Ending co-ownership and dividing inherited property

What extinción de condominio is

Extinción de condominio — also called dissolution of the co-ownership, or división de la cosa común — is the step by which several co-owners stop being co-owners: the property is allocated to one of them, who pays the others in money, or it is sold and the price divided. The co-ownership, or proindiviso, is the position before that: one and the same thing belonging to several people in undivided shares, with nobody owning any particular physical part of it.

Nobody is obliged to stay in that position. Any co-owner may ask for the division at any time and, if the others do not want it, may ask the court. That right is the basis of everything that follows.

When it arises

Most of the matters we handle have the same origin: an estate already divided, in which the parents’ flat has ended up in the names of all the siblings in equal shares. One wants to sell, another wants to keep it, a third lives in it and does not answer. As time passes, the IBI (the local property tax), the service charges, the special levies and the arguments about who pays what pile up on top.

• Heirs who have received a property in proindiviso, with or without a surviving spouse’s life interest.
• Former couples — married under a separate-property regime, or unmarried partners — who bought the home together and no longer live together.
• Business partners or friends who bought commercial premises, land or a second home together.
• Co-ownership of several assets, where it suits to make up lots rather than sell everything.

What the law says

The Código Civil (the Civil Code) deals with co-ownership in articles 392 to 406. The rules that decide these matters are few:

• Art. 400 CC: no co-owner is obliged to remain in the co-ownership; each of them may ask at any time for the jointly owned thing to be divided. The only thing that may be agreed is to keep it undivided for a period (a maximum of ten years, which may be renewed).
• Art. 401 CC: physical division cannot be required where it would leave the property useless for its purpose. A flat cannot be cut in two: it is indivisible.
• Art. 404 CC: if the property is indivisible and the co-owners do not agree to allocate it to one of them with compensation to the others, it is sold and the price divided.
• Arts. 1051, 1052 and 1062 CC (where the estate has not yet been divided): no co-heir is obliged to remain in the undivided estate, unless the testator expressly prohibited division for a time; an indivisible asset may be allocated to one heir who pays the others the excess in money; and it is enough for one co-heir alone to ask for sale by public auction, with outside bidders admitted, for that to be done.

The two routes: agreement or court

By agreement: the route we try first

If the co-owners can come to terms, the matter is resolved in a deed before a notary: one of them takes the property and pays the others their share in money, on a valuation everyone accepts, or it is sold to a third party and the price divided. Our work consists of putting the numbers on the table (market value, charges, outstanding expenses, who has paid what), proposing a division everyone can sign, and drafting the agreement so that it leaves no loose ends: payment dates, handover of keys, settlement of utilities and service charges, and treatment of the mortgage if there is one.

A great many matters close here. It is quicker, far cheaper, and the family comes out of it less damaged than after litigation.

Without agreement: the action to divide jointly owned property

Where one of the co-owners refuses to sell, refuses to buy and refuses to talk, the law gives the rest a way out: the acción de división de cosa común, brought before the court of first instance for the place where the property is. The judge declares the co-ownership at an end and, the property being indivisible, orders it sold by public auction, normally with outside bidders admitted (art. 404 CC and, by analogy, art. 1062 CC), unless during the proceedings the co-owners agree to allocate it to one of them. The price is divided according to the shares, after deducting the debts of the co-ownership and any sums one co-owner has advanced for the others.

If the estate has not yet been divided, the route is a different one: the judicial division of the estate, in which the property is allocated or sold within the division itself (art. 1062 CC). Choosing the right procedure from the outset saves months; we will tell you which it is at the first meeting.

Situations that complicate the way out

• One of the co-owners lives in the property. Exclusive use by one of them may entitle the others to compensation from the moment they object to that use, and it must be taken into account in the division. That use does not prevent the division.
• There is a mortgage outstanding. Whoever takes the property must take on the loan, which requires the bank to agree to release the others (by novation or substitution). Without that step the agreement is incomplete.
• There is a life interest held by a surviving spouse over the home: it has to be valued and a decision taken on whether it is ended, bought out or kept.
• A co-owner has disappeared or does not respond. The proceedings can go ahead; the court has means of serving them and of having the sale carried out even without their co-operation.
• There are several properties in common. It is almost always better to make up lots so that each co-owner takes one asset, with the differences made up in money, rather than selling everything.

Tax: what is worth knowing before you sign

The legal form the exit takes changes what is paid to the tax authorities, and the difference is frequently greater than the fees for the whole matter. Three points, which then have to be applied to the particular case:

• An extinción de condominio properly structured (an indivisible asset, allocated to one co-owner, with compensation in money proportionate to the shares) is taxed under actos jurídicos documentados (AJD, stamp duty on notarial documents) and not as a sale: the rate is far below that of the Impuesto sobre Transmisiones Patrimoniales (ITP, transfer tax).
• If there are excesses in what one co-owner receives which are not made up in money, or are made up with other assets, the transaction may be taxed as a transfer or even as a gift. How the division is designed matters.
• Whoever receives the compensation may have a capital gain for IRPF (Spanish personal income tax) purposes if the value at which the property is allocated is higher than its acquisition value. And the plusvalía municipal (the local tax on the increase in urban land value), where the allocation is proportionate, does not fall due at that point.

That is why we work through the tax position of each alternative before proposing the agreement, and not afterwards.

Time and cost, in broad terms

• By agreement: between a few weeks and three months, depending on how long the valuation, the bank and the notary take.
• Through the courts: usually more than a year to judgment, plus the time the auction takes if no agreement follows. It depends on the workload of the court.
• Fees: quoted in writing before we start, with one part for the negotiated stage and another, only if it is needed, for the proceedings.

Where we work

Our office is in Villanueva de la Cañada, with matters regularly in Majadahonda, Las Rozas, Boadilla del Monte, Pozuelo de Alarcón, Brunete, Villanueva del Pardillo, Valdemorillo and the rest of western Madrid. The action to divide jointly owned property is brought before the court for the place where the property is; if you live outside the area, that is no obstacle to our handling the matter. If the origin is an estate that has not yet been divided, it is worth reading our inheritance and probate page as well; if the property was bought jointly, our civil law page.