Co-ownership Sale Philippines

Dear Attorney,

I would like to seek your legal advice regarding the sale of a co-owned property, specifically when one of the co-owners has passed away. What are the legal requirements to proceed with the sale of the property, considering the death of one of the co-owners?

Concerned Co-owner

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Insights

In the Philippines, the sale of a property held in co-ownership when one of the co-owners has passed away involves several legal steps and requirements. When a co-owner dies, their share in the co-owned property does not automatically transfer to the remaining co-owners. Instead, the share of the deceased co-owner becomes part of their estate, which must first go through a legal process before it can be sold.

The legal principle that governs this situation is found in the Civil Code of the Philippines, specifically under the rules of co-ownership and succession. Below are key insights into how this process works:

1. Settlement of the Estate
   The first step involves the settlement of the deceased co-owner’s estate. Under Philippine law, the heirs must initiate either extrajudicial settlement (if there is no will and the heirs agree on the division of the estate) or a judicial settlement (if disputes arise or if there is a will involved). Until this settlement process is completed, the heirs cannot sell or dispose of the decedent’s share in the co-owned property.

2. Transfer of Ownership to Heirs
   After the estate is settled, the decedent’s share is transferred to their heirs, either through the execution of a deed of extrajudicial settlement or a court order in case of a judicial settlement. The heirs then collectively step into the shoes of the deceased co-owner, meaning they now hold that co-owner’s share in the property.

3. Right of the Heirs
   Once the heirs have been declared the legal owners of the deceased co-owner's share, they have the same rights as any other co-owners. This means they can either participate in the sale of the property, or if they disagree, they can invoke their right to refuse the sale of their share. If the heirs do not agree to sell their inherited share, the remaining co-owners cannot unilaterally sell the entire property.

4. Right of First Refusal
   The Civil Code grants the co-owners the right of first refusal, allowing them the first opportunity to purchase the share of any other co-owner who wishes to sell their part. If the heirs of the deceased co-owner wish to sell, they must first offer the decedent’s share to the remaining co-owners before selling to third parties.

5. Partition of the Property
   If the co-owners, including the heirs, cannot agree on selling the entire property, a partition may be necessary. In a partition, the property is divided into portions corresponding to each co-owner’s share. If physical division is not possible, the property may be sold, and the proceeds are distributed among the co-owners, including the heirs.

6. Other Requirements
   It’s also important to ensure that all taxes, such as estate tax and capital gains tax, are settled. The estate tax must be paid to transfer the deceased co-owner's share to the heirs, while capital gains tax will apply upon the sale of the property.

In conclusion, selling a co-owned property when one of the co-owners has passed away involves more than just the agreement of the surviving co-owners. It requires the settlement of the deceased co-owner’s estate, the transfer of their share to the heirs, and the consent of all heirs to sell their inherited portion. Co-owners should also be aware of their right of first refusal and other legal requirements to ensure the sale is legally valid and binding.