By ROBERT M. PARK
Uhl, Fitzsimons, Jewett, Burton & Wolff PLLC
I. Introduction
The purpose of this paper is to give a general overview of the main issues faced in surface co-tenancies. While the vast majority of cases today regarding co-tenancies deal with the mineral estate, conflicts between surface co-tenants still arise often enough that any real estate attorney or professional should be generally aware of potential pitfalls and ways to mitigate them.
This paper will first address the nature of co-tenancies, and how they are created, and then deal with the rights and obligations of co-tenants and partition. This paper will mainly focus on tenancies in common, and, due to a manageable scope, will not address community property issues.
II. What is a Co-tenancy?
Co-tenancy is defined as co-ownership of separate, undivided interests in land. Outside of the community property context, Texas recognizes two types of co-tenancies: the tenancy in common and the joint tenancy. However, Texas law highly favors tenancies in common over joint tenancies, although this was not always the case.
While tenancies in common and joint tenancies are both concurrent interests in real property, they are not synonymous in function. An interest in a tenancy in common “descends” to the heirs and beneficiaries of the deceased tenant and not the surviving tenants. Conversely, an interest in a joint tenancy “survives” to the remaining joint tenants, i.e., a joint tenancy carries with it the right of jus accrescendi, or survivorship, which immediately vest the interest of a deceased joint tenant in the remaining joint tenants.
The right of survivorship in joint tenancies is based on the legal fiction that the several joint tenants hold the property as one person. For this legal fiction to hold, a joint tenancy must be created and maintained under the four “unities” of time, title, interest and possession. This means that the joint tenants must have derived their title from a common source by one and the same act or instrument at one and the same time, and that each must have an identical interest that entitles them to one and the same possession. Tenancies in common only require one unity, being the unity of possession.
III. Creation of a Co-tenancy
This section will address the method of creating co-tenancies, and address how to determine whether a co-tenancy is a tenancy in common or a joint tenancy.
Co-tenancies are created whenever “two or more persons become vested with a mutual right to undivided possession of the same property.” This can occur when property is deeded, or otherwise passes (e.g. through intestacy or will), into more than one person or entity. When two or more persons joint in the purchase of land, in the absence of a stipulation to the contrary, they will own it as tenants in common in the proportion in which they respectively furnished the consideration. Additionally, a co-tenancy interest is created when a grantor purports to convey a specified area with undefined boundaries out of a larger tract. This vests in the grantee an undivided share in the land and not an interest in severalty.
While joint tenancies were the preferred co-tenancy at common law, joint tenancies in real property have been disfavored in Texas since 1848, when the Legislature passed article 2471 with the express purpose of abolishing joint tenancies with the right of survivorship.
The statute stated that a deceased co-tenant’s interest “shall not survive to the remaining joint owner or joint owners, but shall descend to and be vested in the heirs or legal representatives of such deceased joint owner in the same manner as if his interest had been severed and ascertained.” In 1927, article 2471 was remodified as article 2580 of the Texas Revised Civil Statutes.
Prior to 1939, Texas courts consistently held that these statutes effectively abolished the joint tenancy in Texas. In 1939, however, the Galveston Court of Civil Appeals held that article 2580 prevented the formation of joint tenancies by law, but parties could agree to create a right of survivorship among joint owners if there was an express agreement to that effect. In order to create a joint tenancy with a right of survivorship, the intent of the parties must be evidenced by an unambiguous written instrument that is clear and explicit in creating a joint tenancy with right of survivorship.
The holding in Chandler was codified into Section 46 of the new Texas Probate Code in 1955, which prohibited the creation of joint tenancies with rights of survivorship by operation of law, but permitted joint owners to agree in writing to create such estates. Although Section 46 of the Probate Code solidified the concept of creating a right of survivorship by agreement, it did not specify the proper or accepted wording of agreements to create joint tenancies. This omission created a great deal of confusion, especially in cases concerning survivorship accounts at banking institutions, but the results of which were equally applicable to real property.
