The Perils of Partition – The Forced Sale of Land (Part 1)
By Robert Moore, Attorney and Research Specialist, OSU Agricultural & Resource Law Program
One of the more common ways that farm families involuntarily lose farmland is through partition. Under Ohio law, any person that is a co-tenant (co-owner) of real estate has partition rights. Essentially, partition rights allow a co-tenant to force the other owners to buy them out or force the land to be sold. Partition is a harsh, but arguably necessary, right of every co-tenant of real estate. With proper planning, partition can be avoided.
Partition law is codified in Section 5307 of the Ohio Revised Code. A partition is initiated by a co-tenant filing a petition for partition with the common pleas court. A partition must be filed in the county in which the real estate is located. Any co-tenant, even one owning a small percentage of the real estate, may file the partition. The petition is very similar to filing a lawsuit and all co-tenants are served notice the petition. All defendant co-tenants are provided an opportunity to respond to the petition.
After all co-tenants have been served and had an opportunity to respond to the petition, the court will appoint a commissioner. The role of the commissioner is to essentially oversee the petition process on behalf of the court. The partition commissioner is permitted to physically divide the real estate if the property can be divided without the loss of value. Due to the unique nature of farmland and the variation within each parcel, administrators rarely will physically divide the land. Instead, the commissioner will usually decide to sell the land at auction and divide the sale proceeds among the owners. The first step in selling the land is to obtain the value of the land by appraisal.
After the value of the property is established, each party will be given an opportunity to buy the land at the appraised value. If no party wishes to purchase, the land will be ordered sold by the court. The land may be sold at sheriff’s sale but the parties usually agree to sell the land at public auction. The one issue that the feuding co-tenants can usually agree upon is that they are likely to get a better price at an advertised auction rather than a sheriff’s sale. The land must bring at least 2/3 of the appraisal price at auction. After the land is sold, the proceeds are divided among the co-tenants in proportion to ownership.
The reason that partition law is a necessity is that Ohio law provides very little guidance to co-tenants as to how to manage their co-owned real estate. For example, Ohio law implies that unanimous consent must be obtained in the management of real estate. Therefore, one co-tenant holding a minority ownership percentage can prevent the land from being leased or sold. Ohio law solves this issue by providing partition rights. Basically, the law says that if the co-tenants cannot resolve their differences, then any one of them can force sale the land and divide the proceeds. Partition is necessary because the law seeks to allow individuals to divest themselves of any asset they may own. Without partition, a person could be forced to own real estate that they may not want to own and/or do not receive financial benefit.
Consider the following example. Amy, Bob and Charlie inherit a farm from their parents. Amy and Bob want to lease the land to a neighbor farmer but Charlie insists he is going to farm it. Charlie has no experience farming and Amy and Bob know it will end up in a disaster if Charlie gets his wish. Any potential tenant that Amy and Bob consider is contacted by Charlie and told the farm is not for lease. Amy and Bob get frustrated and decide to file a partition because they are tired of dealing with Charlie and do not think they will get a fair, financial benefit from the farm if Charlie is the operator. The court orders the farm sold and Amy, Bob and Charlie share the proceeds.
The risk of partition is not limited to just the initial family members who may own the land. Any future owner also has the same partition rights. Spouses, children and anyone else who may become a co-tenant can force a partition.
Using the same scenario as above, assume Amy dies. Her parents assumed that Amy’s share of the farm would go to her children (their grandchildren) but Amy never got around to doing and estate plan. So, under Ohio law, everything goes to her husband, Dale. Dale has no attachment to the farm and just sees dollar signs now that he is a 1/3 owner of the farm. Dale quickly files for partition and forces the sale of the land so that he can have money to buy the boat he has always wanted.
This example illustrates how easy it is for someone to become a co-tenant and gain partition rights. Deaths, divorces, and poor business and estate planning can allow someone to become a unexpected and unwanted co-tenant. Partition law does not care how long farmland has been in the family or how vital it is for a farming operation. Partition law treats a city lot that has been owned for a few months the same as a 1,000-acre farm that has been in the family five generations. Partition can lead to harsh results that should be avoided if possible.
With proper planning, partition can be averted. In the next installment, the various strategies to prevent partition will be discussed.
See the prior blog post “Ohio Case Illustrates the Risk of Leaving Farmland to Co-Owners” by Peggy Hall for a discussion of a Madison County case and the perils of partition.