In a groundbreaking decision, the Massachusetts Land Court ruled that shareholders of close corporations can acquire corporate real estate through adverse possession. The case, Szawlowski v. Szawlowski Realty, Inc., set a precedent by concluding that a sibling/shareholder’s continuous use and control of both a home and a portion of land owned by the corporation were sufficient to support an adverse possession claim.
Understanding Adverse Possession
To establish ownership by adverse possession, a claimant must demonstrate:
- Actual Use: The claimant must physically use the property.
- Open and Notorious Use: The use must be visible and obvious, allowing others, including the true owner, to notice it.
- Exclusive Use: The claimant must use the property to the exclusion of others.
- Nonpermissive Use: The use must be without permission from the true owner.
These conditions must be met continuously for a period of 20 years to succeed in an adverse possession claim. The court evaluates the specific facts and circumstances of each case to determine whether all four elements are satisfied.
The Szawlowski Decision
In the Szawlowski case, the Land Court emphasized the fiduciary responsibilities that shareholders of close corporations owe to one another, which includes a heightened duty of utmost good faith and fair dealing. This context led to critical clarifications regarding adverse possession claims within close corporations:
Notice Requirement: A shareholder pursuing an adverse possession claim must provide express notice to the corporation, indicating that they are acting against the corporation’s interests. This requirement is crucial as it establishes that the shareholder’s use of the property is nonpermissive.
Failure to Challenge: If the corporation fails to contest the notice provided by the shareholder, the shareholder may successfully acquire title through adverse possession. An unchallenged notice serves as evidence of nonpermissive use, thereby supporting the claim.
Implications for Close Corporations
For close corporations looking to protect their real estate from adverse possession claims by shareholders, the Szawlowski ruling highlights essential steps:
Challenge Notices: Close corporations must actively challenge any notices provided by shareholders claiming adverse possession. This action is necessary to maintain control over corporate real estate.
Demonstrate Permissive Use: Corporations should document and demonstrate that the use of the property by shareholders is permissive rather than nonpermissive. Clear agreements or permissions regarding property use can serve as vital evidence in potential disputes.
Review Corporate Policies: It may be beneficial for close corporations to review and possibly revise their internal policies regarding property use by shareholders to minimize the risk of adverse possession claims.
Conclusion
The Szawlowski ruling represents a significant shift in how adverse possession claims can affect corporate real estate ownership. Shareholders of close corporations now have the potential to claim corporate property if they meet specific legal requirements. Consequently, close corporations must remain vigilant and proactive in managing shareholder use of real estate to safeguard their assets against such claims.
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