The confusion surrounding the proper creation of survivorship accounts is seen in the case of Krueger v. Williams, 359 S.W.2d 48 (Tex. 1962). In Krueger, Ila Mae Kruger’s father purchased an investment account certificate from a savings and loan association and had it issued in his and her name. In addition, Mrs. Kruger’s father signed a receipt card stating that the certificate was payable to both “W.T. Williams and/or Ila Mae Krueger or payable to the survivor of either.” The question then became whether this quoted language was sufficient to create a joint tenancy agreement under Section 46 of the Probate Code (which applied to real property and bank accounts).
The Texas Supreme Court held that this language did not meet the statutory requirement for a joint tenancy with a right of survivorship, not least of which because Section 46 covered agreements among existing joint owners. The unities of time and title were not present and there could not be a true joint tenancy with right of survivorship in that case. Because the certificate and receipt card were not within the statute, the court did not require an express written agreement to create a right of survivorship if Mrs. Krueger did not join.
Instead, the court allowed for a rebuttable presumption of intent to grant the survivor the right to receive the account proceeds if the wording of the agreement indicated an express intent to do so. Because there was no evidence rebutting the presumed intent of Mrs. Krueger’s father in using the “payable to survivor of either” language, she was deemed the owner of the funds represented by the certificate of account.
The Krueger decision thus created common law rights to joint bank accounts outside of Section 46 of the Probate Code. This led to a series of cases attempting to construe contract language in payable-to-survivor accounts under the standard enunciated in Krueger.
In 1979, the Legislature enacted Section 439 of the Texas Probate Code, which specifically applied to joint accounts and provided a means for creating a right of survivorship in joint accounts. It required a written agreement signed by the deceased person providing that “the interest of such deceased party is made to survive to the surviving party or parties.” Notwithstanding this legislative change, courts of appeals were split as to whether extrinsic evidence was admissible and whether a party could rely upon the rebuttable presumption discussed in Krueger to establish a joint tenancy in a joint account.
The Supreme Court of Texas eventually resolved the split in Stauffer, concluding that (1) Section 439(a) was the exclusive means for creating a right of survivorship in a joint account, replacing the various other legal theories previously found in Texas jurisprudence; and (2) “Section 439(a) allows neither extrinsic evidence nor a rebuttable presumption to create a right of survivorship which is not established by a written agreement signed by the deceased joint account party.”
Meanwhile, during the time that Texas courts were wrestling with survivorship rights in joint bank accounts, two cases were announced concerning the creation of survivorship rights in real property. Spires v. Hoover, 466 S.W.2d 344 (Tex. Civ. App.—El Paso 1971, writ ref’d n.r.e.), is instructive as to the language that must be in the agreement concerning real property rather than bank accounts. In Spires, the court ruled a joint tenancy had been created as a result of an agreement that provided the following:
(1) Upon the death of either of us, the interest of the joint owner who dies will survive to the surviving joint owner and will not descend to, or be vested in, the heirs, devisees or legal representatives of such deceased joint owner.
(2) We shall henceforth hold and own the real property above described in the same manner as joint tenants with right of survivorship as at common law.
The court ruled that this language was sufficient under Section 46 of the Probate Code to create a joint tenancy.
In Terrill v. Davis, the court ruled that a joint tenancy had been created where an agreement provided the following:
In the event the First Party (Mrs. Mullican) shall die and while either or both of the Second Parties are still living, then the First Party does hereby give, grant, bargain, sell and convey unto the Second Parties or to whichever of them shall survive the First Party, all of the First Party’s undivided one-half interest in the aforesaid real estate and the improvements thereon so that the Second Parties, or whichever of them shall survive the First Party, shall thereafter have, hold and own the above described real estate and improvements and all personal property used in connection therewith free and clear of any claim of the estate of the deceased First Party.
The court determined that a right of survivorship had been created, noting that “the 1955 written contract clearly expressed the intention that the surviving joint owner should become vested with the fee simple title to said jointly owned property.”
