Partnership Property - is my property also my Partners?

Deciphering if a property held or brought by one partner is to be classed as Partnership Property in an Ordinary Partnership is crucial.

Partners may want to challenge the ownership of property for many reasons but the two most common being;

• The property is bringing benefits and the other partner wants to class it as partnership property to ensure the benefits are shared
• The property is bringing liabilities for which the partnership cannot afford, and the other partner wants to treat it as solely owned

When there is speculation as to the ownership of the property it can lead to dispute and lengthy litigation, only for the courts to decide which may have been against the parties true intentions.

Partnership Property is defined by s20 Partnership Act 1890 as including; “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.”

When a partner purchases or acquires property, there are 3 ways in which it may become Partnership Property;

• It may be brought into partnership stock
• It may be acquired on account of the firm
• It may be acquired for the purposes of the partnership and in the course of the partnership business

When property is purchased with partnership money, there is a legal presumption that the property is indeed Partnership Property. Wray v Wray (1905) held that because the contract for sale was signed in the name of the partnership and was brought by the partners it was acquired as Partnership Property and the debts and profits shall be shared.

From this case we would then need to consider if a partner was acting outside their authority and therefore could not have bound the partnership to buy any property.

A partner can be authorised to carry out business on behalf of the partnership by express or implied authority. The former may arise from a Partnership Agreement which has express delegation powers conferred on each of the partners. Implied authority needs to be considered in more detail. Partners, as agents of the partnership (s5 PA 1890), will enjoy a certain amount of implied authority which comes with the position of ‘Partner’.

Any restriction on a partner implied authority do not affect third parties dealing with the partner, such as the seller when purchasing property, UNLESS: the seller knew the partner didn’t have authority and they knew they were not a partner.

Express and Implied authority together can be called ‘actual authority’ BUT a person that is held out by someone who has actual authority to have the required authority has “apparent” authority and this can not be relied upon as a defence.

The fact that the partners use the property in connection with partnership business does not automatically make it Partnership Property. The case of Davis v Davis (1894) showed us that there must be evidence of some intention to use the property as Partnership Property. This intention will not normally be implied unless it is necessary to give “business efficacy” to the Partnership Agreement – i.e. To help the agreement make sense. (Miles v Clarke [1953]).

The question of ownership is important as it largely affects the partners themselves. When a partnership is dissolved, each partner is entitled to use the Partnership Property to pay off the firm’s debts in priority to using their personal property to pay the creditors. It also affects the priority of claims between the creditors of the partnership and the creditors of the partners personally.

It would also matter upon the death of a partner as to who is beneficially entitled to the property. If it is owned personally, it will pass under the will but if it is owned by the partnership, the surviving partner would be able to use it to repay debts.

Where partners hold property under s29 PA 1890, there is a duty to account for any benefit derived from the use of the property without consent from the other partners or they can be held liable to account profits and may be found to misuse the property which infers liability personally.

For further advice on the above, please contact a member of the team on 01926 954694