UK: Farming Assets: Do They Belong To The Partnership Or The Individual Partner?

Last Updated: 6 February 2019
Article by Kevin Fletcher

Many assume if an asset, such as farmland, is referred to in the partnership accounts that it is a partnership asset. As such, on the death or retirement of a partner, you would expect its value to be brought into account when calculating the amount due to the outgoing Partner. However, that is not always the case. In the recent case of Wild v Wild [2018] the court decided the farmland was not a partnership assets, despite it being included in the business accounts. It reminds us of the importance of having a properly drawn-up Partnership Agreements and Declarations of Trust to establish the ownership beyond doubt.

Wild v Wild involved a family farm, including a farmhouse and small bungalow, owned by Ben in his sole name. In 1978 he went into partnership with his 16-year old son Malcolm. Years later Ben's other son, Greg, became a partner. Malcolm and Greg continued to run the farm after Ben's death in 2003. Their relationship became increasingly acrimonious and in 2016 the partnership was dissolved.

No Partnership Deed ever existed. The earliest Partnership accounts available were from 1989 and showed a fixed asset of £40,750 described as "property".

Greg brought proceedings arguing that the farm was an asset of the Partnership. As such it should be divided between him and Malcom. Malcolm and Ben's wife, Jean, argued that the farm belonged to Ben personally, outside of the partnership, and passed to Jean on Ben's death. The Court held that the reference to "property" in the accounts must refer to the farm, but the farm was not a Partnership asset and it passed to Jean, in 2003.

The use of the land by the partnership is not enough to infer that it is partnership property. The land should have been added to the partnership by Ben with Malcolm's agreement, for it to become partnership property. The land was not required to belong to the partnership for business efficacy. The farm business could, and did continue, on the basis that Ben was the legal owner. The Court also considered that given Malcom's young age at the time the partnership began, Ben was unlikely to give up ownership and control of the farm to the partnership. Ben may have included it in the accounts for tax purposes or it might be a continuation of his sole trader accounts. Ben could have been expected to want his other children to benefit from the land.

Whilst Wild v Wild is not a ground breaking case, it is a useful reminder of previous case law:-

  • Partnership accounts, which include particular assets, will not be conclusive evidence of the legal owner of the asset
  • The Courts are unwilling to imply a term into a partnership agreement except where it is absolutely necessary to give business efficacy to the arrangement
  • One partner cannot unilaterally cause their property to become a partnership asset without prior agreement or subsequent acceptance

It is often the case that partnerships have existed over many decades and possibly several generations. It is therefore advisable to have a Partnership Deed. Where a Partner owns the legal title of a "farm asset" a Declaration of Trust should be put in place to evidence that the partnership owns the beneficial interest in the asset to provide clarity and hopefully avoiding lengthy and costly legal proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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