Thursday, October 18, 2007

China's New Property Law--Common Ownership Dispute Surfaces

Another interesting case involving the new property law is pending in the Beijing Intermediate People’s Court for er sheng (court of second instance).

Briefly, plaintiff Ms. Ji sued her three sons to regain ownership of real property gifted to them. The property in question had been transferred by plaintiff and her late husband, but following his death, plaintiff wanted to retract the gift because her sons did not properly fulfill their filial obligations to her. The trial court held the defendants did not substantially violate the rights of the transferors, thus the gifted property stays with defendants. Plaintiff appeals the judgment, citing the new Property Law’s treatment on common ownership.

Common ownership, in the Property Law, is divided into two forms: ownership by shares and undivided common ownership. For a concise yet accurate rendition of the law, I quote in full China Law Blog’s post:

Division 8: Common Ownership

There are two forms of common ownership: ownership by shares and undivided common ownership. Absent a specific agreement, common ownership is assumed to be ownership by shares except in the case of a family relationship, where the opposite assumption is made.

1. The basic attributes of ownership by shares is:

Each common owner has a percentage ownership in the undivided property. The amount of each share is based on the amount contributed by the party to purchase the property. If this amount cannot be determined and there is no express agreement, the common owners will all have equal shares.

The common owners share in income and expenses in proportion to their share interest. However, with respect to third parties, common owners have joint liability.

Each common owner has the right to sell his share in the property, subject to the right of first refusal of the other common owners to purchase that share.
Each common owner has the right to petition for partition of the commonly owned property.
2. The basic attributes of undivided common ownership is:

Each common owner has an undivided ownership interest in the entire property.

Each common owner has a right to the income of the property and also the obligation for the expenses of the property. The common owners have joint liability with respect to third parties.

No common owner has a right to sell any portion of the property absent the consent of all of the other common owners.

As a general rule, a common owner does not have the right to petition for partition of the property. However, partition is
permissible if a) there is a compelling reason or b) the underlying relationship is terminated. A compelling reason is not defined in the statute, but the commentaries suggest a major medical expense would be such a reason.

Termination of the relationship most commonly would be divorce.
As with ownership by shares, the default rules for undivided common ownership can be modified by agreement.

In the present case, a presumption of undivided ownership applies to the property at bar because of ownership by a wife and her deceased husband. If plaintiff’s assertion of undivided ownership prevails, the plaintiff has the right to alienate the property with the consent of her co-owner, who is now dead. So the sticky issue is whether she has the sole authority to withdraw the gift.

Of course, the plaintiff can argue in the alternative that she owns the property by shares, presumably equal shares, thus she has the right to alienate her half of the property. But she has the burden to overcome the presumption of undivided ownership.

A fascinating case, and I will track its progress in the Court.

1 comment:

Todd Platek said...

Shouldn't the question more properly be whether the gift of real property can be legally rescinded, and whether grounds for recission of a gift per se exist, in this instance? And what is the state of the law on gifts of realty, and does it differ from gifts of personalty?