Agreeing partnership property
Property interests in the context of farming partnership businesses can often be one of the more complex issues that appointed professionals are asked to resolve. Head of Agribusiness Richard Miller discusses why you should agree partnership property.
Property interests in the context of farming partnership businesses can often be one of the more complex issues that appointed professionals are asked to resolve.
The balance sheet of a trading entity may refer to assets such as land, buildings and houses, which on the face of it will be owned in accordance with the respective capital accounts of each partner within the business. However, the legal title to the property will not necessarily mirror this position. This is best explained by means of a working example:
- Messrs Giles are a farming partnership comprising of Mr & Mrs Giles;
- 50 acres of land is on the balance sheet dating back to when the property was acquired;
- The legal title to the property shows that the land was bought in the sole name of Mr Giles;
- Therefore, is this land partnership property or in the sole ownership of Mr Giles?
The answer is that neither the balance sheet nor the legal ownership will be definitive. Resolving this quandary will be done by:
Conducting research into how the property was acquired. Did Mr Giles use his personal savings to purchase the land or was this footed by the partnership account? If the former, there would be a strong argument to suggest that the legal title represents the correct position; and
By reference to the most recent written Partnership Agreement. The agreement should include a clause detailing whether property owned by a partner (or partners) of the partnership and occupied by the trading business is either:
Vested in the legal owner and the partnership occupies this under licence from the owner; or
That such land is held on trust by the legal owner for the benefit of the partnership.
Rather than deal with this issue retrospectively, it is good practice to liaise with your accountant and solicitor when property is in the process of being acquired so as to ensure that:
- It is being bought in the correct name(s);
- The balance sheet of the Partnership will either have this added to it or excluded from it; and
- There is a Partnership Agreement in place that reflects the agreed position.
If you have any queries relating to partnership agreements, please contact a member of the Agribusiness team on 01228 552222.
About the author
Richard is a partner and Head of Burnetts’ Property team.
Published: Wednesday 11th May 2016