Apportioning Expenses and Benefits Upon Partition

Core Principles

First, in New York, the credit is awarded after division of the sale proceeds into shares. That is, the cotenant who pays more than her proportionate share receives credit for the excess of her expenditures over that proportionate share, and that credit is paid to her out of the shares allocated to other cotenants. See Niklas v. Niklas, 138 AD2d 777. As the court in Niklas noted, if the credit were awarded before dividing the net proceeds among the parties, the party making the expenditures would received too small a credit. (Or course, courts could reach the same substantive result by giving the cotenant a credit for her entire expenditure ' rather than the excess above her proportionate share ' and taking the credit “off the top” of the sale proceeds; New York courts have chosen not to proceed that way).

Second, a cotenant is entitled to a credit for capital improvements and repairs to the property, but the amount of the credit is not crystal clear. Courts sometimes speak of “reimbursement” for capital improvements, which suggest that the credit will be capped by the costs incurred, even if the increase in value exceeds the cost of the improvement. See, e.g., Larsen v. Larsen, 54 AD2d 1073. Other courts have suggested that “the court should allow the reasonable value of improvements and repairs,” which suggests that the credit could exceed the amount paid if the improvement's value exceeded its cost. See, e.g., Vlcek v. Vlcek, 42 AD2d. 308, 311. If one of the cotenants improved the property by contributing labor rather than money, the laboring cotenant is entitled to a credit for that labor. Thus, in Quattrone v. Quattrone, 210 AD2d 306, the court held that a cotenant who worked seven days a week, 12 hours a day, for almost six months, in improving the jointly owned property was entitled to have those contributions considered upon partition. Conversely, courts might deny any credit for “improvements” if the expenditures were made for the personal convenience of the co-tenant in possession rather than for the purpose of improving and preserving the property. See, e.g., Bailey v. Mormino, 6 AD2d 993. Brady v. Varrone raises a similar issue: a co-tenant sought a credit for excess water charges. The court held that the co-tenant was entitled to the credit, but not for the period during which the co-tenant was in exclusive possession. During that period, presumably, the water charges were for her personal benefit, and would not have been incurred but for her exclusive possessino.

Third, when the cotenants are husband and wife, and one of the cotenants expends money on the jointly-owned property, courts indulge a presumption that expenditures made by either spouse during the marriage constitute a gift to the other spouse. See, e.g., Larsen v. Larsen, supra. As a result, the spouse is not entitled to credit for those expenditures. The spouse making the expenditures, however, can rebut the presumption by demonstrating that the other spouse had been derelict in his responsibilities. For instance, in Doyle v. Hamm, 52 AD2d 899, the court awarded a credit to the wife for repairs, and for mortgage, tax, and insurance payments, made on the marital home when the husband had defaulted on all financial responsibilities (largely because he was in prison for five years). And the presumption of gift ends when the parties divorce or the non-contributing spouse abandons the marital home. Worthing v. Cossar, supra at 519; Larsen v. Larsen, supra at 760. Once the presumption has been rebutted, the contributing spouse is entitled to credit for expenditures made beyond her proportionate share.

Perhaps the most difficult issues surround expenditures made by a co-tenant who is in sole possession of the premises. The co-tenant in sole possession derives disproportionate benefit from repairs, improvements, and mortgage and tax payments. But New York courts do not require the co-tenant in possession to account for the value of that possession unless other tenants have been “ousted” from the jointly owned property. See Misk v. Moss, 41 AD3d 672 (holding no ouster, and hence no obligation to account for the value of exclusive possession). Courts have extended that principle to hold that a co-tenant in exclusive possession is entitled to a credit for excess expenditures unless the other co-tenants can demonstrate that the cotenant has prevented them from using the property. Thus, when the out-of-possession cotenant fails to prove ouster, the co-tenant making expenditures is entitled to a credit for maintenance, repair, mortgage, and insurance. See McIntosh v. McIntosh, 58 AD3d 814; Corsa v. Biernacki, 2 AD3d 388; Freigang v. Freigang, 256 AD2d 539. By contrast, when the out-of-possession cotenant proves ouster, the co-tenant in possession is liable for the rental value of that possession. In cases where the possessory co-tenant seeks a credit for excess expenditures, courts presume that the value of possession is equal to the amount of post-ouster mortgage, insurance and repair payments. See Johnston v. Martin, 183 AD2d 1019; Worthing v. Cossar, 93 AD2d 515; Topilow v. Topilow, 25 AD2d 874.

Proving 'Ouster'

Proving “ouster,” then, may be critical in assessing the credit to which a co-tenant is entitled. Certainly, when one co-tenant physically threatens the other and changes the locks, the facts suffice to trigger a finding of ouster. See Johnson v. Martin, supra (“uncontroverted testimony” of “troubled relationship with defendant and his violence toward her” combined with change of locks). In addition, if two spouses have been co-tenants, and one of the co-tenants remarries and occupies the premises with the new spouse, courts conclude that the new couple has ousted the out-of-possession co-tenant. Worthing v. Cossar, supra; Topilow v. Topilow, supra.

Stewart E. Sterk is Editor-in-Chief of this newsletter.

When real property is held by two or more owners as tenants in common, joint tenants, or tenants by the entirety, termination of the cotenancy all too frequently generates litigation about the terms of the termination. Often, the issue is whether the jointly owned property should be partitioned in kind or by sale, but even when the parties agree to sell the property, the same animosity that led to the need for termination generates conflict about how the sale proceeds should be divided. In one recent case, Brady v. Varrone, NYLJ 8/24/09, p. 29., col. 2, the Second Department faced a recurring issue: In a partition action, how much credit should a co-tenant make for expenditures incurred in connection with the jointly owned property?

