With my primary areas of practice in estate planning, estates and real estate, co-owned real estate is a frequently discussed topic with clients. North Carolina recognizes three types of co-ownership in real estate. First, tenancy-by-the-entirety is a type of co-ownership in real property reserved exclusively for spouses. Tenancy-by-the-entirety has built in rights of survivorship and protections against the creditors of one spouse. Second, joint tenancy is a type of co-ownership for non-spouses with rights of survivorship which means when one co-owner dies, their share is automatically vested in the surviving owner/s. Joint tenancy in North Carolina at one time required an equal ownership among co-owners; however, an unequal ownership is now permitted. Lastly, tenancy-in-common is an ownership for non-spouses where, unlike joint tenancy, when one co-owner dies, their share passes via their Will or the North Carolina Intestate Succession Act.
How do clients find themselves as co-owners of real estate? Many times, it is by choice with a spouse or by non-spouses purchasing real estate together as a joint business venture or in the context of a romantic relationship. However, it is just as common for parties to become co-owners of real estate involuntarily, and sometimes even unknowingly, by inheritance. Involuntarily co-ownership in real estate is where most problems arise. Inherited co-ownership in real estate is usually as tenants-in-common. In some cases, co-owners may not be aware of their co-ownership. Additionally, with tenancy-in-common, co-ownership may evolve through successive deaths whereby the disposition of multiple estates is in question. The fractional interest in the real estate among co-owners can become quite complex in these cases and nearly impossible for a lay person to determine.
Tenants-in-common and joint tenants are typically responsible for their pro rata share of the expenses related to the real estate and entitled to their pro rata share of the income produced by the real estate. Additionally, they all have an equal right to occupy the property. Finally, no tenant-in-common or joint tenant can unilaterally sell the entire real estate. A tenant-in-common or joint tenant can sell their interest in the real estate but an undivided interest in real estate is typically not marketable. An undivided interest in property is a difficult concept for clients to understand. By way of an example, if you inherited an equal interest in real estate with a sibling, you own a fifty-percent undivided interest in the whole and not any particular fifty-percent portion of the real estate.
One common issue I come across in my practice is one co-owner paying the entire amount, or more than their share, of the taxes, insurance and other expenses associated with real estate. Another common issue is where one co-owner is occupying the property without paying rent and the other co-owners have no legal recourse to remove the “freeloading” co-owner.
The good news is that North Carolina does not force tenants-in-common or joint tenants to be forever tied in these unpleasant arrangements. Chapter 46A of the North Carolina statues allows tenants-in-common and joint tenants to petition the court for a partition of the property i.e. a court-ordered physical division of the real estate or a court-ordered sale and division of the proceeds. However, instituting court proceedings is typically not the quickest and most cost-effective option, so first attempting negotiation is often in the co-owner’s best interest.
If you have found yourself as a co-owner of real estate, sitting down with an attorney to understand the nature of your ownership and your rights, obligations and recourse is critical. Doing so as early as possible and before taking on sole responsibility for the expenses is in your best interest.
If you need advice on co-ownership in real estate, please call any one of our offices to schedule a consultation.
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