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Wilmington, DE

Court of Chancery of Delaware

September 26, 2019

IMO 615 E. 7th Street, Wilmington, DE, 19801, Tax Parcel No. 26-044.10-022

          Draft Report: September 13, 2019

          Date Submitted: June 19, 2019

          Selena E. Molina Master

         Dear Counsel and Ms. Pratt:

         In this partition action, I am tasked with recommending the appropriate division of the net proceeds from the sale of the parties' jointly-owned property. Petitioner seeks 60% of the proceeds plus credit for her payment of taxes, insurance, an appraisal, and business licenses. Respondent seeks a clean 60/40 split or, alternatively, her 40% plus credits for 40% of the prior rental income and 60% of her contributions to the property's maintenance, repairs, and utilities. This is my post-hearing final report.

         I. BACKGROUND[1]

         In 1996, Petitioner Violet M. Smith ("Petitioner") was bequeathed property located at 615 E. Seventh Street, Wilmington, DE 19801 (the "Property").[2]Approximately four (4) years later, Petitioner entered into an agreement with her twin sister, Respondent Violease Pratt ("Respondent") granting Respondent a 40% interest in the Property (the "Agreement").[3] The Agreement recognized the Property was rented and specified (1) all rental proceeds were to go to Petitioner, (2) Petitioner's husband would perform the maintenance on the Property, and (3) maintenance costs and materials would be paid by the parties.[4]

         After the Agreement was executed and until this action, Petitioner paid the taxes and insurance for the Property.[5] Petitioner also maintained business licenses to rent a portion of the Property and collected 100% of the rental income.[6] After the Agreement was executed, Respondent lived in the Property and managed the rented unit.[7] Respondent contends she paid the utility and maintenance costs while she lived in the Property; Petitioner disagrees and testified that Respondent lived in the Property rent free and did not contribute in any way.[8]

         Over the years, the parties' relationship deteriorated and their co-ownership of the Property became unsustainable. Thus, on March 2, 2018, Petitioner filed a petition for partition.[9] Respondent answered and the parties stipulated to a partition by sale, which was approved by then-Master Zurn.[10] After some complications during the sale process, [11] the Property was sold to Respondent and Bobbi Pratt Connor for $100, 000.00.[12] The net proceeds of the sale are $89, 636.79. A final hearing regarding distribution was held on May 21, 2019, post-hearing briefing was ordered, this matter was deemed submitted for decision on June 19, 2019 and I issued my draft report on September 13, 2019, to which no exceptions were taken.[13]

         II. ANALYSIS

         The parties agree the distribution starts at $53, 782.07 (60%) to Petitioner and $35, 854.72 (40%) to Respondent. Petitioner wants credits applied to her share, and taken from Respondent's share, for Petitioner's payment of taxes and insurance from August 28, 2000 through November 5, 2018 and for business licenses and an appraisal. Petitioner further seeks the return of certain personal property and shifting of court costs in her favor. Respondent seeks a clean 60/40 split.[14] Alternatively, Respondent seeks credits for 40% of all rental income and 60% of Respondent's payment of water bills and for repairs and maintenance.[15]

         A. Petitioner Should Receive A Credit For The Cost Of The Appraisal.

         Before she initiated these proceedings, Petitioner paid $300.00 to have the Property appraised.[16] Petitioner contends the parties agreed to the appraisal and to split the cost 50/50; Respondent disagrees.[17] Petitioner bears the burden of proving the existence of the alleged agreement and has failed to meet that burden.[18] But, Respondent brought the appraisal into these proceedings and cited to, attached, and relied upon it in her efforts to purchase the Property for a higher price.[19] As such, the appraisal benefitted both cotenants and the Property and the cost for it should be covered by both parties in their respective ownership percentages.[20] Because Petitioner already paid for the appraisal in full, she should be given a credit for her 40% overpayment, which would come out of Respondent's share. Thus, the proceeds should be reapportioned as $53, 902.07 to Petitioner ($53, 782.07$120.00) and $35, 734.72 to Respondent ($35, 854.72-$120.00).

