This article discusses the recoverable costs, fees, and reimbursements available in a real property partition lawsuit in California. This article follows-up on a prior article by the same author containing an introduction to the real estate partition process and discussing the mechanics of how a Partition Referee is appointed and sells real property. (Originally published in the Journal of the Western San Bernardino County Bar Association, January 2018.)
Introduction to Partition of Real Property
In California, joint owners to real property may file a lawsuit seeking to have their joint interest in the property partitioned. Code of Civil Procedure section 872.210. Partition actions follow an unusual procedure in that the court conducts an initial trial to determine whether the plaintiff has a right to partition the real property. Code of Civil Procedure section 872.210. If the court determines that there is a right to partition the property, the court enters an interlocutory judgment for partition. Code of Civil Procedure section 872.720. This interlocutory judgment for partition determines the interests of the parties in the property, orders the partition of the property, and determines the method of partition. In this interlocutory judgment for partition, the court is authorized to either divide the property between the joint owners or order its sale. Code of Civil Procedure section 872.810, et seq. Only after the partition is completed and all costs adjudicated is a later final judgment entered by the court.
Once the court has determined that real property is to be partitioned, the court is authorized to appoint a Partition Referee for the purpose of handling the actual partition of the property. Code of Civil Procedure section 873.010. After the Partition Referee has sold the property, the law allows claims for costs, fees, and expense reimbursements by the parties against the sale funds being held by the Partition Referee.
Summary Of Recoverable Legal Fees And Costs
California has a well-established body of statutory and decisional law dealing with apportionment of costs and legal fees in a partition action. The basic rules are set forth in Code of Civil Procedure sections 874.010 through 874.140. The default rule is that allowable costs and fees are to be apportioned by the court among the owners “in proportion to their interests or make such other apportionment as may be equitable.” Code of Civil Procedure. section 874.040. For example, if the owners each own a fifty percent interest in the property, then each owner would be apportioned fifty percent of the recoverable costs, unless the court finds that equitable considerations require a different division.
Allowable categories of costs are set forth in Code of Civil Procedure section 874.010 and include:
a. Reasonable attorney’s fees incurred or paid by a party for the common benefit
b. The fees and expenses of the referee.
c. Compensation for surveyors or other persons employed by the referee
d. The reasonable costs of a title report
e. “Other disbursements or expenses determined by the court to have been incurred or paid for the common benefit.”
Costs apportioned by a court may be ordered paid in whole or in part prior to judgment, or they may be included and specified in the judgment. Code of Civil Procedure section 874.110. Unpaid costs shall be a “lien on the share of the party specified” and shall have priority over any other lien on the share except those imposed by the statutes dealing with partition. Code of Civil Procedure section 874.120.
Proceeds of the sale generated by the partition shall be applied in the following order:
a. Payment of the expenses of sale
b. Payment of the other costs of partition
c. Payment of liens on the property in their order of priority except for those liens that are to remain on the property
d. Distribution of the residue among the parties in proportion to their share as ordered by the Court
See, Code of Civil Procedure. section 873.820.
The most commonly-litigated issue is claims for attorney’s fees for the prevailing party. Code of Civil Procedure section 874.010(a) creates an allowable category of recoverable costs for “reasonable attorney’s fees incurred or paid by a party for the common benefit”. The plain language of the statute allows recovery for both paid and unpaid fees. Case law is clear that attorney’s fees incurred by the party successfully seeking partition are treated as being incurred for the “common benefit”. See, Lin v. Jeng, 203 Cal.App.4th 1008 (2012). Accordingly, the successful party seeking partition can make a claim for reimbursement of attorney’s fees from the proceeds generated by the sale. That party would still be required to pay his or her own proportionate share of attorney’s fees corresponding to the owner’s interest in the property. There is, however, a split of appellate court authority dealing with whether the court has the authority to order the division of fees by some method other than a proportion of the parties’ interest in the property.
Historically, the law allowed division of prevailing party attorney fees only in proportion to the interests in the property. See, for example, Capuccio v. Ciare, 215 Cal. 218 (1932). This was based on the then-current language of the statute found in Code of Civil Procedure section 796. In 1976 the statutory scheme was amended to create the current-day Code of Civil Procedure sections 874.010 and 874.040. Current section 874.040 allows the court to apportion costs either “in proportion to their interests” or “such other apportionment as may be equitable.” The split in appellate court authority deals with whether the court has authority to apportion attorney fees in a manner other than in proportion to the ownership interest.
