Partnerships – the importance of keeping the Land Registry title documents up to date
A partnership is the relationship which exists between persons carrying on a business in common with a view to a profit. A partnership will usually automatically exist in such circumstances and is known as a partnership at will.
A partnership at will is governed by the provisions of the Partnership Act 1890 ('the Act'). The provisions of the Act can leave partners vulnerable and can have unintended results such as the following:-
- a partnership at will is dissolved automatically when one partner leaves or when a new partner joins; and
- The profits and debts of the partnership are automatically shared equally between the partners.
It is therefore strongly recommended that partners consider entering into a partnership agreement with the other partners so that the partnership is governed by specifically tailored provisions.
Partnerships can often use property assets for their business whether they own the freehold interest or are a tenant under a lease. A partnership has no separate legal personality and it cannot therefore own property and it will be owned by the individual property owning partners. The Land Registry will allow up to four property owning partners to be named at the Land Registry as legal owners. It is usual for the legal owners to hold the partnership property on trust for all of the property owning partners from time to time in the partnership. The partnership agreement can then specify the shares which each partner holds in the property.
Problems can arise when legal owners change as the administrative step of updating the Land Registry records and the mortgage are overlooked. Example issues for current partners are as follows:-
- You will not be able to sell, mortgage or lease the property until the legal owners are updated;
- It can be a breach of the terms of your mortgage and your lease (if any);
- Notices concerning the property will not be addressed to you and you may not receive them. Even if you do receive them, you will not be able to respond to them.
Former partners can also experience problems if they are not removed as legal owners when they leave the partnership. Examples of issues for former partners are as follows:-
- They will continue to have duties as owners and could find themselves liable for breaches of covenant or breaches of lease obligations e.g. payment of rent and repair;
- They will continue to have obligations as borrower under the mortgage and should be formally released.
The longer the legal title is left not updated, the more of an issue it can become. For example, there can be issues locating former partners, they may have died or relationships may have broken down. It is therefore advisable to keep the Land Registry records up to date promptly after any changes.
If you are a property owner and need any more information about partnership property matters or need advice on your partnership agreement, please contact Kathryn Matthews in our Commercial Property team on 01904 688529 to discuss how we can help.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.