An Uneasy Peace

It is not uncommon for people to die without a will. Sometimes, they made a will, but it is lost or never probated. Mom dies and the kids or grandkids end up owning fractional shares in the property. Maybe one of the kids will live in the house. There are marriages, divorces, births and deaths. At some point, the occupant or one of the other co-owners tries to sell the property. That is when things get interesting.

Ownership of undivided interests in property is called “cotenancy” or “joint owners” or even “joint tenants.“ It is bad enough that there are so many different names for it, but the realities are even worse.

The law of cotenants originated in the far distant past and has continued to evolve through the years. Courts have applied this ancient rule to more modern situations, sometimes with unexpected results. The legislature has also added or trimmed a little here and there. The result is a mixed bag. It is always tricky to try to predict the future. In attempting to solve one problem, it is not uncommon to create several new problems.

The general rule in Texas, as in other states, is that each co-owner has an equal right to occupy the property without the payment of rent, and each co-owner is also liable for their share of the taxes and necessary maintenance costs. This is true even for an owner of a small interest. The owner of a 1% interest has the same right to occupy the property as the owner of a 99% interest.

I think you can see where this is headed. One owner can occupy the house rent free and only pay for a fraction of the maintenance and taxes. The other co-owners are required to pay their share of theses costs but get nothing in return. The house is too small for everyone to live under one roof – honestly, who’d want to? This is especially harsh when the co-owner who lives in the property is not a family member.

Most people believe that this result is unfair.

The courts have intervened in several cases and held that the person in possession is required to pay the other co-owners the value of the use of the property - - in other words, “market rent.” But at first, the courts required the other owners to demand the right to live in the property and some act to occur that resulted in the other co-owners being excluded. The courts would not require the occupant to pay rent unless these requirements were met. The problem is that most of these cases involved tracts of land and not urban homesteads.

In 1941, the Fort Worth Court of Civil Appeals required the occupant to pay rent. They reasoned that a small house in the city was not big enough for all the heirs to occupy together. No demand or an act of exclusion was required. This seems obvious, but the law often moves as a very slow pace.

This was a good step, but the courts have not dealt with the other problems mentioned. The non-occupants are still required to pay their share of maintenance and tax costs. It seems reasonable to require the occupant to pay these costs. They have the benefit of the property, and the other co-owners do not. The owner of a 1% joint interest may occupy the property and required to pay only 1% of the taxes, insurance and maintenance costs. The other co-owners must pay almost all these costs and have no benefits until the property is sold. The rent owed should be calculated with this obligation in mind.

The other problem is that the occupant has very little incentive to pay for these costs, especially if they have a small interest in the property. If they don’t pay rent or their share of the expenses, there is no way to remove them from the property. The general rule is that each co-owner has an equal right to occupy the property. The other co-owners could go to court and obtain a judgment, but this is of little benefit in most cases. If the occupant does not pay these expenses, they should not be permitted to remain in the property.

Courts and lawmakers respond to problems and do not normally make changes unless there is a problem that they believe needs to be addressed. Such is the case of the legislature’s attempt to help families maintain their ancestral property. The Texas legislature recently adopted Texas Property Code 23A in response to schemes by investors in which they bought an undivided interest in a tract of land and then forced the sale of the property, allowing them to buy the rest of the property at a discount. The families lost their heritage and the investors got rich. There is no dispute that this loophole needed plugging.

Under this new law, the person requesting the sale (presumably, the non-family member) cannot purchase the property until the other co-owners have a chance to buy it. This sounds fair, but what happens when the property is home in an urban residential neighborhood?

The intent was to protect family property. Their focus was on large tracts of land. But once again, this law has unintended consequences. If a non-family member is occupying the family home and not paying rent or their share of other costs, then they have no incentive to disturb the status quo. They want to remain in the property as long as possible . . . and they can.

The only way to remove them is to partition the property. In most cases, the only way to partition a small, residential property is by sale. It is impractical to divide it. Cities have minimum lot size and platting ordinances that prevent the property from being further divided. There are also problems with access and equitable division of the property.

Because the occupant has no incentive to partition the property, it is generally one of the family members who requests it. Under TPC §23A, the non-family member occupant has the right to purchase the property. Even though the intent of the statute was to keep family property in the hands of the family, the result is the very opposite.

As usual, the people who are hurt the most are those who can afford it least. The solution is simple: The property owner should sign a will that divides the property so that there are no undivided interests in in the family home. If the family wants to have undivided interests, then they need to have sign a partition agreement that is filed of record, setting out who pays what and remedies for failure. Neither of these instruments are complicated or too expensive, especially when compared to protracted litigation required to partition the property and reclaim it from non-family members.