A basic guide to partition actions in California
In some cases it is inevitable. People go into business together with the best of intentions. Instead of renting retail or commercial space for the new venture, they decide to buy a property. Or, after years of leasing commercial or retail space, they decide the business is doing well enough that buying a property to house it makes more sense.
At some point, everything goes sideways. Disagreements become disputes. One of you wants to sell the property but the other doesn’t. It’s a stalemate. Or is it? Read on to find out.
Filing a partition action
If you are unable to convince your business partner to sell the Los Angeles real estate in question, you may have legal recourse. As a joint owner, you can look into filing a partition action. You have the right to pursue this option as long as you have not agreed to waive it for a “reasonable” term.
A partition action is a lawsuit in which you can seek a court order for:
- The sale of developed property or
- Reasonable division of undeveloped property
- Partial division and sale
The process begins when your lawyer files a complaint in the county where the property is located.
As per § 872.230 of the California Code of Civil Procedure the complaint must include certain information. Among other things, it should detail:
- The street address and legal description of the property
- Your actual interests in the property and/or your assertions regarding any interests in the property
- The names of anyone else who has interest in the property, may claim interests in the property or who would otherwise be affected by the lawsuit
- The “estate as to which partition is sought and a prayer for partition of the interests therein”
- A brief explanation as to why you are requesting the sale of the property
This document is then delivered to all of the defendants in the case.
The next step is to submit a Notice of Pendency, or lis pendens, to the County Recorders Office. This document, which must also be filed with the complaint, lets anyone interested in the property know a legal action is ongoing. The court only withdraws the notice once the partition occurs or the complaint is dropped.
Right to partition and hiring a ‘referee’
A partition lawsuit begins in earnest when the court confirms or denies your right to partition. As noted above, you generally have this right as a co-owner unless you have waived it.
If the court confirms you have the right to seek the partition it will issue an “interlocutory judgment.” It notes the interests that the parties have in the property, orders the division of the property and usually specifies the manner of partition.
In most cases there is no disagreement regarding the right to partition or the parties’ interests in the property. When this happens the parties can usually agree to a satisfactory interlocutory judgment without the need for a hearing.
Next is the court appointment of a referee to divide or sell the property. You and your business partner must approve this appointment. With your blessing, the court will give the referee his or her marching orders. These will likely depend on the type of partition.
Partition by sale
There are several methods for partition. These are partition by division, partition by appraisal and partition by sale. For the purposes of this discussion, we will focus on partition by sale.
This happens when the court determines that sale and division of the proceeds is the best solution. Once it makes this determination, the court can order the property to be sold either by public auction or by private sale, or some combination thereof. The court can also determine the terms and conditions for the sale if you and your business partner cannot reach consensus on this issue.
As its name indicates, sale by public auction is an open auction. On the other hand, a private sale allows interested bidders to submit bids to the referee by a specified deadline. You and your business partner may participate in the sale, but the referee and your attorneys are precluded from doing so.
Once all of the bids are in, the referee reports to the court, and the court may approve or reject the sale. If the court rejects the sale, a new bidder may submit his or her bid (for a higher amount) for the court’s consideration at the hearing.
You and your business partner will receive the proceeds from sales after funds are used to:
- Pay for expenses associated with the sale and partition
- Settlement of any outstanding financial obligations.
As you can see, partition is a long and often costly process. If you are considering this option, you need an experienced lawyer on your side. Contact the Law Office of Parag L. Amin, P.C. to learn how we may be able to help you, today.