Farming partnerships – what happens when a partner dies?

Farming partnerships are often the backbone of family-run farms, with many families operating without a formal written agreement. Even where written agreements exist, they are frequently outdated and may no longer reflect the realities of how the partnership operates. Sarah O’Grady, Senior associate and farming disputes specialist, explains key considerations for farming families when a partner passes away.

What if there isn’t a written partnership agreement?

In the absence of a written agreement, the partnership is governed by the Partnership Act 1890, which sets out default terms. However, these can be overridden by the partners’ established practices, known as their “course of dealing.”

For example, while the Act states profits and losses should be shared equally, if partners have historically shared them differently, this practical arrangement may take precedence. Reviewing the actual operations of the partnership is crucial to understanding its terms.

What happens if our partnership agreement is outdated?

Even if your agreement is decades old, it will still be relevant—particularly if it specifies what happens when a partner dies. However, changes in how profits and losses are shared could mean the partnership has evolved beyond the agreement’s original terms. Regular reviews and updates are essential to avoid uncertainty in such situations.

What happens when a partner dies?

The first step is to check for a written partnership agreement. Ideally, it will outline what happens upon a partner’s death. However, not all agreements include this, and if there’s no agreement or nothing is said about a partner’s death within the existing agreement, the Partnership Act 1890 stipulates that the partnership dissolves upon the partner’s death.

Practically speaking, farms cannot cease operations overnight. If the partnership must be wound up, the surviving partners are responsible for this process, with the value of the deceased’s share becoming a debt owed to their estate.

If the agreement allows the partnership to continue, the surviving partners must pay the value of the deceased partner’s share to their estate, unless the agreement stipulates otherwise. Until then, the deceased’s share remains part of the partnership and their personal representatives can elect to either:

1. Receive a share of the profits attributable to the use of the deceased’s assets, or
2. Claim interest on the value of the share at 5% per annum.

However, if the surviving partners have an option to purchase the deceased’s share, the deceased partner’s estate is not entitled to any other share of profits.

Who owns the farm: the partnership or an individual?

It is important to remember that the person(s) named on the title deeds may not be the outright owner(s) of the property; the partnership is not a legal entity and cannot own property in its own right. Partnership property therefore needs to be owned by the partners themselves and they hold it on trust for the partnership.

The partnership accounts should be drawn up to reflect the position set out in the partnership agreement and should contain a separate land capital account.

Disputes about whether the farm itself is a partnership asset are common. If there’s a well-written partnership agreement, it should clearly define partnership property versus individually owned property. It will also set out the individual partners’ respective shares in the partnership assets.

Where the position is unclear, the court will assess all available information and make a decision . Even if the farm appears in partnership accounts, this doesn’t automatically make it partnership property.

The case of Ham v Bell [2016] EWHC 1791 (Ch), highlighted this complexity. In this case there was an argument between a son and his parents as to whether the farm was a partnership asset. The judge found that the accounts were simply one piece of evidence and, in that case, the fact that the farm had been included in the partnership accounts for a number of years was a mistake and did not mean that the farm was partnership property. The court also considered the parents’ wills, which had been made before their falling out with their son and had been drawn up by the same solicitor who had drafted the partnership agreement four years earlier (and so would have known whether or not the farm was partnership property). Under their wills the parents left part of the farm to their daughter and the judge found that this evidenced the parents’ understanding that they owned the farm outright and it was not a partnership asset. The court ruled that the farm’s inclusion in the partnership accounts was a mistake and it remained the outright property of the parents.

Key points to remember

Unless the partnership agreement dictates otherwise, it is possible to leave the value of your partnership share to pass to someone in your will, however you cannot leave individual partnership assets under your will because they are held on trust for the partnership and you are not free to deal with them under your will.

Ultimately, the question of whether an asset is a partnership asset will be determined by considering the facts of the particular situation. It can be a complicated exercise to undertake and often there will be conflicting evidence. The following three points are helpful reminders when faced with this issue:

1. Usage doesn’t equal ownership: Just because the partnership uses an asset doesn’t mean it owns it.
2. Source of funds matters: Assets bought with partnership profits are likely to be partnership property.
3. Accounts aren’t definitive: Partnership accounts are just one piece of evidence in determining ownership. If an asset appears on the partnership accounts, this does not mean it is necessarily partnership property.

Seeking advice

Farming partnerships are complex, especially during emotional times such as the death of a partner. Ensuring your arrangements are clear, up-to-date, and aligned with your intentions can prevent disputes and safeguard your farm’s future.