Finney v. Gomez, 111 Cal.App.4th, 3 C.R.3d 604 (2003) held that a trial court can only deviate from proportional apportionment “where the interest of the parties in all items, lots, or parcels of property are not identical.” The later case of Lin v. Jeng, 203 Cal.App.4th 1008 (2012), analyzed this issue and came to the contrary conclusion. The Lin court held that
“[t]here is no ambiguity in the language of section 874.040. It simply states that the trial court must apportion the costs incurred in a partition action based on either the parties’ interest in the property, or equitable considerations. The statute’s broad language does not limit the trial court’s equitable discretion, and we decline to follow Finney by doing so.” [emphasis present in original.]
Thus, current case law does not create a simple set of rules for the court to follow relating to apportionment of costs. In that context, though, it is worth reviewing the facts that caused the court in Lin v. Jeng to apportion the partition-related fees against the interests of one party rather than in proportion to the ownership interests. In that case, one sibling utilized her knowledge of real estate to file a false grant deed awarding her 85% of a real property, thus depriving her siblings of their ownership share of the property. Also, when the partition action was filed, it did not include as parties all owners of the property, resulting in the siblings being required to file a complaint in intervention to protect their interests in the property. Thus, in the Lin case, the actions cited by the court involved both (1) active misdeeds intended to deprive another of property rights and (2) improper litigation actions that increased the cost to other parties.
Almost every partition action involves a dispute between owners about whether the property should be sold or not. The refusal of one co-owner about whether to sell the property is the trigger for filing a partition action; it should not be the justification for apportioning 100% of the attorney’s fees on the owner who does not want to sell. If that were the case, then the statute would simply apportion fees to the prevailing party in all cases. In order to successfully seek apportionment of attorney’s fees in a manner other than the proportionate interests of the owners, the successful party will need to show facts that allow the court to exercise equitable discretion to impose costs outside the proportion of ownership interest in the property.
Recoverable Costs And Expenses For Property-related Expenditures
Often in a partition action, the parties seek to recover for property-related expenditures that were paid during ownership of the property or to account for one owner’s exclusive use of the property. These are treated as claims against the sale proceeds generated by the sale of the property.
Code of Civil Procedure section 872.140 allows the court to “order allowance, accounting, contribution, or other compensatory adjustment among the parties in accordance with the principles of equity”. The Law Revision Commission Comments to this section specify that its intent is to allow courts to make adjustments among the owners for “such items as common improvements, unaccounted rents and profits, and other matters for which contribution may be required.”
As summarized by the Court in Wallace v. Daley, 220 Cal.App.3d 1028, 1036 (1990):
“Every partition action includes a final accounting according to the principles of equity for both charges and credits upon each co-tenant’s interest. Credits include expenditures in excess of the co-tenant’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.”
In partition actions that involve one owner in possession of the property and another owner not in possession of the property, claims are often made relating to the value of occupancy of the property. This can be a difficult area to resolve because the facts are not always clear, and there are often competing claims of abandonment or ouster relating to property occupancy.
The general rule in cases between co-owners is that co-owners cannot make a claim for the implied rental value of exclusive possession by one co-owner unless the co-owner out of possession can show an actual ouster. Estate of Hughes v. Patton, 5 Cal.4th 1607 (1992). Miller and Star, California Real Estate 3d “Holding Title” section 12:19 and 12:4. “An ouster, in the law of tenancy in common, is the wrongful dispossession or exclusion by one tenant of his cotenant or cotenants from the common property of which they are entitled to possession.” Zaslow v. Kroenert, 29 Cal.2d 541, 548 (1946). This requires a factual inquiry, and, as one court has noted, “[t]he practical borderline between privileged occupancy of the whole by a single cotenant and unprivileged greedy grabbing which subjects the greedy one to liability to his cotenants is not crystal clear.” Estate of Hughes, supra, 5 Cal.4th 1607 at 1612, quoting the treatise Powell, The Law of Real Property section 603 (1982).
However, even if the co-tenant cannot show actual ouster, in a partition action, the reasonable rental value enjoyed by the tenant in possession can be used to offset claims by the tenant in possession for the cost of expenses paid for the common benefit on the property (such as improvements, repairs, and the like). Hunter v. Schultz, 240 Cal.app.24 (1966). Notably, although the court may allow this type of offset, the court is not required in all cases to apply such an offset. Milian v. DeLeon, 181 Cal.App.3d (1986). Decisions in these cases are always fact intensive.
Courts can, and often do, request the Partition Referee to sort through these claims and make a recommendation to the Court about these issues. Statutory authority for this type of recommendation is found in Code of Civil Procedure section 872.630, which allows the Court to empower the Partition Referee to conduct fact finding investigations involving the “attendance of witnesses, the production of books, documents, or things, and the filing of verified claims” and to later make a report to the Court.