This post is not legal advice.
I continue discussing issues which can arise with family farm transitions and estate planning. A common situation is that siblings inherit farmland through intestacy (dying without a valid will or property outside the will) or a will specifies a quarter interest in the farm to X and the remaining three-quarters to Y. In each case, the farmland would be inherited as tenants in common, which can add complexity to managing the farmland.
With tenants in common, each tenant has the ability to sell, give away, or transfer their interest to any person, including another co-tenant. A tenancy in common can be destroyed by seeking a partition of the property through a court. A partition of the property is where the property is divided up among the co-owners based on their ownership interests. For more on property ownership in Maryland, see http://go.umd.edu/PropOwn.
Problems with tenancy in commons can arise when the cotenants do not agree to whom to rent the property, how to manage the problem, etc. Cotenants can get into arguments, making management decisions hard. Hard to believe family members could fight, right?
What about leasing the property?
Farmer Blue inherits a farm, Blackacre, with his two siblings (who both have in-town jobs) as tenants in common. Farmer Blue farms with his son and decides to lease Blackacre to his son at a below market rate without first checking with his siblings/cotenants. Can Farmer Blue do this?
The answer is no; for the lease to be binding, all cotenants must agree. In previous rulings, the Court of Appeals of Maryland has ruled that a cotenant cannot make a lease binding on all cotenants unless all cotenants agree. A cotenant can lease his/her interest and the lessee, i.e. the person leasing the interest, will become a cotenant with the other cotenants (Hollyday, 1946). Looking back at the example, the son would become a cotenant with the two siblings. In most cases, this means the cotenants will need to agree on a tenant before leasing the property
What if both siblings agree with Farmer Blue to lease Blackacre to Farmer Blue’s son, Charlie? Let’s say Charlie pays Farmer Blue the rent each year, but Farmer Blue does not pay his siblings their share of the rent money. Tenants in common have a right to receive their share of the rent, and § 14-106 of the Real Property Code requires a cotenant to pay the other cotenants their share of the rent. In this example, Farmer Blue’s siblings would be able to demand their share of any unpaid rents.
What if Charlie was renting the farmland before the cotenants inheriting the property under a valid lease, and one of the siblings wants to terminate the lease? Again, all three cotenants would have to agree to terminate the lease. One cotenant deciding to terminate a lease is not binding on the other three cotenants, according to the Court of Appeals of Maryland (Boehl, 1947). Without that agreement from all cotenants, Charlie could continue to lease the farmland.
What if nobody agrees on how to manage the farmland? What can we do?
Although parents may believe that their children will be able to manage family farmland together, this may not always be the case. Siblings may have differing ideas on how to utilize the property. When cotenants cannot agree on how to manage the property, a cotenant can petition the court for a partition of the property (§ 14-107).
In my earlier example, if Farmer Blue and his two siblings cannot agree how to manage Blackacre, then Farmer Blue could buy out the two siblings or could petition the court to partition the farmland. Partition of the property means that the court will divide the property up into separate parcels equal to a cotenant’s ownership interest. In the example, Farmer Blue and his two siblings would each receive a one-third interest in the property. In some cases, property will not be able to be divided up into equal parcels without loss or injury to one of the cotenants. In cases like this, the court can require the property to be sold, and the proceeds split based on ownership interests (§ 14-107).
Factors to consider when determining whether to divide the property can vary, depending on facts of the case. In Boyd v. Boyd, the Court of Special Appeals of Maryland upheld the decision of a lower court requiring the farmland to be sold and the proceeds split among the cotenants. In this case, the farmland had 70 tillable acres and dividing those 70 acres of smaller fields would injure the property as a whole.
Conclusion
Problems can arise when inheriting property as tenants in common. To limit some of these issues, consider utilizing professionals to develop farm transition and estate plans which work for you and your family. Families can find ways to divide up assets allowing the farm to continue to operate and the non-farming kids to receive their inheritances. Resources within the University of Maryland Extension system can help you better understand how to develop your estate plan; see http://go.umd.edu/agtrans.
References
Boyd v. Boyd, 361 A.2d 146 (Md. Ct. Spec. App. 1976).
Cook v. Boehl, 53 A.2d 555 (Md. 1947).
Cook v. Hollyday, 45 A.2d 768 (Md. 1946).
Md. Code Ann. Real Prop. § 14-106 (West 2016).
Md. Code Ann. Real Prop. § 14-107 (West 2016).