There is little doubt that having in place an up-to-date partnership agreement, including provisions concerning, amongst other matters, death and retirement has never been more important.
Clear provisions should confirm how assets are owned and profits (both capital and income) divided amongst the partners. Otherwise this can prove to be a problematic area both practically and from a tax perspective particularly, where and when relationships break down.
In the sad case of Ham v Ham which involved a partnership between a son and his parents running a dairy farm, the need for clarity, which there was not, could not have been greater.
A provision in the partnership deed entitled the son to end the partnership on giving three months notice. The parents elected to purchase his share at net value. The dispute was over how the sons interest i.e. how "net value was to be calculated.
Whilst the Court of Appeal in the Ham case expressed sympathy for the parents and acknowledged the anxiety, expense and delay suffered by the family, it was ruled that the sons share should be valued assuming that the partnership was to be wound up, and including the unrealised profits and gains in the value of the farmland effectively current market value. The well documented massive increases in farm values had the obvious "knock on effect for the parents in terms of increasing the amount they had to pay to their son.
It is always worth reviewing, and if and as necessary, updating partnership agreements.
At Latimer Hinks we have a checklist intended to help clients and potential clients compile an accurate and comprehensive summary of their requirements which is essential before any farming partnership agreement can be prepared. Please feel free to download the checklist.
Your Partnership Agreement Checklist
For further information: www.latimerhinks.co.uk or call 01325 341 500.
Please note: This article is intended as guidance only and does not constitute advice, financial or otherwise. No responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by Latimer Hinks.
NOTES TO EDITORS
Latimer Hinks solicitors, based in Darlington, has a team of around 40 people serving private and corporate clients. Their range of expertise and services covers legal issues surrounding commercial, residential and agricultural property, wills and lasting powers of attorney, trusts, probate, long-term care, tax planning, commercial law, alternative and renewable energy, property and disputes, business rescue, employment, and land-owning.