Joint ownership is a common legal situation where several people, known as undivided co-owners, own the same property together, often as a result of a succession or joint purchase. Although this situation can be managed amicably, it often becomes a source of conflict. In such cases, a shared-licensing arrangement is an effective legal solution that puts an end to the deadlock and allows everyone to regain their property rights. For expert assistance with these procedures, our law firm can offer you its expertise in joint ownership and partition.
Joint ownership and licitation: definitions and key concepts
Joint ownership is a situation in which several people have rights of the same kind in the same property or in a group of properties (movable and immovable), without their respective shares being physically divided. Each undivided co-owner has an abstract share in the undivided assets. This situation most often arises as a result of inheritance, where the heirs become joint owners of the deceased's assets, but also as a result of a joint acquisition (by an unmarried couple, for example) or the dissolution of a matrimonial property regime.
An auction is a legal procedure used to sell undivided property by auction. Its interpretation varies according to the context. Legally, it can be seen as the sale of property that cannot be divided in kind. More simply, it is similar to an auction organised between co-owners, or open to third parties. It is essential to distinguish between licitation-partagewhere the property is awarded to one of the co-owners, who thus acquires full ownership, of the property. auction-salewhere it is sold to a person outside the joint ownership. This distinction is essential, particularly for tax purposes.
The right to leave joint ownership: a fundamental principle
French law lays down a cardinal principle in Article 815 of the Civil Code: "No one can be forced to remain in joint ownership and partition can always be brought about".. This right to request partition is absolute, imprescriptible and a matter of public policy. The Cour de cassation, in its capacity as the highest judicial court, has consistently reaffirmed its fundamental value in its case law (e.g. Cass. 1re civ.), guaranteeing each undivided co-owner the possibility of putting an end to collective ownership, even in the face of opposition from the others.
Exceptions and limits to exit rights
There are, however, exceptions to this principle. Partition may be postponed, but never definitively prevented. The main exceptions are :
- The joint ownership agreement : the undivided co-owners may sign an agreement to maintain indivision for a maximum period of five years, renewable. Such an undivided ownership agreement makes it possible to organise the management of the property and temporarily suspend the right to partition.
- Judicial maintenance of joint ownership : at the request of an undivided co-owner, the court may decide to suspend the partition for a maximum of two years if the immediate completion of the sale would be likely to affect the value of the undivided property.
Strategies for getting out of joint ownership: from amicable agreement to court proceedings
When one or more undivided co-owners wish to leave joint ownership, there are a number of options open to them, ranging from the most consensual to the most contentious.
Out-of-court settlement: the preferred consensual solution
The simplest and least expensive solution is an amicable auction. This requires the amicable and unanimous agreement of all the undivided co-owners. They may decide together to sell the property to a third party and divide the price between them, or agree that one of them will buy the shares of the others. The transaction is then recorded in a notarial deed, producing the effects of a division or a traditional sale, depending on the situation.
Mediation or conciliation: a compulsory prerequisite?
Before embarking on lengthy and costly legal proceedings, the question of an amicable solution arises. Although the law does not systematically make mediation or conciliation a compulsory prerequisite to an action for auction, recent reforms to civil procedure strongly encourage the use of these mechanisms. Referring the matter to a mediator can help to re-establish dialogue, explore alternative solutions and resolve the conflict by reaching an agreement, thereby avoiding the risks and costs of a trial. This approach is a sign of constructive conflict management.
Judicial auction: the ultimate solution in the event of conflict
In the event of persistent disagreement, judicial auction becomes the only solution. This is done when it is impossible to divide the property in kind and the undivided co-owners are unable to agree on an amicable sale. A single undivided co-owner who so wishes may initiate the procedure by summoning the others before the competent court to request the division and, consequently, the forced sale of the undivided property.
The detailed procedure for a judicial shared auction
The judicial auction procedure is a public auction orchestrated by the court. The procedure follows strict formalities to guarantee the rights of all parties.
Referral to the court and application for partition
The procedure begins with a writ for partition and auction, served by a joint owner on the others by bailiff. Depending on the nature of the joint ownership, the competent court is either the family court (post-communal joint ownership, between PACS partners or cohabitees), or the court in the place where the estate was opened or where the property is located. The writ of summons must, on pain of inadmissibility, contain a description of the assets to be divided and mention any attempts at amicable resolution, in accordance with article 1360 of the Code of Civil Procedure. The general framework of the transaction is governed by article 1377 of the aforementioned Code.
The judgement ordering the sale by auction: reserve price and option to reduce the price
If the judge finds that it is impossible to divide the property in kind and that the parties disagree, he orders a sale by auction. This judicial decision sets the starting price for the property, which serves as the starting point for the auction. To ensure that the sale is not unsuccessful due to a lack of bidders, the judgement almost always provides for an option to reduce the price (usually in increments of a quarter, then half), a mechanism that is necessary to ensure that the undivided co-ownership is effectively ended.
Auction sales at auction hearings
The sale takes place at a court hearing. The applicant's lawyer draws up the specifications, which constitute the sales contract, and organises the legal advertising formalities. Potential buyers are invited to visit the property. At the hearing, the bids are placed by lawyers. The property is awarded to the highest and last bidder after a 90-second countdown.
Appeals and disputes: what should you do if the sale price is deemed too low?
