Property litigation – who owns the land?

Farms are often handed down through many generations, often without any legal documentation, with title to the farm land and buildings invariably being unregistered and frequently being difficult to fathom.

On a day-to-day basis, this might not present a problem but certain life events, such as death, divorce, retirement, bankruptcy or farm sale, or indeed where a legal dispute arises, may make it necessary to establish who owns what and on what basis, as Johanne Spittle, Director, Litigation & Dispute Resolution and agricultural specialist at Ware & Kay and Pearsons & Ward in Malton, York & Wetherby explains. 

Farms can be owned in many ways, such as by a partnership, limited company or trust. It is advisable to have a written agreement in place for all these models, setting out how assets are owned, the process required if one of the above life events occurs, and addressing issues like decision-making, succession planning, tax, time management, and profit/loss share.

Failure to have a partnership agreement, for example, means that the Partnership Act 1890 applies, this Act enforces draconian terms, such as a partner death forcing the dissolution of the partnership, and all partners sharing losses and profits equally regardless of input. A lack of clarity over which assets are partnership property and which are individual partner assets can also have grave consequences in terms of tax and property reliefs.

Similarly, although a limited company must legally have articles of association (written agreed rules outlining how the company should be run), it is prudent to also have a shareholder agreement which, not being a public document, allows you to agree matters which you would like to keep private (e.g. your dividend policy).

Legal wrangles often erupt over farm ownership following a farmer’s death and a court may be asked to make an order for:

• proprietary estoppel – if the farmer promised a share of the farm to someone during their lifetime but this was not reflected in the Will; or
• a beneficial interest – entitling someone to a financial share of the farm or an occupation right it they added value to the property in some way – even if they did not contribute to the initial purchase price.

Forgotten tenancies can cause headaches when farmland is passed to the next generation, as a tenancy (which may still exist even if rent has not been paid for ages) can reduce inheritance tax relief and deter potential buyers.

Problems can also emerge if the farmer loses mental capacity for example, if assets need to be sold. If there is a lasting power of attorney (LPA) in place in which the farmer has named someone to make decisions for them while they are incapacitated, the sale can continue unhindered; without one, the sale could be held up for months until the farmer regains capacity or the Court of Protection appoints a deputy.

Boundary disputes are a common source of farm ownership strife, with farmers frequently encroaching onto each other’s land either knowingly or unintentionally. If the adverse possession criteria are satisfied, the encroacher can claim legal title to the land, so it pays to conduct regular property inspections, mark boundaries clearly, and swiftly address encroachments.

How we can help

Our agricultural experts can work with other professionals to get your farm properly valued and assess on what legal basis it is held. We can suggest changes to the ownership structure aimed at minimising tax, maximising reliefs and providing clarity to help ward off legal challenges.

We can draft LPAs and written agreements which suit your business model, check existing documents relating to land ownership (partnership agreements, Wills, accounts etc.) to ensure that they do not contradict each other, and that any beneficial and legal interests are in writing and land properly registered.

If disputes arise, we will strive to negotiate with the other parties to reach an-out-of-court settlement but, if litigation is inevitable, we will be by your side throughout the process, offering legal advice and representation.

Please contact Johanne Spittle on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or email Johanne.spittle@warekay.co.uk for further information and to see how we can help.