The Undivided Interest

In the summer of 1992, I published a real estate newsletter. One of the areas of discussion was related to the benefits of partnerships. In that summer’s issue, I wrote the following:

 There are several ways that one can hold title to real estate. One of the common methods of taking title, when there is more than one owner is as tenants in common. Using this method of holding title, each owner can own an exact percentage of the property, and the ownership interests need not be equal. Each owner, regardless of the size of the interest held, has a right to the use of the entire property. This method of owning property, in which the ownership interest is called an undivided interest, can create a major problem between owners, especially with hunting property. If Joe and I own a piece of property together and Joe owns 99% and I own 1%, as tenants in common, I have the same basic right to use the entire parcel as Joe does. Not only can I use the entire property, but Joe cannot require me to contribute towards any improvements of the property. In addition, I can encumber the property, and if Joe decides to sell, the new owner must be my partner with the same ground rules that I had with Joe.  Needless to say, the value of Joe’s property is greatly affected by my interest. If Joe decides to sell, the buyer will not only be concerned about  what type of person that I am, but there is no control over who I might sell to,  or how many. I could divide my 1% into five .2% interests and sell each of them. From an ownership standpoint, an undivided interest is only good if you own a very small interest in a property, and you buy it at a good price. Then, you don’t have much to lose. The entire mess, created by undivided interest, can be avoided by entering into a good partnership agreement. 

As you can imagine, owning hunting property as Tenants in Common with unequal undivided interests is a very unfair arrangement. 

Since the time I wrote that segment, I have lived through a very difficult relationship as a co-tenant in a ranch that I own with my brother, father and several other individuals. After acquiring 10% interest in the ranch in 1983, we went on to acquire several other undivided interests over the course of 20 years. Eventually we reached the point where we owned 53% of the 1800 net-acre ranch spread over 2560 total acres.

Joe with his turkey

(Caption: Although there are problems associated with owning property as tenants in common, sometimes it is the only option. During our 25 year experience as owners of an undivided interest, we’ve experienced generally good hunting. Here’s a friend, Joe,  with a gobler taken on the ranch.)

In 2004, after realizing that we were at a stalemate as far as arriving at a position where we could own our share of the ranch as sole owners, we initiated what is called a Partition Suit. As the initiators of the suit, we became the Petitioners and the others became the Defendants.

The law provides the Partition as a method of ending undivided interests. At some time in the past, somebody concluded that co-tenancy could become unbearable and unfair and that when that happens, the law should provided a way to end the problem by dividing up the property so that each owner could end up as sole owners of their share.

Unfortunately, it’s not always possible to sub-divide property into usable, legal and appropriately valued properties so that each individual can receive a parcel. When that is the case, the owners can either negotiate a settlement or have the court sell the entire property and divide the proceeds among the owners according to their ownership interest.

Since we concluded that the property could not be appropriately divided, we asked for a sale of the property in our Petition. It was fortunate that the co-owners were able to agree to a compromise agreement in which some of the owners sold and others retained property, thereby preventing the sale from coming to fruition.

Today escrow closes on one more ownership interest and we will own enough of the ranch to end up owning two entire sections by ourselves. This is a major improvement over the co-ownership we’ve endured for almost 25 years. The two sections will be owned by my brother, father and I as a Limited Liability company (LLC) with an agreement as to how we will operate.

The suit lasted for over three years, three attorneys and cost many thousands of dollars, but the end result will justify the means and, in my eyes, all of the owners have benefited from the suit. One of the smallest ownership interests (5%) will lose out on significant hunting rights, but for 25 years they enjoyed a windfall of hunting opportunity at next to nothing cost. In the end they were able to increase their ownership from 90 net acres to 160 net acres and own a quarter section of ground as sole owners with no out of pocket cost. Although their hunting territory will be reduced from 2560 acres to 160 acres, they’ve improved their financial position considerably through negotiation and they totally control the hunting (and all other rights) on the parcel they’ll own.

Please keep in mind that this is information I’ve gained from personal experience, but I am not a lawyer. The law is complex and is constantly subject to change, so if you plan to take any legal action you should first consult with your attorney.

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9 thoughts on “The Undivided Interest

  1. Rich,

    Your article states “and if Joe decides to sell, the new owner must be my partner with the same ground rules that I had with Joe.”

    When you refer to “ground rules” does this include verbal agreements such as payment of utilities, real estate taxes, insurance, etc.? Or only written and/or recorded maintenance/operating agreements?

    I do not see how a verbal agreement would be a covenant running with the land if a percentage interest is transfered. Any thoughts would be helpful (I know that you are not an attorney).

    Thanks,

    Grant

  2. What you did was steal away land that was inherited. You stole inheritance. Although legally, you still stole it. We did not enjoy the last 25 years, we enjoyed the last 50 years and you ruined it because you are greedy. Don’t try to pretend that you did us any favors by giving us land. Your a real piece of work.

  3. I was sold a specific property (5 acres) but the seller failed to disclose that he owned (50%) undivided interest in 734 acres lease hold estate.

    I would like to discuss this with an attorney

    Please resond

    Earl

    eerichey@earthlink.net

  4. follow up
    what is required to partition, divide, seperate a specific area/acreage within a undivided interest – undivided interest area?

    Wher do you go?

    Earl
    question 1 of 2

  5. Earl: Need more info to figure this out. Govenment agencies generally approve most of these type of actions.
    RF

  6. Pingback: 2010 in review « Rich Fletcher’s Blog

  7. I own about a 27% undivided interest in a property that was originally owned entirely by my family, but which has since acquired other partial owners, two of whom hunt it regularly. Since I do not know how to hunt, I invited a friend to hunt there for me so that I could also enjoy the game it hosts, and the two other owners tell me I cannot do that without getting the consent of all other owners, many of whom can’t be contacted anymore. From your knowledge of this type of ownership, is this a true and correct position on their part?

    • Hello A Baker. I’ve been out of town for the last ten days. I believe they are correct, but there are remedies. If you’d like to discuss, you can give me a call. (925)989-4372

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