Co-Owner Rights in Property Improvements

Many of our clients own residential or commercial properties as joint tenants or tenants in common with business partners, family members, or significant others. Over the years of co-ownership, they may have expended tens of thousands of dollars on mortgage payments, taxes, insurance, maintenance, repairs, and improvements.

In the complex world of real estate co-ownership, understanding your rights regarding property improvements is crucial. The California Court of Appeal case, Wallace v. Daley (1990) 220 Cal.App.3d 1028, provides important guidance on this issue. Let’s break down the key points and what they mean for co-owners.

Case Summary: Wallace v. Daley

In Wallace v. Daley, the plaintiff (Wallace) initially rented a property and later acquired a one-third ownership interest in the property. Both Wallace and her predecessor in interest (her father) made substantial improvements to the property. When the property was to be sold and the proceeds divided, the court had to determine how to account for these improvements.

Key Rulings:

1. Improvements by Predecessor: The court ruled that a co-owner is entitled to credit for improvements made by their predecessor in interest, regardless of whether the property is divided or sold.
2. Tenant Improvements: However, the court also held that improvements made by a co-owner while they were a tenant under a prior lease agreement may not be credited if the lease terms preclude it.
3. Equity Considerations: The court emphasized that partition actions are governed by principles of equity, and courts must safeguard the rights of all co-owners when making determinations.

What This Means for Co-Owners:

1. Credit for Predecessor’s Improvements: If you acquire a co-ownership interest in a property, you may be entitled to credit for improvements made by the person from whom you acquired your interest, even if you didn’t pay for those improvements yourself.
2. Caution with Tenant Improvements: If you’re a tenant who later becomes a co-owner, be aware that improvements you made as a tenant might not be credited to you, especially if your lease agreement addressed this issue.
3. Importance of Agreements: The terms of any agreements you enter into regarding the property––whether lease agreements or co-ownership agreements––can significantly impact your rights regarding improvements.

Lessons for Co-Owners:

1. Document Improvements: Keep detailed records of any improvements made to the property, including who paid for them and when they were made.
2. Review Agreements Carefully: Before entering into any agreement regarding a property–– whether as a tenant or co-owner––carefully review and negotiate the terms regarding contributions made towards mortgage payments, taxes, insurance, repairs, maintenance, improvements, as well as reimbursements, credits, and setoffs. The agreement should also provide how the co-owners will deal with tax reassessments triggered by transfers of the property or improvements to the property.
3. Communicate with Co-Owners: Discuss and agree upon how improvements will be handled before making them.
4. Seek Legal Advice: Given the complexity of these issues, it’s often wise to consult with a real estate attorney before making significant improvements to co-owned property or entering into an arrangement to co-own property with business partners, family members, or a significant other.

Remember, while Wallace v. Daley provides important guidance, each situation is unique. The specific facts of your case, the terms of any agreements you’ve entered into, and changes in the law could all impact your rights.

If you co-own property and have questions about your rights regarding improvements, don’t hesitate to contact our firm. We can help you navigate these complex issues and protect your interests.

Please note that the content provided on this website is for general information only; it is not intended to be and should not be construed as legal advice. If you need assistance understanding or negotiating your lease, please reach out to Valerie Li Law, A Professional Corporation, to schedule a consultation.