In today's article from the "Tuesday Mornings for Builders" series, we continue to focus on the topic of co-ownership. This time, we will examine the regulations related to the dissolution of co-ownership , of course, in cases where it is permitted.
As a reminder, joint ownership of real estate refers to a situation in which at least two people hold undivided ownership of the same real estate. In situations of joint ownership, it is important to consider that independent disposal of a property owned by several people is impossible and can sometimes lead to complications. In such circumstances, the best solution may be to dissolve the joint ownership. Liquidation of the joint ownership relationship is possible at any time. A co-owner wishing to dissolve the joint ownership may exercise their claim under Article 210 § 1 of the Civil Code, and pursuant to Article 220 of the Civil Code, this claim is not subject to a statute of limitations.
It's worth noting, however, that the dissolution of joint ownership may be limited by specific provisions . The best example is Article 3, Section 1, last sentence, of the Act on Ownership of Premises, which states that "it is not possible to demand the dissolution of joint ownership of a common property as long as separate ownership of the premises continues." These are, however, exceptions, and let's move on to the methods of dissolution of joint ownership.
First, it should be noted that joint ownership can be terminated either amicably through a legal act or by court order . In the former case, joint ownership ends when the parties reach an agreement regarding both the fact of ending the joint ownership and the chosen method of termination. If agreement is not reached on any of these aspects, recourse to the court becomes necessary.
If the co-owners agree on the method of terminating joint ownership, executing an appropriate agreement before a notary is sufficient. Although the costs are slightly higher in this case, the procedure is very quick, and everything is usually resolved in a single visit to the notary. However, if there is a dispute between the co-owners regarding the method of terminating joint ownership (for example, each co-owner wants to keep the property entirely for themselves or believes the compensation demanded by the others is excessive), the only option is to resort to a court procedure for terminating joint ownership.
The liquidation itself can be accomplished in three ways. These division methods include selling the property, granting ownership of the property to one of the co-owners with an obligation to pay, and physically dividing the property.
The first method of terminating joint ownership is the civil dissolution of joint ownership through the sale of the jointly owned property and the division of the proceeds according to the proportion of the shares. This method is accepted for both contractual and judicial termination of joint ownership. In the case of judicial proceedings, the sale of the jointly owned property is ordered when division in kind is impossible and there are no circumstances justifying the granting of the property to any of the joint owners as exclusive ownership. The court may order the sale of the property, particularly if none of the joint owners has consented to receiving the property. The sale procedure is conducted by auction.
Another solution to dissolving co-ownership may be to grant one (or several) of the current co-owners exclusive ownership rights, simultaneously imposing on them the obligation to pay an appropriate amount to the remaining co-owners. If the agreement or court settlement is reached, the co-owners themselves determine the amount and repayment schedule. In the event of a judicial dissolution of co-ownership, the value of the property is determined by a court-appointed expert, the costs of which are borne by the parties to the proceedings. Based on this, the court determines the repayment amount. In justified cases, repayments may be deferred or spread out in installments, but not longer than 10 years. However, in practice, the court usually rules that the remaining co-owners' liabilities should be settled within one, two, or three years.
The final, simplest method for most co-owners is the physical division of the property, which can be requested by each co-owner. It's worth noting that this only applies to property that can be physically divided, so it can certainly involve the division of land or a building; dividing a property will be more difficult (although this isn't entirely out of the question). Division of property results in the creation of new ownership. Items separated from a larger property become the exclusive property of individual co-owners (one or more, if they agree), thus terminating the co-ownership of the existing property. With the contractual termination of co-ownership, the co-owners independently decide how to divide the shared property and divide the new assets (in the case of real estate, for example, a geodetic division of the plots may be necessary). In the case of a judicial termination of co-ownership, the division is carried out by the court, which is responsible for protecting the interests of all co-owners. The court should strive to ensure that the value of the separated portions corresponds to the proportion of their shares.
However, physical division may be impossible if it is contrary to statutory provisions, the property's socio-economic purpose, or if it would result in a significant change or significant reduction in the property's value. For example, this may occur when the plot is too small to allow for division among the existing co-owners.
It is also worth remembering that, in accordance with the provisions of the Personal Income Tax Act, the sale of real estate (or part thereof or share in it) constitutes the basis for personal income taxation, provided that it was done within 5 years from the date of acquisition - and this also applies to the acquisition of a share in real estate and its sale.
Next week we will present the rules for using a share in a common property as a special type of joint ownership, regulated by a separate act.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of January 8, 2024
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