Why up-to-date valuations are crucial in farming partnerships

The Savills Blog

Why up-to-date valuations are crucial in farming partnerships

For those who run a farming operation alongside others, a properly drawn up – and regularly updated – partnership agreement is essential to regulate how the partnership operates. This applies just as much to family partnerships, if not more so in some instances.

The importance of a farming partnership agreement

A recent UK case highlights the ever growing importance of an up-to-date farming partnership agreement. In Procter vs. Procter 2024, a partner who resigned her membership of a family farming partnership in 2010 without agreeing any financial terms, won her claim to be paid the value of her share in the partnership assets as at the date that she resigned.

There was no provision in the partnership deed for one partner to resign but her father and the other remaining partners accepted that the individual had ceased to be a partner, without any discussion about financial terms. Later down the line a claim was made by the individual for the value of her share in the partnership at the date of retirement.

Earlier this year, the court ruled that the valuation will be based on the actual value of the relevant assets at the relevant time, not the book value at which they have been entered into the accounts.

In this case, the family had a partnership agreement in place, but the lack of a formal agreement would have led to the reliance on the Partnership Act 1890 which, at over 130 years old, has the potential to cause problems for a modern farming enterprise.

We are often reminded of the importance of partnership agreements for practical reasons such as the division of income and the operation of bank accounts on the death of one party. This case further strengthens the need for an up-to-date agreement and valuation of the assets in the farming partnership to ensure those involved are not left exposed.

 

What to include in a partnership agreement

A written partnership agreement can cover many things including the name of the partnership, its commencement date and place of business, capital contributions, capital assets, withdrawal of capital and what happens if someone dies, resigns or is assumed to the partnership. To avoid cessation of the partnership on the death of a partner, the agreement should contain a clause outlining that the trade will continue. Consideration should also be given as to how to deal with surviving partners and paying beneficiaries of a deceased partner.

Frequent reviews of the enterprise along with the agreements that detail ownership are recommended to ensure that farming businesses are best placed to thrive in an ever challenging political and economic environment.

 

Further information

Contact Sam Greaves or Georgina Sweeting

 

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