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We as a family agree so why do we need a written Farming Partnership Agreement?

27 Apr 2016

At Hay & Kilner, we meet many farmers who are operating as a partnership and in the majority of cases there is either no Partnership Agreement in place or at best a very old Agreement exists which is now out of date. The adage “my word is my bond” is certainly an important one, but if there’s nothing in writing and things turn sour, how do you protect yourself and the family business? Disputes over farming Partnership Agreements often end up in court because of a lack of solid advice given to parties as in the case of Ham v Ham.

Why should we have a farming partnership agreement?

Partnership Agreements are usually much more detailed than they first appear due to the need to clarify such matters as valuable assets, liabilities, income for the partners, issues of land ownership and succession planning elements.

There are different types of Agreement and careful consideration must be made about which one is appropriate. The most common type of farming partnerships are “traditional partnerships”, governed by the Partnership Act 1890. If under the traditional partnership model certain events are not considered in a written agreement (such as a partner dying) the law dictates the outcome which is not always desired. A partnership could be brought to an end, for example, unintentionally.

In this complex area, dictated by partnership law and having its own particular tax implications, there are many aspects to be addressed by both the parties to an Agreement and by the professionals advising them.

Typical things to consider:

  • What would happen if a partner died, lost mental capacity or retired (and would the partnership continue under any or all of those circumstances)?
  • How would a partner leaving the partnership be paid out?
  • What would happen if a partner is involved in divorce proceedings?
  • How would a leaving partner’s interest be valued?
  • What would happen in the event of a dispute?
  • Are all partners equal? Do they have to dedicate all their time to the partnership? Does one or more of the partners have control and the “final say”?
  • Which assets do you include as partnership assets (such as land and entitlements) and what are the tax implications? A review of the title deeds should be carried out to make sure assets are owned correctly.

Protecting your farming interests

With family farms, the next generation of partners usually relies heavily on inheriting partnership interests. It is imperative that advice is sought on the correct terms of the Partnership Agreement. Alongside the agreement, and with input from the farm accountant and sometimes Land Agent, Wills should be made (or reviewed) by all partners to provide the utmost peace of mind about protecting farming interests.

For further information or advice, please contact Alison Hall on 0191 232 8345 or email: Alison.Hall@hay-kilner.co.uk