Rights of succession and the partnership tenancy

The case of Shirt v Shirt is a sorry family dispute of a nature all too familiar to those practicing agricultural law. Part of a wide ranging dispute concerned an agricultural tenancy of Rufford Farm.

The tenancy was granted to the father, Stanley Shirt, but when he set up a partnership with his wife Marie and son Alan, it was agreed that the tenancy was a partnership asset. Marie died and the relationship between father and son broke down. Before the partnership came to an end, the father failed to pay the rent for Rufford Farm and the tenancy was lost when the landlord served a notice to quit. The Court of Appeal has now upheld a claim by Alan that his succession rights to that tenancy were partnership assets, and that their loss should be taken into account in the claims between father and son on the dissolution of the partnership.

This decision was based on the case of Keech v Sandford and the principle that if a trustee holds a lease as trust property and then renews it, then that new lease is also trust property. This would be clearly correct in some circumstances but in many cases seems wrong in principle.

The decision assumes that even when father was alive there was a separate asset, independent of the tenancy itself, namely the right to apply for succession if at some unknown date in the future Alan was still eligible. Of course he might not be. He might have died or given up farming. Not every right is a legal asset. That was made clear in the legal debate about the nature of milk quota. The right , for example, to apply for a driving licence is not a legal asset. Not every right which relates to a tenancy is considered at law to derive from it. The statutory compensation payable to an agricultural tenant for disturbance is tax free because it derives from statute rather than from the tenancy.
The Court of Appeal said that Alan’s right to succeed derived from his occupation as partner. The true analysis is that it derives from a statutory right with three tests, only one of which related to Alan’s role as partner, and even that could have been fulfilled in other ways.

In a partnership of two partners it is a strange idea that when Stanley dies and Alan succeeds in claiming succession of tenancy, Alan would hold that new tenancy on trust for a partnership which would no longer be in existence.

This part of the decision seems incorrect and has worrying consequences. If it is right, will a son in Alan’s position be in breach of his partnership duties if he buys more land that would disqualify him under the qualifying unit test? Will a son in Alan’s position now be considered to hold a valuable asset for tax purposes?

The law has suddenly and un-necessarily become more difficult through a questionable decision of the Court of Appeal. In short, is the Shirt decision pants?