         B. Petitioner Should Receive A Credit For The Taxes And Insurance.

         "Delaware law requires cotenants to share equally the taxes imposed on jointly-owned property and insurance costs associated with the property[.]"[21] Yet, Petitioner contends she paid all of the taxes and insurance from August 28, 2000 through November 5, 2018 and she seeks credits for covering Respondent's portion of those expenses. Respondent disagrees that credits should be applied.

         The burden is on Petitioner to prove the extent of her payments and that she- rather than a third party-actually made them.[22] Petitioner introduced certified property tax bills from the City of Wilmington and New Castle County[23] and copies of bills for homeowners insurance for the Property.[24] Based on these records and Petitioner's unrebutted testimony, I find Petitioner paid the taxes and insurance for the Property from August 28, 2000 through November 5, 2018 for a total of $14, 158.11.[25]

         Respondent argues credits are, nonetheless, inappropriate because (1) the parties agreed Petitioner would pay for the taxes and insurance from the rental income and (2) the parties never agreed Respondent had to contribute to the taxes and insurance and Petitioner should not be able to recover without a prior agreement.[26] These arguments are unavailing. Respondent has failed to meet her burden to prove the existence of an agreement regarding the taxes and insurance.[27]Thus, the default under Delaware law-that cotenants share the costs for taxes and insurance-applies.[28] Similarly, because contribution is required under Delaware law, a prior agreement to contribute is not required for Petitioner to prevail.

         But because "[t]he Court of Chancery is a court of equity, which at its core, deals in concepts of fairness[, ]"[29] I undertake all efforts "to ensure that [Respondent] gets a chance to be heard."[30] Looking past Respondent's contractual framing, Respondent's second argument sounds in laches; i.e., Petitioner has unreasonably delayed in enforcing her right to contribution.[31] But laches is an imperfect fit in this in rem partition action. Petitioner's payments were for the benefit of the Property, keeping it in good standing, and "[a] tenant in common who pays the debts or obligations for the benefit of joint property is entitled to contribution from the other tenant in common for his proportionate part of the amount paid."[32]

         Thus, 40% of the taxes and insurance paid by Petitioner ($5, 663.24) should be credited to Petitioner and taken from Respondent's share of the proceeds. Further, Petitioner paid the New Castle County taxes through June 30, 2019 and is entitled to reimbursement from Respondent from the date the Property was sold to Respondent (November 5, 2018) until June 30, 2019 in the amount of $325.81.[33]Thus, the proceeds should be reapportioned as $59, 891.12 to Petitioner ($53, 902.07$5, 989.05) and $29, 745.67 to Respondent ($35, 734.72-$5, 989.05).

         C. Petitioner Should Not Receive A Credit For The Cost Of The Business Licenses.

         Petitioner seeks a credit for her purchase and maintenance of business licenses for 2012, 2013, 2014, 2015, 2017, and 2018.[34] Petitioner contends the licenses were necessary to rent the Property and the cost should be shared by Respondent.[35] But, because Petitioner received 100% of the rental income (as she was entitled to under the Agreement), I find it would be inequitable to shift 40% of the related cost to Respondent. Stated another way, Petitioner purchased and maintained the licenses in connection with her 100% interest in the rental income and, as such, she should shoulder 100% of the cost of the licenses.

         D. Respondent Should Not Receive A Credit For The Rental Income, Water Bills, Maintenance, Or. Repairs.

         Respondent seeks credits for 40% of the rental income received by Petitioner and for 60% of the expenses she covered while living at the Property, including the water bills, maintenance, and repairs. Initially, Respondent's claim for 40% of the rental income is barred by the Agreement, whereby the parties agreed Petitioner would receive 100% of the rental income.[36] ...


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