Improving partnerships

Time to get partnerships in line

“If you cannot trust your family who can you trust?”

IT is a fact, universally acknowledged amongst professional advisors, that a farming business which is run as a partnership is in want of a decent partnership agreement – in writing, reflecting not only the nuances of conducting an agricultural business on the land, but also the circumstances, dynamics and aspirations of the current partners.

It is estimated that 10% of UK businesses are traditional partnerships, but in farming the percentage is significantly higher, with worryingly few having a written and/or up-to-date partnership agreement.

There is the added dimension that, in most cases, the co-partners are members of the family. If you cannot trust your family who can you trust? What could possibly go wrong – after all blood is thicker than water?

The answer, of course, is that it is just these types of arrangements which can go spectacularly wrong. In the past few years there have been a number of legal cases where there was either no partnership agreement or the agreement did not cover appropriately the circumstance that had arisen.

In the Court of Appeal decision of Ham v Ham (2013) EWCA Civ 1301 Lord Justice Briggs commented on the interpretation of particular clauses within a written farming partnership agreement that “it is unhappily common for this type of issue not to be clearly dealt with in partnership agreements. It is an obvious problem in relation to farming partnerships, where the land forms an asset of the firm. It is hoped that, in future, those preparing such agreements will take note of the anxiety, expense and delay which such unnecessary uncertainty can cause”.

This case concerned a 178 hectare dairy farm in Frome, Somerset in which the partners consisted of Ron and Jean Ham (husband and wife), and their son, John. The business began in 1966 and John joined the partnership in 1997. The hope and intention of the parents was for John to one day inherit the farm and carry on the business.

At first everyone worked well together. But by 2009 it was clear there were material differences on the strategy of the future of the farm. As a result, John resigned from the partnership citing irreconcilable differences with his parents.