Unless you are a real estate attorney, you may not know whether the fight you are having with your ‘partner’ over the commercial property that you both own should be solved through a partition lawsuit or a breach of partnership contract lawsuit. Are you and your family members who jointly own an apartment building or industrial warehouse really ‘partners’ in the eyes of the law or ‘co-owners’? What is the difference and how will that affect what type of real estate lawsuit you would file?
The easiest way to understand the distinction between partners and co-owners is in the way that title to the real property is held. Co-owners or ‘tenants-in-common’ are each individually on the property’s title. In the case of an inherited property, for example, title may be held in the name of ‘John Smith, Mary Smith and Allison Smith’. Each of these three co-owners has a one-third interest in the actual property. A dispute between the co-owners in which a co-owner wants to get out of the property will be addressed through a partition lawsuit.
Partners often hold property in the name of the partnership. If, for example, the same three individuals—John Smith, Mary Smith and Allison Smith—decided to form a partnership to hold their property, the title to the property may be held by the ‘Smith Family Partnership’ or ‘150 Main St., LLC’. Under California law, none of the three individuals actually owns an interest in the property and none of the individuals is on title. Instead of a real property interest, they have a personal property interest in the partnership or the limited liability company, which owns the real property. Any dispute between the partners will be addressed through a breach of contract (partnership agreement or limited liability company operating agreement) lawsuit, a breach of fiduciary duty lawsuit, an accounting or a partnership dissolution.
Anytime co-owners own a property together, the co-owners are entitled to file a partition action. A partition lawsuit does not necessarily mean that one of the co-owners breached a contract or embezzled money. It simply means that one of the co-owners wants to end his co-owner relationship and sell the property. In family partition actions, family members who have inherited partial ownership of a commercial building with their siblings often end up filing partition actions because they either need money or they are having an unrelated argument with their brother or sister.
Partners in a partnership (or ‘members’ in a limited liability company) where the partnership or LLC owns the property would not be entitled to file a partition lawsuit. The partners or members are not co-owners and are not on title to the property. Instead they would need to file a lawsuit for breach of contract, breach of fiduciary duty, accounting, dissolution or other related partnership action.
A partition lawsuit is typically straightforward in that there is a process set forward in the law as to how the lawsuit will proceed and how the action will be resolved. This usually …