Farming on a handshake? What happens when things go wrong?

For many family farms, business arrangements evolve over years of shared labour, mutual trust and “gentleman’s agreements”. Work is divided, profits are shared, reinvestment is agreed around the kitchen table, and formal paperwork can feel unnecessary or even out of place. Yet when relationships sour, generations change, or a key person dies, the absence of a written partnership agreement can turn a thriving farming enterprise into a legal minefield. English law does step in to fill the gaps – but not always with the results that any of those involved expect or would have intended.

The legal backdrop: the Partnership Act 1890

At the heart of traditional partnership law is the Partnership Act 1890. It provides a set of default rules that apply where there is no written agreement, or to fill the blanks where an agreement is silent. A partnership arises where two or more people carry on a business in common with a view of profit. That can (and in a family context often does) happen without a formal agreement; courts look at conduct, profit sharing, and the parties’ intentions. The Supreme Court (House of Lords as it was at the time) has confirmed that a partnership can exist before trading begins if the parties embark on the venture together.

The Act’s default rules matter. Absent an agreement to the contrary, partners share profits equally regardless of capital contributions, are not entitled to a salary, and owe fiduciary duties to each other. Critically, any partner in an “at will” partnership can dissolve it by notice. Death or bankruptcy of a partner automatically dissolves the partnership, even if there are several partners and only one has passed away or become bankrupt. On dissolution, there is a statutory order of applying assets and paying out partners. These provisions can be jarringly out of step with how many family farms actually run on the ground.

When family relationships break down

Family dynamics complicate everything. Farming partnerships commonly include spouses, parents and adult children. If a marriage breaks down, or a parent-child relationship fractures, or siblings are in dispute, the ripple effects hit both the business and the land base. Without clarity about who owns what and on what basis, parties risk parallel disputes, delay and costs. We’ll be considering the interplay with family disputes – particularly matrimonial finance – and with other claims such as proprietary estoppel and Inheritance (Provision for Family and Dependants) Act 1975 claims further in future editions of Field Notes.

Two recurring flashpoints are: whether there is a partnership at all, and if so, what its assets are. Courts examine factors such as joint decision-making, how profits were shared, how drawings and capital were recorded, and what the accounts and tax returns show. Evidence of common purpose and reliance, especially over long periods where an adult child commits their working life to the farm, can be persuasive. But it’s not a forgone conclusion – courts can and, when appropriate, do find that a family member was an employee, helper, or cohabitee rather than a partner.

Is the farm a partnership asset?

Perhaps the most contentious issue is whether the farmland and the farmhouse are partnership property. Title is often in the parents’ personal names, with the partnership using the land and paying expenses. The law distinguishes between property owned by individuals who also happen to be partners, and property owned by the partnership itself. If land is partnership property, it is realised or allocated on dissolution under the Act’s default accounting rules. If it is not, it remains with the registered owners, and the partnership may only have rights to repayment of capital or to the value of improvements (if any).

Courts look for clear evidence that the partners intended to treat the land as partnership property. Useful indicators include whether the land is shown on the partnership balance sheet as an asset, whether partnership funds financed the purchase, whether the partners agreed that land introduced became partnership capital, and whether rents or charges were recorded if the partnership merely occupied land owned personally by one or more partners (noting that there are circumstances in which a tenancy can arise). The absence of formal transfer and the way accounts are kept can be decisive. Recent cases demonstrate that even where the farm is worked as a partnership, the land does not automatically become a partnership asset simply because it is used by the business.

Where the land is jointly owned but outside the partnership, the shares of the beneficial interest in the property may be disputed under trust principles. In family-based settings, courts have considered the whole course of conduct, including contributions and intentions, when deciding who owns what. That analysis can run alongside partnership accounting and amplify complexity.

Land being inadvertently treated as a partnership asset can also play havoc with wills and estate planning on the death of a partner.

The cost of informality

Unwritten partnerships work brilliantly – until they don’t. The default rule allowing any partner to dissolve an “at will” partnership by notice can trigger an abrupt end to operations and a scramble to wind up. Automatic dissolution on death or bankruptcy can also frustrate succession plans, jeopardise tenancies, and create liquidity crunches. Equal profit shares (absent agreement to the contrary) can feel unfair in multi generational settings where capital and labour contributions may vary dramatically or may shift substantially over time. Disputes over whether the farm itself is a partnership asset can pit siblings and spouses against each other and consume years of value in litigation.  Partnership agreements don’t have to be overly complicated – for many family farming partnerships a simple agreement may well be sufficient.  Even a straightforward short-form agreement can make a material difference both to ensuring that the partners’ expectations and understanding are aligned and to avoiding later disagreements and disputes.

Practical protections

The legal tools to avoid these outcomes are straightforward. A written partnership agreement can disapply the default rules and mirror the commercial reality of the farm. It can set profit shares, salaries or drawings, decision making protocols, admission and retirement of partners, continuity on death, and valuation mechanisms. Just as importantly, it can specify which assets are partnership property, and which are not, and require accounts to reflect that. Where land is to be partnership property, it should be expressly introduced and recorded; where it is not, the partnership should document occupancy terms and charges.

Alignment with wills, lasting powers of attorney, and any company or trust structures is essential. The aim is consistency: the ownership recorded at the Land Registry, the balance sheet, the agreement and the succession plan should all tell the same story. Regularly reviewing documents as family circumstances change can prevent outdated terms from undermining decades of work.

Conclusion

Trust and tradition are strengths of British farming, but they are not a substitute for clarity. The law will fill gaps in ways that may surprise and disappoint when families fall out or life events intervene. For those farming on a handshake, now is the time to write down what you already believe to be true about your business, your assets and your future. Doing so respects both the legacy you have built and the family relationships that sustain it.

How we can help

The team here at Charles Russell Speechlys includes private client specialists who can help document partnership arrangements and help future proof your arrangements, family lawyers who can advise on asset protection and the interplay between partnership issues and matrimonial finance and dispute resolution lawyers who can help resolve contentious issues and find a way through any thorny disagreements your partnership might be facing. We would be happy to discuss how we can help.

Field Notes is Charles Russell Speechlys’ weekly agricultural law blog, sharing plain-English insight into the legal and policy issues affecting agriculture, agricultural land and rural business life. From hints and tips on avoiding agricultural disputes, pitfalls to keep an eye out when planning for tenancy or family agri-business succession, to the latest agricultural legislative or policy changes and the most interesting farm-related court decisions, Field Notes makes the complex more understandable, always grounded in the realities of life on (and off) the land.

Field Notes comes out every Wednesday. Previous editions of Field Notes include:

• Harnessing the Law: Equine Impoundment and Fly-Grazing Challenges
• What do agricultural landlords and workers need to know about the Renters’ Rights Act?
• Maile v Maile – Assurances and Detriment Under the Microscope in Family Farm Claims
• Family farm and the family firm: When sibling rivalry becomes unfair prejudice
• Fireworks, livestock, and liability: what risks and duties do farmers and event organisers need to be aware of?