An undivided co-owner who believes he has been wronged by an auction price that does not reflect the real value of the property has few remedies once the sale has taken place. An action for rescission on the grounds of lesion, which makes it possible to cancel a property sale for a price lower than 5/12ths of its value, is in principle inapplicable to auction sales, as the auction mechanism is supposed to reflect the fair market price. The most effective lever is the one-tenth higher bid. Within ten days of the auction, anyone may submit a bid to the registry that is at least 10 % higher than the price achieved. This automatically triggers a new auction, based on this new bid, offering a chance of obtaining a better price.
Managing complex deadlock situations
In particularly conflictual joint ownership situations, where the disagreement completely paralyses the management of the property (lack of maintenance, non-payment of charges), exceptional measures may be requested.
The role of the provisional administrator
In the event of a proven deadlock that jeopardises the common interest, the president of the court may appoint a provisional administrator. This court-appointed agent takes the place of the defaulting joint owners to carry out urgent management tasks, administer the property and prepare for partition and auction. The administrator's remit is defined by the judge and is designed to preserve the value of the undivided assets until such time as the indivision is definitively ended.
Licensing specific assets: rules and issues
While the principle of division in kind prevails, its implementation depends on the nature of the assets. For certain complex assets, auction becomes the only viable option.
The principle of sharing in kind and its limits
Where possible, the law always favours division in kind, i.e. the allocation to each undivided co-owner of material lots corresponding to their rights. Licitation is only a subsidiary solution, ordered only if the property cannot be "conveniently shared or allocated".
How do you prove that it is materially or economically impossible to share?
Proof that division in kind is impossible is an essential condition for obtaining an auction. It may be demonstrated by several factors, which are assessed by the court in its sole discretion:
- Material inconvenience : the property cannot be physically divided into lots without losing its substance or usefulness. For example, a house cannot be divided into functional flats.
- Substantial loss of value : the division of the property would lead to a significant economic depreciation of the whole. For example, subdividing agricultural land would render it unusable and reduce its overall value.
- Legal or functional indivisibility : regulatory constraints (town planning) or functional constraints (shared outbuildings) prevent the creation of independent lots.
Special case: the auction of a business
La auction of a business The main difficulty lies in valuing its intangible components, which often constitute its essential value. The main difficulty lies in valuing its intangible components, which often constitute its essential value: the customer base, the leasehold rights and the trade name. The sale procedure must also comply with the rules of the French Commercial Code, particularly with regard to advertising, in order to protect the rights of creditors who have a specific interest in the business. The transfer of the commercial lease to the successful bidder is also a major point of vigilance, requiring specialised legal expertise to guarantee the legal security of the transaction, particularly if the business is operated by a company or forms the basis of a family business.
Costs, duration and taxation of the auction procedure
The decision to initiate a judicial auction must be informed by a clear vision of its implications in terms of deadlines, costs and taxes.
Average length of procedure: what can you expect?
The judicial auction procedure takes place in two distinct phases. The first phase, before the trial judge to obtain a ruling ordering the sale, can take from 12 to 18 months, depending on the complexity of the case and the court's workload. The second phase, the auction itself, is quicker, taking 2 to 4 months. All in all, therefore, it takes around two years to actually sell the property.
Cost of the procedure: lawyer's fees, publicity and emoluments
The costs of the procedure are not negligible. They include the fees of the lawyer leading the proceedings (often a fixed fee of €2,000 to €3,000 for the first phase), as well as the costs incurred for the sale itself (legal advertising, diagnostics, bailiff's fees for the visit), which can amount to between €4,000 and €9,000. These costs are advanced by the joint owner who is pursuing the sale, but are then deducted from the proceeds of the sale and reimbursed. One of the advantages of a judicial sale is that the lawyers' fees replace the notary's fees; the undivided co-owner pursuing the sale must be paid in full for his advances.
Taxation of the auction: partition duty and capital gains tax
The taxation of the transaction is a crucial point that depends on the quality of the purchaser. This is where the distinction between a share sale and a sale-sale comes into its own:
- If the property is sold to a co-owner : the transaction is considered to be a division. It is then subject to the right to shareA registration tax, currently at a rate of 2.5 % (with reduced rates in certain cases of divorce, legal separation or termination of a PACS, following marriage or union), calculated on the net value of the property. The judgment or deed must be registered. This solution is generally the most advantageous from a tax point of view.
- If the property is sold to a third party : the transaction is a classic sale. It is not subject to the right of partition but may trigger thecapital gains tax for undivided co-owners, after application of deductions for length of ownership.
Conclusion: role of the players and strategic vision
Emerging from indivision by auction is a complex process that involves several players and requires a clear strategy.
The lawyer, an essential ally in navigating the procedure
A lawyer is required to conduct a judicial auction. His role is not limited to legal representation. He provides strategic advice to help the undivided co-owner define his objectives (maximising the proceeds of the sale, buying back the property, etc.) and implements the most appropriate procedure to defend his interests at every stage, from the summons to the fair distribution of the proceeds of the sale.
The role of creditors in the auction
The personal creditors of an undivided co-owner are not helpless in the face of their debtor's inertia. Thanks to the action oblique, they can bring about the partition and sale of the undivided property to obtain payment of their claim on the share due to their debtor. This right prevents joint ownership being used to organise the insolvency of one of its members.
When faced with a dispute over joint inheritance or post-communal property, it is essential to act methodically. Do not hesitate to contact our firm for an analysis of your situation and to define the strategy best suited to your objectives.
Sources
- Civil Code, articles 815, 840, 1686, 1873-2, 1873-3
- Code of Civil Procedure, articles 1271 to 1281, 1360, 1377
- Code of Judicial Organisation, article L. 213-3
- General Tax Code, article 750
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