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Vol. III, No. 1, May 2006

Court Refuses to Partition Partnership Property

How many times have we partnered with someone on a deal?  Maybe you are a lone wolf and never have, but I wager more than one of you out there has gone in on a property in one way or the other.  Perhaps you are the bird dog who finds the deals. Or, maybe you are the money behind the project.  Maybe your arrangement is something in between. 

In any event, I imagine some of these ventures have been entered with no more advance planning between the participants other than who is going to do or pay what.  As you will see, the parties in Shepard case, I am sure, wished they had given it more thought.

Shepard and Ouellette entered an agreement whereby one of them conveyed one half of a piece of property to the other.  The agreement provided that after this conveyance “the parties shall be partners in their ownership of the subject property and each shall timely pay one-half of all future expenses associated with ownership of the subject parcel.” 

Though the deed into the other partner did not say expressly that property was intended to be partnership property, the court said it was unnecessary.  This is because Florida’s Revised Uniform Partnership Act provides that property acquired with partnership funds is presumed to be the partnership’s even if the title to the property is not in the name of the partnership.  The court said the parties intended the property to be owned by the partnership even though title was in the name of the individual partners.

The partners could not get along with one another.  A lawsuit was filed to dissolve the partnership and to partition the property so it could be sold.  Partition is a statutory remedy available to co-tenants to enable property jointly owned to be sold at judicial sale when co-tenants cannot agree to the sale by themselves.

The court denied the partition sale saying that the parties were not co-tenants.  The real owner of the property was the partnership and as such partition was unavailable.   The court went on to say that it did not rule out the possibility of a judicial sale of the property as part of the dissolution of the partnership, but for partnership property partition will not work.

How could these partners have structured this deal differently and have avoided this problem?  What immediately comes to mind is a land trust.  The land trustee of a Florida land trust holds legal and equitable title to the property.  The beneficiaries of the land trust hold all the real benefits of ownership such as profits and avails. 

The beneficial interest of a land trust is personal property.  With a Shepard type

dispute, there would be no legal title to be partitioned.  The land trustee would simply hold title until the beneficial owners worked out their differences, or the court did it for them, and directed the land trustee how to convey title.

Better still, the rights and obligations of the beneficial owners can be spelled out in the land trust agreement.  Or, they can be even more detailed with an additional beneficiary agreement.  The beneficiary agreement can be akin to a partnership or joint venture agreement.

Some of the useful things a beneficiary agreement can provide for are: income tax allocations; management responsibilities; capital contributions; remedies; rights of possession; transferability of interests; sale of interests; and disposition upon death or incompetence.

The partners could have also chosen a limited liability company.  Title would have been held in the LLC and the rights of the participants detailed in an operating agreement.  The operating agreement would be much like the beneficiary agreement in the land trust arrangement.

In conclusion, be aware of what you may be getting yourself into by simply “partnering up” with someone.  Give it some thought and spell out the rights and obligations between the parties while everyone is still high on the investment in the early stages.  After the wheels fall off or when the check is to be cashed is not the time to be considering these issues.

Article based on Shepard v. Ouelette, 854 So.2d 251 (Fla. 5th DCA 2003).

The information provided herein is not to be considered legal or financial advice of the publisher or author.  Readers should rely on their own legal or financial counsel regarding any matters described above.  No warranties, express or implied, are provided.  The foregoing may not be reproduced in whole or in part without the express written consent of the publisher.

 

 

The information provided herein is not to be considered legal or financial advice of the author. Readers should rely on their own legal or financial counsel regarding any matters described above. No warranties, express or implied, are provided. The foregoing may not be reproduced in whole or in part without the express written consent of the author.

© Jeffrey A. Icardi 2000