Savills explains why regular valuations are key for farmers

The importance of a farming partnership agreement

A recent legal case highlights the importance of up-to-date farming partnership agreements.

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 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.

Rebecca Heaton from the rural team at Savills in Suffolk (Image: Richard Marsham - RMG Photography)

Earlier this year, the court ruled 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. If not, they would have been forced to rely 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 that partnership agreements are important for practical reasons, such as the division of income and the operation of bank accounts on the death of one party. The Procter vs. Procter 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

An 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 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 and regular valuations of partnership agreements are recommended to ensure that farming businesses are best placed to thrive in an ever challenging political and economic environment.

For advice on the rural sector in Suffolk, please contact Rebecca Heaton at Savills on 01473 234823 or email rebecca.heaton@savills.com