We all know how complicated farming partnership structures can become when family members, across different generations, are involved in a farming operation, and even more so when the interests of non-farming family members are factored into the equation.
Attempts to apportion assets in the interests of fairness while not compromising the farming business can lead to some very convoluted arrangements as a recent case proved. In Morton v Morton, two siblings, one farming, one non-farming (acting in her capacity as executor of her mother’s estate), went to court over the ownership of various properties and the dissolution of a farming partnership. A proprietary estoppel claim was thrown into the mix for good measure. Just how difficult the case was to unravel, and how costly, was illustrated by the fact that proceedings took place over eight days, during which time 16 witnesses were questioned, and the final judgment ran to some 64 pages.
The facts revealed in court provide a salutary lesson in the importance of administrative hygiene plus the need for everyone to understand exactly what arrangements are proposed and entered into, and the nature of a relationship between a will and a partnership agreement. Geoffrey and Jennifer Morton had bought Reddish Hall Farm, near Warrington in 1958 where they raised their two children, Simon and Julie. Over the next few years Geoffrey bought several parcels of land, all of which were incorporated into the Reddish Hall Farm business, some of which were in his name, some in his and Jennifer’s names, and others in his, Jennifer’s and Simon’s names. The original partnership agreement between Geoffrey and Jennifer was superseded by a second, draft partnership agreement between Geoffrey, Jennifer and Simon in 1985.
Terms of a will
In the meantime, their daughter Julie was pursuing a career unconnected with the farm but both she and Simon had been told by their parents that they would, in due course, be treated equally, a claim that was substantiated by their 1995 mirror wills. Geoffrey had also made repeated assurances to Simon that he would inherit the farm business, assurances that were confirmed by Jennifer. After Geoffrey’s death in 2001 (automatically dissolving the second partnership) all the land in his name transferred to Jennifer under the terms of his will, and a third partnership was formed between Jennifer and Simon.
It appears at this stage that Geoffrey’s and Jennifer’s intentions in terms of their children’s inheritance, as laid out in their wills, conflicted with the structure of the farming partnership and how the land and property was allocated within it. This was further complicated after Jennifer and Simon’s purchase of a second farm, Fairoak Grange Farm, partially funded by the sale of some Reddish Hall Farm land, without mentioning it to Julie (which did not improve interfamilial relationships). The Fairoak purchase triggered the drafting of another partnership agreement in 2012 to cover both farming operations. Crucially, it also included undefined ‘freehold property’ as a fixed asset of the partnership, including Pheasant Lodge, the house built for Geoffrey and Jennifer, and which was supposed to be inherited by Julie. The ‘secret’ purchase of Fairoak and the transfer of property into the fourth partnership agreement exacerbated an already cool relationship between the siblings and caused Julie and her mother to fall out.
Power of attorney
Nonetheless, both mother and daughter resurrected their formerly warm relationship and the former gave the latter lasting powers of attorney. Jennifer decided to make a new will in 2014, intending to leave her residuary estate to Julie and giving Simon the option to buy or rent the farm land included in the partnership agreement. However, it became clear that the property Jennifer thought was at her disposal was, in fact, not. Julie’s concern about the detrimental effect of the 2012 partnership agreement on her inheritance prompted her to encourage her mother to terminate it, which she did in 2015. In response, Simon served notice that he intended to exercise his option to buy Jennifer’s interest as set out in the 2012 partnership deed.
A few months before her death in 2016, Jennifer made a final will in which she left her entire estate to Julie, with an option for Simon to buy her share in land farmed under the partnership agreement within a six month timeframe. Julie, as executor of her mother’s will, brought the proceedings in order to establish who, or what owned which land. Simon pursued a counter-claim relying on proprietary estoppel on the premise that he had been promised Reddish Hall Farm and other land held as a partnership asset and that both he and his wife had acted to their detriment on reliance of this promise. The judge ruled that Simon did satisfy the three elements of proprietary estoppel but stopped short of awarding him the entirety of the land subject to the 2012 partnership agreement, on the basis of proportionality as it was clear that the parents intended both their children to benefit. In addition, Geoffrey could never have promised Fairoak to Simon because it was purchased after he died. Instead, the judge granted Simon an option to purchase his mother’s land, after having adjusted the respective shares in the land in Simon’s favour to reflect his successful proprietary estoppel claim.
Understanding the legal aspects
The constituent parts of this dispute will be eerily familiar to many: agreements made without consultation with other family members; a lack of understanding of how wills and partnership agreements interact; careless or inexact drafting of documentation leaving the door open to ambiguity; and paying scant attention to the partnership accounts. Failing to comprehend the level of interconnection between the business and personal aspects of the farm, is summed up neatly by Julie’s comment, under cross-examination, that none of them really understood the relationship between the will and the partnership; and Simon’s equally candid admission that he didn’t take a lot of notice of the partnership accounts. This case also represents a failure of communication. It is cases like this where an independent mediator can help to head off any nascent disputes by understanding the legal ramifications of a partnership agreement for all family members and its interaction with individual wills.