Considering the foregoing, Texas jurisprudence on joint tenancies (outside the community property arena) evolved into two distinct bodies of law; one for joint tenancies in real property, and one for joint tenancies in bank accounts, including payable on death accounts and trust accounts. For real property, the applicable body of law is composed by cases applying Section 46 of the Texas Probate Code to real property. Any case applying or discussing the “rebuttable presumption of joint tenancy” test for bank accounts outlined by Krueger and its progeny should be disregarded as to any interest in real property.
While joint tenancies in real property have become increasingly rare in Texas and are difficult to create and sustain, it is still important to know the legal distinctions and background. Oil and gas exploration and development has led to increased litigation over the effect of many deeds and conveyances, and the author has personally seen attempts made to interpret deed language as creating joint tenancies in an attempt to enlarge one’s share of lease benefits.
That being said, the remainder of this paper will focus on the duties and rights of tenants in common.
IV. Rights and Obligations of Co-tenants
A. Possession and Accounting
Each co-tenant is treated legally as the owner of “all” the property. That is, each co-tenant has a right to possess and occupy the entire property, including developing and leasing the property and building improvements. As can be imagined, in practice this can, and often does, lead to conflict. If each co-tenant can “use” the entire property, how are disputes as to use to be resolved? While co-tenants, in the absence of an agreement to the contrary, do not have a fiduciary or agency relationship with the other co-tenants, there are certain common law obligations that exist to address this problem.
1. Care and Preservation
Each co-tenant has a duty to reasonably care for and maintain the common property, and is liable to the other co-tenants for his or her pro-rata share of such costs. If one co-tenant incurs a necessary expense for the care and preservation of the property (such as payment of liens, taxes, necessary upkeep, etc), such paying co-tenant is entitled to contribution from the other co-tenants and has an equitable lien to ensure payment. Additionally, the co-tenant who pays may recover interest from the date of payment on sums advanced for the benefit of the other co-tenants. This right of recoupment includes mortgage payments covering the common property. The statute limitations will not run against a co-tenant in connection with his claiming reimbursement for payment of taxes, insurance premiums and costs of preservation, as the right of contribution is continuous. However, this doctrine does not apply to indebtedness not related to the property.
However, if a co-tenant spends money beyond what is necessary to preserve and take care of the property, the non-joining co-tenants have no obligation to pay.
2. Improvements
Any co-tenant has the right to construct improvements on the common property, so long as such improvements do not negatively affect the rights of the other co-tenants. However, the non-joining cotenants are not obligated to contribute to the costs of such improvements.
However, upon partition of the common property, the co-tenant who paid for the improvements is entitled to have the improvements partitioned to him, if such can be done, or at least extra land or an owelty to make up the added value of the improvements, . Such compensation will be valued based on the enhanced value of the property, not the cost of the improvements.
On the other hand, if a co-tenant commits waste and decreases the value of the common property with the improvments, he must account to his co-tenants for such waste.
3. Sale/Liens
Any co-tenant may sell or convey his undivided interest in the property, but such sale will only convey an undivided interest, and the buyer or assignee will become a co-tenant with the other owners. Similarly, a co-tenant may encumber or mortgage his undivided interest in the property, but the lien will only burden such co-tenant’s undivided interest. Upon foreclosure sale, the purchaser will become a co-tenant with the other owners. However, in certain circumstances, a co-tenant may encumber the entire property, if it is necessary to preserve the common estate.
4. Rents and Income
What happens when a co-tenant develops or leases the property and begins to receive rents or income? While non-joining co-tenants are not obligated to pay for such improvements, nor join in any leases, they are entitled to an accounting and their pro-rata share of all rents and profits. The co-tenant receiving the rents must account to the other co-tenants and holds those rents in trust for his other co-tenants.
