Co-ownership of property is never simple.
Two or more people may sometimes draw themselves into community of ownership voluntarily. It can be a case of two investors willing to share the burdens and takings of an ambitious project. Or it can simply be a lovestruck couple buying its first property.
But many a time, individuals fall into undivided co-ownership unwillingly, often through inheritance. In some cases, originally willing co-owners fall apart and seek to walk away with their share.
In such cases, our legislators had a choice: either to let co-owned property rot into an endless longing for an improbable agreement, or else, to provide for an opt-out mechanism.
Our legislator decided in favour of choice; and truth be told, rightly so. There are hardly any economic or social benefits favouring perpetual mandatory co-ownership, so under our law co-ownership is only very limitedly imposed. Indeed, our law provides for various remedies which the co-owners may resort to, to terminate the community of ownership. This reflects the attitude of the earlier Code Napoléon, which is said to have viewed undivided co-ownership with disfavour, if not positive dislike, for its economic inconvenience.
The judgment delivered by the Civil Court, First Hall on January 16 by Judge Madam J Vella Cuschieri in the names of ‘Malcolm Jones et v Francis Debattista et’ dealt with the exit rights of the unwilling co-owner.
The most common way to cease from being in a state of community is partition.
In fact, article 496 of the Civil Code is clear that no person may be compelled to remain in the community with others and each of the co-owners may, at any time, notwithstanding any agreement to the contrary, demand a partition provided such partition has not been prohibited or suspended by a will.
When speaking about a piece of land, this would often involve a simple task of drawing a line somewhere, so each co-owner takes a piece of land equivalent to his share. Where there are two properties of equal value owned by two people indivisibly, the exercise is reduced to a mere drawing by lot.
However, not all property can be easily partitioned. As an example, one cannot really erect a wall to divide a 100-square-metre apartment.
Equally, some properties cannot be comfortably partitioned without heavy devaluation and prejudice.
A sale by licitation may take place with the consent of all the co-owners or by an order of the court
The law hence provides for a remedy: sale by licitation. A sale by licitation may take place with the consent of all the co-owners or by an order of the court.
Licitation is a way out of co-ownership with which the distribution is not made through property parts but through monetary proceeds. The procedure at law stays true to the etymology of the word ‘licitare’, which means ‘to bid a price’, for the resolution involves putting the property under auction for it to be acquired by the highest bidder.
Article 515 of the Civil Code states that where common property cannot be divided conveniently and without being injuriously affected, and compensation cannot be made with other common property of a different nature but of equal value, or if no one of the co-partitioners is able or willing to take the property, it shall be sold by licitation for the purpose of distributing the proceeds thereof.
Whether or not a property is comfortably partitionable is something to be considered by an architect appointed by the court.
Court-ordered sale by licitation and ‘sub hasta’ (sale by court auction, or subbasta) are not one and the same thing. Admittedly, this is a case of lawyers splitting legal hairs but truthfully, the distinction is there.
The sale by licitation is the substantive right provided for in the Civil Code(Chapter 16 of the Laws of Malta) and is limited to situations where parties hold property in common. Sale by court auction is the procedure found in the Code of Organisation and Civil Procedure (Chapter 12), dictating how all sales done under court authority are to be executed. This is not limited to the sale of property held in common but also includes, for example, a sale of a property owned by a debtor at the request of his creditor.
The phrase ‘subbasta’ has interesting origins; it is said to come from the Roman tradition to mark auctions by putting up a spear called a hasta, a symbol derived from the ancient practice of selling under a spear the treasure acquired in war. Hence the phrase ‘sub hasta vendere’, which in typical Maltese fashion, became ‘subbasta’.
Our law makes the distinction between ‘licitation’ and ‘subbasta’. Article 521 (1) of the Civil Code states that generally (with some exceptions) when the sale by licitation takes place under the authority of the court, it shall be carried out according to the rules laid down for judicial sales by auction.
In its judgment, the court reiterated that this procedure is of an exceptional nature, for the law always prefers physical partition over sale by licitation. Sale by licitation is procedurally cumbersome, not to mention the inevitable devaluation of the property which is brought about by the procedure itself. The law of ‘sub hasta’, which is equally applicable to a sale by licitation, provides that the bidding shall start from a value equivalent to 60 per cent of the value of the property (disclaimer: this principle at law is subject to a constitutional case which is due to be decided in a month), and experience teaches us that it is quite rare for aproperty to be sold at its full value.
Sale by licitation is thus an extraordinary remedy.
The court also considered that the law imposes the participation of third parties in the bidding process (known in the legal world as ‘oblaturi estraneji’), and therefore, a request for third party bidders to be excluded could not be entertained.
As a result, the court ordered the sale of the property subject to the case through licitation and ordered that the proceeds are to be divided according to the shares held by each of the parties.
Carlos Bugeja is a partner at Azzopardi, Borg & Abela Advocates.