Cary A. Lind, P.C. - Arlington Heights Probate Attorney

THE SAGA OF THE UNDERTAKER'S FAMILY - PART 3

Cary A. Lind, P.C. - Arlington Heights Probate Attorney

THE SAGA OF THE UNDERTAKER'S FAMILY - PART 3

Accounting Between Co-Tenants - A Short Digression.

765 ILCS 1005/4a directs an accounting when there is co-ownership in real estate among "one or more joint tenants, tenants in common or co-partners in real estate, or any interest therein". The mere fact of the joint ownership establishes the obligation.

The accounting is mostly arithmetic with some fact issues thrown in. The steps are as follows:

  1. Start with an equal division.

  2. Each party gets credit for any improvements made to the property. The measure of the credit is the amount by which the improvement increased the value of the property, not the amount of money spent on the improvement. To the extent the property is enhanced, a co-tenant who does not pay for the improvement benefits from it and would be unjustly enriched if he or she did not pay for his or her share of the added property value. On the other hand, merely because a co-tenant spends money on an improvement does not mean that the cost should be imposed on a co-tenant who did not choose to do the improvement.

  3. Each party gets credit for expenditures on the property for maintenance, repair, etc., other than improvements, beyond the party's percentage share.

  4. Each party is charged for any rental or other benefit received from the property beyond the party's percentage share. This is explained in greater detail below.

  5. Each party may be charged with his or her use of the premises. This is also explained in greater detail below.

  6. Each party is charged with or credited with simple interest at the current rate (presently 5%) to the extent the party owes or is owed money.

Historically, the use of the premises has been treated differently for joint tenancy and tenancy in common, although the case law is relatively old and has never clearly acknowledged the difference. In either case, each co-tenant has the right to occupy the premises or a proportional part thereof. In the case of a joint tenancy, the portion of the premises occupied does not matter, and no co-tenant has the right to recover for or the obligation to pay for use of more than the party's percentage share of the premises. In the case of tenancy in common, absent a contrary agreement, each co-tenant is charged with the reasonable rental value of the portion of the premises used by the co-tenant. In either case, however, if commercial use is made of the premises or if a profit is earned from such use by less than all of the co-tenants, those co-tenants must be charged with the fair rental value of that part of the premises before the final division of the net proceeds. Fair rental value is a fact issue which is ultimately determined by expert testimony.

A partition suit almost always includes a claim for an accounting among co-tenants, and the court will hear any matters of offsetting credits or charges among them. A judgment for partition also can provide for fees to be paid to the Plaintiff's attorney for actions taken with regard to the partition action itself. To the extent fees are incurred with regard to allocations issues, debits, credits, and similar disputed issues among the parties, fees are not chargeable to the property as a whole. To the extent the actions promote the disposition of the property and its proceeds, fees are due.

Hall v. Eaton - Part 1.

Hall v. Eaton is an example of a case where one co-tenant was charged for use of the premises. The following facts are limited to the accounting aspect of the case.

In 1972, Linn and Mildred conveyed a 300-acre farm to their children, Cynthia and Linn, Jr. Linn and Mildred remained in possession of the farm until each died. Linn, Jr., began managing the family's cattle herd in 1972. In 1983, Linn died, and Linn, Jr., also took over the farming duties. Mildred helped Linn, Jr., to the extent she could. In 1991, Mildred died. Cynthia then filed suit for partition (granted by the Court) and an accounting. Until 1988, all income from the farm was reported on Mildred's tax returns. Beginning in 1988, farm income and expenses were split equally between Mildred and Linn, Jr. Linn, Jr., testified that until 1988, he considered all of the income from the farm to be his parents'. After that, he considered the income to be one-half his mother's and one-half his own.

The Court held that an accounting is due from a co-tenant when the co-tenant has actually taken proceeds or benefits in greater proportion than his ownership interest in the property. In this case, the accounting was due only from 1988 through 1991, since Linn, Jr., did not receive any income from the farm prior to 1988. The Court awarded Cynthia a sum representing the fair rental value of one-half of the farm for 1988 through 1991. The result is similar to a number of cases which have considered similar issues.

Count 5 - Partition - Continued.

Count 5 in our case also sought an accounting between co-tenants and sought fees to Plaintiff's attorney. Marlene sought one-half of the fair rental value of the chapel portion of the premises prior to Jozef's death. Under the case law, Marlene could not also have asked for rental for the apartment portion, because Marlene and Jozef were joint tenants. The opposite result would be true if Marlene and Jozef were tenants in common. After Jozef's death, Marlene was entitled to the full fair rental value of all of the premises, since based on our theory of the case, Marlene was then the sole owner. If it was decided that Marlene was only a one-half owner, then she would be entitled instead to only one-half of that sum.

Defendant's Initial Counter-Claim.

Helen initially filed a two-count counter-claim. Count 1 sought to recover from Marlene one-half of the expenses of the premises paid by Jozef for the period prior to Jozef's death. It also sought to recover from Marlene one-half of the expenses of the premises paid by Jozef's estate for the period after Jozef's death if the property was found to be still in co-ownership between Jozef and Marlene. Count 2 in the alternative asked that if Marlene was found to be sole owner of the property, Jozef's estate recover all of the expenses paid by the estate after his death, since Marlene would otherwise be primarily responsible for those expenses.

Practical Note: In many cases, parents put a child on the title to real estate as a joint tenant. Most attorneys advise against doing so for a variety of very good reasons, which will not be discussed here. As noted above, the law says that if a child is a co-tenant and the parents pay the expenses of the property, the child is liable for his or her proportional share of the expenses in an accounting. There are limited defenses, such as a specific agreement to the contrary by the parties. Absent such a defense, however, the liability is absolute. This is not what most children expect! All it takes is one disgruntled parent or step-parent, and an accounting with resulting liability can be sought, as it was here. The opposing argument is that after all is said and done, the child is receiving a gift, and it is only fair that the child pay a portion of the expenses of maintaining and preserving the property. Note, however, that the statute that establishes the liability of co-tenants does not require that the accounting wait until the property is sold! The liability is now, and a co-tenant can sue for contribution at any time. Thus, children can be found liable for expenses without sale proceeds or money from which to pay them. That is yet another reason not to put a child on title to real estate.

Jozef's Liability for Rental.

If real estate is rented to a stranger, the terms of the tenancy are usually negotiated at arm's length and will specify who is responsible for paying the real estate taxes, insurance, etc. In our case, the funeral chapel was a sole proprietorship reported on Jozef's Schedule C, and there were never any clear terms of what would be the "rental" for the chapel portion of the property. The business paid all of the expenses for the property, and Jozef deducted the appropriate items on Schedule C.

Marlene's position was that Jozef and the business were solely liable for all of the real estate expenses. On one hand, the expenses would have been in the nature of "rent" or a set-off against rent, depending on expert testimony as to what a fair rental value would have been. On the other hand, because the business deducted the expenses as business expenses, they should not be charged a second time against Marlene. Therefore, Marlene should not be liable for any share of the expenses for the property. To the contrary, Jozef's estate would be liable to Marlene for her portion of the fair rental value of the business portion of the property less any expenses to be offset against the rental.

Helen's position on behalf of Jozef's estate was that since the business was a Schedule C business rather than a separate legal entity, Jozef had the right to occupy any or all of the premises, and his estate could not be liable to Marlene for any rental.

The case law is to the contrary, and Marlene's position is correct. It does not matter whether the business is a sole proprietorship, corporation, or some other legal entity. The use of the premises for profit is chargeable to the co-tenant who enjoys the benefit of the business use. Jozef deducted all of the expenses and cannot now charge Marlene for those expenses.

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