what are the rules when you have multiple owners (5) of a rental property and four of the owners want to sell the property and one does not?

Question

what are the rules when you have multiple owners (5) of a rental property and four of the owners want to sell the property and one does not?

Answer

They work it out, or the four file a lawsuit called a "partition" action. In a partition action the court will sell the property just like a foreclosure sale (meaning everyone gets less money than if sold through a normal transaction) and the court will divide the proceeds, or the parties will work it out as a settlement of the lawsuit like they should have in the first place.

Answer

The first question to be decided is whether the five are in a general partnership or not; this may be a partnership even though the co-owners don't have a partnership agreement and didn't intend to form a partnership. General partnerships are found based upon the co-owners' conduct, not their intention. However, not all co-ownership of income property results in a partnership, especially when the co-ownership is "accidental" such as by inheritance, rather than the conscious intention of the owners to operate a business and share the profits (or losses). The distinction is necessary because breaking up a partnership based on the desire of four of the five partners to do so may be quicker, easier and cheaper than a partition, and may not require going to court.

If the co-ownership doesn't amount to a partnership, any or all of the four owners wishing to sell may file for partition. (Actually, partnership property can be partitioned as well).

The effect of bringing a partition suit is often to induce the reluctant party to change his tune and cooperate in the sale, rather than endure the costs of defending a suit he is very likely to lose. There are very few defenses to a partition suit. One worth mentioning is "waiver" of the right to partition. A waiver can be implied the the owners have given each other rights of first refusal, or have agreed to develop or improve the property in certain ways that are inconsistent with putting it on the market right now.

When a partition takes place, the net proceeds (after paying off liens and other expenses) are divided according to (former) ownership percentages, with appropriate adjustments, if any, for reimbursement of excess expenditures a former owner may have made, above his fair share, for necessary expenses such as mortgage payments, property taxes, insurance and necessary maintenance and repairs. In the case of an income property, there may also be adjustments to divvy up rental income fairly.

Finally, a partition doesn't always involve a foreclosure-type sale. By agreement of the litigants or by court order, the sale can be done through normal broker-listing and MLS procedures.