Partition actions can be a powerful tool to resolve disputes among co-owners of commercial property. The process involves court oversight and can lead to physical division of the property — or judicial sale in cases where physical division is not practical. If you are a business owner who jointly owns commercial property with another, it’s essential to understand how partition actions work to ensure your investments and business interests are protected.
What is a Partition Sale?
A partition sale is a court-ordered sale of jointly owned property when co-owners cannot reach an agreement regarding the use or sale of the property. In such cases, the court directs the sale and oversees the process to ensure that the proceeds are divided among the co-owners in accordance with their ownership shares.
Partition sales are typically used when physically dividing the property by partition in kind would be impractical or significantly reduce the value of the property.
Why Do Partition Disputes Arise with Commercial Property?
There can be many reasons disputes arise that may require a partition sale to divide commercial property assets. For instance, one owner might want to cash-out while the other wishes to hold the property long-term. Financial strain may also cause one owner to seek liquidity and push for a sale.
Other reasons for partition disputes in connection with commercial property can include the following:
- Business partners are dissolving the partnership or corporation
- Partners disagree on the management, use, or sale of a jointly owned commercial property
- Partners disagree on whether to lease, sell, or redevelop the property
- Partners cannot agree on expense allocation or ownership transfers
In addition, when commercial property is inherited by multiple heirs, they may disagree about selling it or keeping it. If siblings or other relatives do not share the same goals for the business or property, disputes can arise that lead to partition actions.
What is the Partition Process?
The partition process begins with filing a complaint in court that establishes the basis for the partition. The complaint must then be served on all co-owners of the property. A judge would review the case to determine whether a partition of the property is warranted, and which type is appropriate.
The court may appoint a referee to oversee the valuation of the property and the sale. If the judge determines partition by sale is the appropriate remedy, the court can order the property to be sold at auction or by a neutral third party. They might also order one owner to buy out the others.
Any down payments, mortgage payments, taxes, and improvement costs may be credited to the respective co-owners before the proceeds of the property are distributed among them. After credits have been paid and debts have been satisfied, the remaining funds are divided in accordance with ownership interest.
Are There Alternatives to Dividing Commercial Property Assets?
Partition actions can be costly and time-consuming. Importantly, there are several alternatives to litigation that may be considered when it comes to dividing commercial property. Mediation or arbitration are two forms of alternative dispute resolution that can help co-owners of a commercial property resolve their disputes outside the courtroom.
Owners can also negotiate a buy-out, where one party buys out the other’s share. In these scenarios, one owner would take on the mortgage obligations and compensate the other party in exchange for full ownership.
Critically, any alternative to litigation requires cooperation among the parties. A well-drafted partnership agreement executed at the outset of the business partnership can include buy-out provisions or alternative dispute resolution methods to help avoid partition litigation.
Contact an Experienced Long Island Real Estate Attorney
If you are facing a commercial real estate dispute, a knowledgeable attorney can advise you regarding the pros and cons of pursuing a partition action. At Barnes & Barnes, P.C., we are dedicated to assisting clients with a wide range of commercial and residential real estate matters. Contact us at (516) 673-0674 to schedule a consultation.
