Division of Jointly Owned Property: Actio Communi Dividundo

The recent case of Municipal Employees’ Pension Fund and Others v Chrisal Investments (Pty) Ltd and Others (792/2019) [2020] ZASCA 116 (1 October 2020) (“MEPF v Chrisal”) the Supreme Court of Appeal (“SCA”) was asked to determine whether the Gauteng Division of the High Court correctly ordered the division of the property of a joint owned letting enterprise according to the actio communi dividundo. The SCA provided clarity on the distinction between bound and free co-ownership and developed the law regarding when the actio communi dividundo could be properly instituted.

When property is jointly or co-owned in equal shares, each party has the right to sub-divide the property and terminate the co-ownership. This is performed through instituting the common law actio communi dividundo. However, this right of termination of co-ownership does not apply in all circumstances.

The dispute in this case arose due to a falling out between the Municipal Employees’ Pension Fund (“MEPF”) and the holding company of various entities – Adamax Property Projects Menlyn (Pty) Ltd (“Adamax”). Adamax attempted to terminate the joint co-ownership of the properties owned by it and MEPF by using the common law action actio communi dividundo. The court a quo granted the order and ordered that the properties be liquidated, and the proceeds split according to the ownership of the parties.

The relationship was governed by a detailed co-ownership agreement between Adamax and MEPF regulating their ownership of the properties and the operating of the letting enterprise which they ran from those properties. In terms of this agreement, MEPF purchased a 55% share of the premises, which consisted of a few shopping centres, and an equal share of the letting enterprise, entitling them to rental from said premises. This agreement covered the distribution of income, incurrence of costs and other obligations for the letting enterprise and the immovable property itself.

Importantly, it also contained detailed provisions regarding the duration and manner in which either party may dispose of their interests in the business. Following a breakdown in the relationship, Adamax filed an application for termination of the co-owned immovable property based on the actio communi dividundo.

The main issue in MEPF v Chrisal was whether the agreements made between the parties in the co-ownership agreement constituted free or bound co-ownership. Free co-ownership occurs where the only legal relationship between two or more co-owners is the co-ownership itself. To illustrate, free co-ownership would occur where you and a friend decide to buy a television together. Here, there is no existing legal relationship which determines how property is divided and therefore the only legal relationship between the two of you is one of co-ownership. Bound co-ownership, on the other hand, is the situation where co-ownership forms part of an existing legal relationship. Traditionally this is best explained through a married couple whose marriage is in community of property. There already exists another legal relationship between the parties, namely the marriage, this determines how property is divided between them. The rights relating to co-ownership of the property belonging to the couple are but a consequence of the existing legal relationship. On dissolution of a marriage in community of property, the property is divided according to the existing relationship, not that of co-ownership alone. The married couple could not use the actio communi dividundo to terminate the co-ownership of the property while the marriage endures.

The main difference between these different types of co-ownership is that in bound co-ownership the co-owner cannot terminate the common ownership while the underlying legal relationship is still active and legally binding.

In MEPF v Chrisal, Adamax contended that they were entitled to institute the actio communi dividundo to terminate the co-ownership and instigate division of the properties because they could not be compelled to remain co-owners with MEPF against their will. This interpretation is based on a principle of public policy, ultimately rejected by the SCA as overly narrow in these circumstances.

The SCA held that bound co-ownership can be created through a will or even a contract and therefore division of the co-owned property cannot happen at any moment. Bound co-ownership inherently limits the right to terminate the co-ownership relationship and it cannot be done at any given time.

The SCA was then faced with the question of whether the co-ownership between MEPF and the Adamax was one of bound or free co-ownership. The relationship between the parties constituted in their co-ownership agreement was a joint business venture and was regulated by the agreement between the parties. The co-ownership agreement established the terms of the contractual bond between the parties and those terms made it sufficiently similar to a partnership. The SCA found that the co-ownership established between the parties should, due to its fundamental similarity to a partnership, be treated as a such. In reaching this conclusion, the SCA considered the guiding factors of the subject matter of the co-ownership and the circumstances in which it originated. The Court found that the primary relationship between the parties was their relationship relating to the letting enterprise, the joint business. The co-ownership of the immovable property merely formed as a consequence of that relationship and it was bound to the letting enterprise.

MEPF and Adamax’s relationship therefore was that of bound co-ownership and the actio communi dividundo was inappropriate as a remedy the situation. The termination of the co-ownership in the immovable property could therefore not be effected until the co-ownership of the letting enterprise was terminated in accordance with the terms of the co-ownership agreement.

The SCA upheld the appeal and the decision of the court a quo ordering division of the property based on the actio communi dividundo was set aside.