes exclusive use of the property
• Allocation of rental income and other revenues
• Reimbursement of mortgage payments, municipal tax, building-committee dues, insurance and repairs
• Investments and improvements made by one of the co-owners
• Debts encumbering the property
• Betterment (capital gains) tax, betterment levy and the costs of the sale
• Claims of set-off or of prior agreements

What Does the Process Look Like in Practice?

• Gathering documents and examining rights: land registry extract, co-ownership agreement, purchase or inheritance documents, mortgage, lease agreements and payments.
• Valuing the property and the alternatives: an initial appraisal, examining the feasibility of division, an internal purchase or a sale on the open market.
• Approaching the other side for a settlement: a written proposal including price, appraisal mechanism, dates and accounting.
• Filing a claim: if no agreement is reached, a claim for dissolution of joint ownership and the appropriate ancillary remedies is filed.
• Determining the method of dissolution: division in kind, competitive bidding, a supervised sale by the parties, or appointment of a receiver.
• Realisation and distribution of funds: payment of debts and expenses, determination of the accountings, and distribution of the balance according to the parties' rights.

The duration of the process depends on the extent of the dispute, the number of co-owners, the need for an appraisal, the state of registration and the level of cooperation. Agreeing in advance on an appraiser, a minimum price and a timetable can save a considerable part of the process.

What Should Be Clarified Before Filing a Claim?

• Whether a co-ownership agreement or a family agreement exists that temporarily restricts dissolution
• Whether the rights are registered and whether all rights holders are known
• What the property is worth and what the mortgage and debts amount to
• Whether there is a genuine planning possibility for division in kind
• Who holds the property and who receives the rental income
• What payments and investments each co-owner has made
• Whether an interim remedy is needed to prevent a sale, a lease or a change to the property
• What the tax implications are, and whether a division agreement, an internal purchase or a sale is preferable

A Practical Example: An Heir Living in the Estate Apartment

Where one of the heirs lives in the apartment and the others wish to sell, it is not enough to say that he "has always lived there" or, conversely, to demand use fees automatically. It is necessary to examine when the exclusive use began, whether the other heirs agreed to it, who bore the mortgage and the expenses, whether a demand to vacate or to pay was sent, and what the value of the use is. These facts may affect the accounting, but they do not necessarily negate the right to dissolution of the joint ownership.

Dissolution of Joint Ownership Among Heirs

A property received by inheritance sometimes remains in joint ownership for years. Some heirs wish to sell, others wish to lease, and one of them may be living in the property. It is possible to reach an estate-distribution agreement, an internal purchase or a sale. Where the estate has not yet been distributed, or where an estate administrator has been appointed, the process must also be adapted to inheritance law and to the state of registration of the rights.

Dissolution of Joint Ownership Between Spouses

Where the property is jointly owned by spouses, the issue of dissolution may be integrated into overall property proceedings. The court also examines the children's rights, living arrangements, the balancing of resources, and special provisions relating to the family residence. The claim should therefore not be detached from the overall family picture.

From an Agreed Solution to Representation in Court

Dissolution of joint ownership requires a combination of real estate law, procedure, taxation and, at times, family and inheritance law. Early handling makes it possible to explore an agreed alternative; and if there is no choice, to conduct the proceedings in a way that protects the value of the asset and the client's rights.