Is Your Close Corporation’s Real Estate Safe from Shareholder Claims of Ownership by Adverse Possession?
In a case of first impression, the Land Court decided that shareholders of Massachusetts close corporations may acquire corporate real estate by adverse possession. In Szawlowski v. Szawlowski Realty, Inc.,[1] the Court concluded that a sibling/shareholder’s use of and control over a home and a portion of corporation owned land were sufficient to support a claim of adverse possession.
To establish ownership by adverse possession, a claimant must demonstrate actual, open, exclusive, and nonpermissive use of realty continuously for a period of 20 years.[2] The court looks to the facts and circumstances of each case when deciding whether all four elements of the claim are satisfied.
Recognizing that shareholders of a close corporation owe each other a heightened duty of utmost good faith and fair dealing[3], the Szawlowski Court wrote that a close corporation shareholder pursuing an adverse possession claim must provide express notice to the corporation that said shareholder is acting adversely to the interests of the corporation.[4] If the corporation fails to challenge the notice, the shareholder may be successful in acquiring title. An unchallenged shareholder notice is evidence of nonpermissive use. A close corporation seeking to protect its real estate from shareholder claims of adverse possession must challenge such notices and demonstrate that the use is permissive.[5]
[1] 2024 WL 1675351 (Mass. Land Ct. Apr. 17, 2024)
[2] Id. at *6 citing Totman v. Malloy, 431 Mass. 143, 145 (2000)
[3] Szawlowski at *8 citing Tocci v. Tocci, 490 Mass. 1, 15 (2022)
[4] Id. at *9
[5] Id.
Categorized: Adverse Possession, Corporate Real Estate
Tagged In: adverse possession claim, close corporation shareholder, good faith and fair dealing