Brady applies the general rule that a co-tenant who pays more than her proportionate share of expenses attributable to the jointly owned property is entitled to a credit against the sale proceeds payable to other cotenants. In Brady itself, a tenant in common with a one-third share of the property had made one-half of the mortgage payments. The court concluded that the referee had correctly allowed a credit for excess mortgage payments.

In addition to mortgage payments, credit typically is available for tax payments, and for expenditures made to repairs and improve the jointly owned property. Courts have emphasized that a partition action is equitable in nature, and that courts may take equity into account in distributing the proceeds of a partition sale. See, e.g., Worthing v. Cossar , 93 AD2d 515, 517. A set of core equitable principles has emerged about how sale proceeds should be distributed.

Core Principles

First, in New York, the credit is awarded after division of the sale proceeds into shares. That is, the cotenant who pays more than her proportionate share receives credit for the excess of her expenditures over that proportionate share, and that credit is paid to her out of the shares allocated to other cotenants. See Niklas v. Niklas , 138 AD2d 777. As the court in Niklas noted, if the credit were awarded before dividing the net proceeds among the parties, the party making the expenditures would received too small a credit. (Or course, courts could reach the same substantive result by giving the cotenant a credit for her entire expenditure ' rather than the excess above her proportionate share ' and taking the credit “off the top” of the sale proceeds; New York courts have chosen not to proceed that way).

Second, a cotenant is entitled to a credit for capital improvements and repairs to the property, but the amount of the credit is not crystal clear. Courts sometimes speak of “reimbursement” for capital improvements, which suggest that the credit will be capped by the costs incurred, even if the increase in value exceeds the cost of the improvement. See, e.g., Larsen v. Larsen , 54 AD2d 1073. Other courts have suggested that “the court should allow the reasonable value of improvements and repairs,” which suggests that the credit could exceed the amount paid if the improvement's value exceeded its cost. S ee, e.g., Vlcek v. Vlcek , 42 AD2d. 308, 311. If one of the cotenants improved the property by contributing labor rather than money, the laboring cotenant is entitled to a credit for that labor. Thus, in Quattrone v. Quattrone , 210 AD2d 306, the court held that a cotenant who worked seven days a week, 12 hours a day, for almost six months, in improving the jointly owned property was entitled to have those contributions considered upon partition. Conversely, courts might deny any credit for “improvements” if the expenditures were made for the personal convenience of the co-tenant in possession rather than for the purpose of improving and preserving the property. See, e.g., Bailey v. Mormino , 6 AD2d 993. Brady v. Varrone raises a similar issue: a co-tenant sought a credit for excess water charges. The court held that the co-tenant was entitled to the credit, but not for the period during which the co-tenant was in exclusive possession. During that period, presumably, the water charges were for her personal benefit, and would not have been incurred but for her exclusive possessino.

Third, when the cotenants are husband and wife, and one of the cotenants expends money on the jointly-owned property, courts indulge a presumption that expenditures made by either spouse during the marriage constitute a gift to the other spouse. See, e.g., Larsen v. Larsen, supra. As a result, the spouse is not entitled to credit for those expenditures. The spouse making the expenditures, however, can rebut the presumption by demonstrating that the other spouse had been derelict in his responsibilities. For instance, in Doyle v. Hamm , 52 AD2d 899, the court awarded a credit to the wife for repairs, and for mortgage, tax, and insurance payments, made on the marital home when the husband had defaulted on all financial responsibilities (largely because he was in prison for five years). And the presumption of gift ends when the parties divorce or the non-contributing spouse abandons the marital home. Worthing v. Cossar, supra at 519; Larsen v. Larsen, supra at 760. Once the presumption has been rebutted, the contributing spouse is entitled to credit for expenditures made beyond her proportionate share.

Perhaps the most difficult issues surround expenditures made by a co-tenant who is in sole possession of the premises. The co-tenant in sole possession derives disproportionate benefit from repairs, improvements, and mortgage and tax payments. But New York courts do not require the co-tenant in possession to account for the value of that possession unless other tenants have been “ousted” from the jointly owned property. See Misk v. Moss , 41 AD3d 672 (holding no ouster, and hence no obligation to account for the value of exclusive possession). Courts have extended that principle to hold that a co-tenant in exclusive possession is entitled to a credit for excess expenditures unless the other co-tenants can demonstrate that the cotenant has prevented them from using the property. Thus, when the out-of-possession cotenant fails to prove ouster, the co-tenant making expenditures is entitled to a credit for maintenance, repair, mortgage, and insurance. See McIntosh v. McIntosh , 58 AD3d 814; Corsa v. Biernacki , 2 AD3d 388; Freigang v. Freigang , 256 AD2d 539. By contrast, when the out-of-possession cotenant proves ouster, the co-tenant in possession is liable for the rental value of that possession. In cases where the possessory co-tenant seeks a credit for excess expenditures, courts presume that the value of possession is equal to the amount of post-ouster mortgage, insurance and repair payments. See Johnston v. Martin , 183 AD2d 1019; Worthing v. Cossar , 93 AD2d 515; Topilow v. Topilow , 25 AD2d 874.

Proving 'Ouster'

Proving “ouster,” then, may be critical in assessing the credit to which a co-tenant is entitled. Certainly, when one co-tenant physically threatens the other and changes the locks, the facts suffice to trigger a finding of ouster. See Johnson v. Martin, supra (“uncontroverted testimony” of “troubled relationship with defendant and his violence toward her” combined with change of locks). In addition, if two spouses have been co-tenants, and one of the co-tenants remarries and occupies the premises with the new spouse, courts conclude that the new couple has ousted the out-of-possession co-tenant. Worthing v. Cossar, supra; Topilow v. Topilow, supra.

Stewart E. Sterk is Editor-in-Chief of this newsletter.