What about the situation in which one co-tenant is in possession and is using the property to the exclusion of the other co-tenants? In this situation, the co-tenant in possession does not have to account to the other co-tenants for rentals, as each co-tenant has the right to use the entire property. However, if the other co-tenants make a formal demand to be admitted to the possession in common, and such possession is refused, then the co-tenant in possession must account for the rental value of his use.
5. Easements
In interesting issue arising when one co-tenant grants an easement to a third party, such as a pipeline easement or access easement. Is the easement valid if less than all the co-tenants join in its creation? As a general rule, all co-tenants must join to grant a valid easement over an undivided co-tenancy. Cotenants ordinarily act for their own interests, not as agents for each other. However, a cotenant’s conveyance of an easement may be effective to burden the entire servient estate if it is proved that the other co-tenants consented to or subsequently ratified the transaction. The interest of the other co-tenants may become burdened by the easement through the easement claimant’s subsequent, adverse use of the servient estate under the terms of the grant.
B. Adverse Possession
Adverse possession in a co-tenancy poses its own unique issues. Because all co-tenants are entitled to use the entire property, the normal principles of adverse possession must function differently than against third parties. For example, how can a co-tenant know if another co-tenant’s use of the property is “hostile” or “adverse” if every co-tenant has the right to use the entire property?
As co-tenants share current possession of the property, the use of the “adversely” possessing co-tenant is presumed to be permissive. To negate this presumption, the adverse possessor can only prevail by showing three things: (1) there must be a clear repudiation (ouster) of the co-tenancy relationship and the instigation of an adverse claim; (2) this repudiation or ouster must be “brought home” to the other co-tenants, i.e., the other co-tenants must know about the repudiation; and (3) the adverse claimant must then show that the period of possession since the ouster or repudiation satisfies the statutory limitations period. To actually “bring home” notice of an ouster basically requires telling the other co-tenants or filing some document in the record.
Actual notice of the repudiation or ouster is not required, however. Notice may be inferred in certain situations. Change in the use and/or character of possession may give rise to such inference. Additionally, “such notice may be constructive and will be presumed to have been brought home to the co-tenant or owner when the adverse occupancy and claim of title to the property is so long-continued, open, notorious, exclusive and inconsistent with the existence of title in others, except the occupant, that the law will raise the inference of notice to the co-tenant or owner out of possession, or from which a jury might rightfully presume such notice.” That is, if one co-tenant has been in exclusive possession for a long time, and there has been “nonassertaion of claim by the other titleholders” that may be enough to show constructive ouster. “Nonassertion of claim” means the absence of any overt act of ownership on the part of the record owner which is inconsistent with notice of repudiation. Payment of taxes is an assertion of ownership.
How long is long enough? Three years and seven months was not considered enough by the courts, but twenty-four and twenty-seven years were.
C. Dissolution of Co-Tenancy
1. Partition
If a co-tenant wants out of the co-tenancy, and is unable to sell its undivided interest (which is often the case), what can such co-tenant do? The co-tenant can seek partition. Absent an enforceable implied or express agreement to the contrary, the right of a co-tenant to partition is absolute, though the courts will uphold agreements waiving the right to partition.
Partition can be accomplished by the consent of all the co-tenants without judicial involvement by either written agreement, oral agreement or by implication. A partition agreement does not need to satisfy the statute of frauds, as a partition is not a “conveyance” of property, but merely a dissolution of the co-tenancy. If the partition is to be accomplished by agreement, all joint owners must be included- otherwise the partition in ineffective as to all owners.
Partition by implication arises where each co-tenant occupies a certain tract of land in the common property and act as if the property had been partitioned.
If the parties cannot agree on a voluntary partition, or if one or more co-tenants do not wish to partition the property, any co-tenant may sue for a judicial partition. In order to force a partition, there are three prerequisites. First, each partitioner must be a joint owner. Second, each partitioner must be joint owners of the land to be partitioned. Third, the party seeking partition must have an equal right to possess the land with the other joint owners. All co-tenants must be joined in the action, otherwise the partition will be ineffective as to all owners.
