Review partnership agreements to avoid costly disputes

Advisers warn that farming partnership agreements should be regularly reviewed to prevent costly arguments when a partnership ends.

These disputes are one of their most complex and expensive areas of work, they say.

One of the most common arguments is over how partnership assets should be valued and paid for when they pass from one partner (or their estate) to another.

See also: Legal considerations when a farm partnership ends

See also: Avoid tax traps when a farm business partnership ends

This can be at market value or book value, so there can be a huge difference between those sums. However agreements do not always set out clearly what method should be used and the row ends up in court.

Also, inheritance tax reliefs can be lost if the remaining partners are obliged (rather than simply being given the option) to buy an outgoing partner’s share, points out Daren Peacock, of accountant PEM.

Solicitor Jonathan Stephens of Wilsons also highlights the needs for the partnership agreement and each partner’s will to dovetail because where there is a conflict, the partnership agreement can take precedence. This makes it important that the ownership of assets is clear.

“If land is held in the partnership, the partners do not own the land itself, but an interest in the partnership capital,” says Mr Stephens.