Property

Document Cited authorities (17) Cited in Related
AuthorElspeth Berry
Pages49-58

Chapter 4 Property

4.1 GENERAL PARTNERSHIPS
4.1.1 Nature of ownership

As a partnership does not have separate legal personality (see Chapter 3), its property is held equitably by the partners as tenants in common, that is to say, in undivided shares, on trust for each other.1This can make it difficult to identify what belongs to the partnership through ownership by the partners collectively, and what belongs to the partners individually. Where the property in question is land, legal title can be vested in no more than four partners who hold it on trust for themselves and their fellow partners (s 34 of the Law of Property Act 1925; see also 7.1.1). Landlords may therefore require the other partners to act as sureties to guarantee the obligations of the trustee partners, or to be contractual tenants and thus parties to the lease.

4.1.2 Identifying partnership property

Property may be identified as partnership property either by virtue of ss 20– 21 of the Partnership Act or pursuant to the partnership agreement (if any). Section 20(1) defines partnership property as:

All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business.

Whether an asset falls within this definition does not depend on whether it is assignable at law.2Property ‘brought into the partnership stock’ includes

1Fawcett v Whitehouse (1829) 1 Russ & M 132, 39 ER 51.

2Don King Productions Inc v Warren and others [1999] 2 All ER 218.

50 Partnership and LLP Law
property brought in as capital by a partner and credited to his capital account.3

The amount credited remains part of the partner’s capital but any fluctuations represent capital profit or losses of the firm.

Section 21 provides that property bought with the partnership’s money is presumed to have been bought on account of the partnership4(see also 2.1.1). In Nadeem v Rafiq and another5(see also 2.1.1), the court held that the premises used by the business were an asset of the partnership pursuant to s 21. The £25,000 deposit for the purchase price of the property came from the business bank account, and the claimant and the first defendant had effectively shared equally in that deposit through their contributions. Legal costs were paid from the business bank account, the business bore the cost of the claimant’s and the first defendant’s mortgage from its sales, and the premises were bought specifically for use as the business premises. In the Scottish case of Longmuir v Moffat and others,6a partner in a farming partnership purchased a farm abutting the partnership farm in his own name but with funds from a partnership bank account. The court held that the legal title was not conclusive as to beneficial ownership and might not reflect the true position regarding such ownership. It noted that were this not the case, s 21 would be unworkable because the reference to property bought on account of the firm clearly signified beneficial ownership.

The accounting treatment of property is not conclusive as to its status.7

In the absence of agreement by the partners, mere use of property by the partnership is generally insufficient for it to be regarded as partnership property. However, in Waterer v Waterer,8land used in a nursery business was held to be partnership property because of the nature of the business; the soil could not be separated from the trees and shrubs growing in it which were stock in trade. In Miles v Clarke9(see also 4.1.5), which concerned a photography business, the court held that, in the absence of agreement, only property which was necessary to give business efficacy to the relationship constituted partnership property. The stocks of film used in the course of the business, and the resulting negatives, were therefore partnership property,

3Robinson v Ashton (1875) LR 20 Eq 25.

4See e.g. Rees v Dartnall [2009] EWHC 3923 (Ch), [2009] All ER (D) 244 (Feb).

5Nadeem v Rafiq and another [2007] EWHC 2959 (Ch), [2007] All ER (D) 303 (Dec).

6Longmuir v Moffat and others [2009] CSIH 19, 2009 SC 329.

7Miles v Clarke [1953] 1 All ER 779 (see below) and Barton v Morris [1985] 1 WLR 1257.

8Waterer v Waterer (1872–73) 15 Eq 402.

9Miles v Clarke [1953] 1 All ER 779.

Property 51 because they were not just used, but used up, and the partner who contributed them could not have intended to take them out again. However, the negatives and prints brought in to the business, the lease of the premises, and the furniture, fittings and equipment were not partnership property because mere use was not enough. They continued to belong to whichever partner had brought them in. In Coward v Phaestos Ltd and others,10the claimant and his wife had been in two successive partnerships together, providing investment management services based on a unique software system developed by the claimant...

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