An action for judicial partition is not subject to limitations, as the right to partition is continuous. Additionally, in a judicial partition a co-tenant cannot acquire a “higher” estate, that is, if a co-tenant owns an undivided life estate, such co-tenant will receive an interest in life estate once the partition is effected.
Judicial partition is governed by Sections 756-771 of the Texas Rules of Civil Procedure. According to this procedure, once a suit for partition is initiated, the first thing the court must do is (1) determine the ownership interest of each co-tenant; (2) determine the property that is to be partitioned and (3) determine if there are any equities (such as improvements made, taxes or liens paid, etc) that need to be balanced upon the conclusion of the partition. In a partition, the court has the power to grant more or less property to each co-tenant, or affix liens, in accordance with these equities.
Next, the court must determine whether the property can be partitioned “in kind” (that is, giving each party a pro-rata share of the real property) or not. If the property is susceptible to partition in kind, the court will enter a decree directing the partition and describing the interest and equities of each owner. To actually carry out the partition, the court will appoint three or more special commissioners who will partition the property based on the decree, with the commissioners acting by majority vote.
If the court finds that the property cannot be partitioned in kind, the court will order the property to be sold on such terms as the court may direct. The proceeds will then be partitioned among the co-tenants based on their ownership and any outstanding equities. As a sale of the property may result in less than market value consideration, the threat of partition by sale is a valuable negotiating tool for any co-tenant wishing to avoid a partition.
D. Equitable Partition
What if one co-tenant purports to convey the entire property, or 100% of a section of the property to a third party? The general rule is that “a deed by one co-tenant purporting to convey the entire interest in a part of the commonly owned land conveys only such interest in the land as the maker of the deed possesses.”
However, in certain circumstances, the grantee in such a situation can apply to the court for an “equitable” partition. An equitable partition is a way to “protect the vendee in the part of the land conveyed to him, when and to the extent that this can be done without prejudice to the cotenants of the whole tract, and which in the attainment of such primary object undertakes fairly to adjust the equities of all the interested parties.” Id.
The doctrine is only applicable when one co-tenant conveys a specific part of a larger tract of land to another co-tenant which does not exceed in value the interest of the conveying co-tenant in the larger tract, so that the remaining co-tenants are not prejudiced thereby. If these conditions are met, equity will uphold the conveyance. Non-joining co-tenants may avoid an equitable partition, if, and only to the extent they are injured (financially) by such deed. And even if they can show injury, they may be barred by ratification, acquiescence or adverse possession.
Because equitable partition is an equitable doctrine, it will not be granted if the grantee claiming partition had “unclean hands.” Unclean hands can be shown if the grantee had full knowledge of the record title, i.e. they knew about the other undivided owners.
V. Conclusion
Co-tenancy is land can lead to many difficulties and conflicts, as shown, in an abridged degree, by this paper. As many other commentators have noted, and as many attorneys counsel, most, if not all, of the problems a co-tenant could encounter can be addressed in a written agreement between the co-tenants. Such agreements can provide for management, use of the property by the co-tenants, rentals, easements, partition issues, and other items. While getting all co-tenants to agree on the terms of such an agreement can be challenging, such agreements have the great benefit of certainty and set expectations of the co-tenant relationship.
Robert M. Park
Uhl, Fitzsimons, Jewett, Burton & Wolff, PLLC
Born in Dallas, Texas, Mr. Park grew up in Austin, Texas. He is a partner at Uhl, Fitzsimons, Jewett, Burton & Wolff, PLLC, whose practice focuses primarily on Texas oil and gas law and real estate, including drafting, negotiating and litigating deeds, leases, surface use agreements, seismic permits, pipeline agreements, disposal well contracts, royalty and mineral transfers, and conducting royalty audits and royalty-related litigation. He also has experience in the purchase and sale of commercial real estate, water rights, and in the sale and donation of conservation easements.
4040 Broadway, Suite 430
San Antonio, Texas 78209
(210) 829-1660
rpark@ufjblaw.com
