The Family Business: We have told our daughter that the farm will be hers one day. She cannot rely on this, can she?

10 July 2015

This was the situation faced by Mr and Mrs Davies. Their daughter worked on the farm and in 1985 they told her that the farm would be hers one day.

This was the situation faced by Mr and Mrs Davies. Their daughter worked on the farm and in 1985 they told her that the farm would be hers one day. She stopped working on the farm between 1989 and 1991 when the family fell out as her parents did not approve of her fiancé. There followed years of Ms Davies living at and/or working on the farm, and then leaving again when she and her parents argued.

In 1997, the family discussed making Ms Davies a partner in the family business. She signed a Partnership Agreement in March 1998, although it subsequently transpired her parents did not sign it due to an ongoing financial dispute involving the farm. In 2007 Mr Davies told Ms Davies she would have a home at the farm, rent free, for life. In 2008 it was agreed that she would become a director and shareholder of the family farming company but the shares were not transferred to her because her husband was seeking funds through their divorce. In 2009 Ms Davies was told that the farm would be left to her on two occasions. In 2012 the family fell out again, and Ms Davies’ employment at the firm was terminated. The arguments lead to Mr and Mrs Davies trying to evict their daughter from the farmhouse. Although Ms Davies did receive some payment during her periods at the firm, she could have earned more elsewhere.

The question faced by the court was did this course of events provide Ms Davies with some entitlement to the farm, for example ownership of the farm now or later or a right to live there for life? The court decided that the assurances given to Ms Davies about her future inheritance were tied to her working on the farm. She worked for around £1 per hour for a number of years because she thought that the farm would be hers one day. If she had continued with other employment she could have earned more, worked shorter hours and have been “free of the difficult working relationship she had with her parents.” The court concluded, under the legal principle of Proprietary Estoppel, Ms Davies did either have a right to ownership of the farm to some extent or a right to live at the property for life arising from her parents words to her and her relying on those assurances to her detriment.

The parties were encouraged to settle the value of Ms Davies claim without further court involvement due to the costs involved. They were unable to do so and the matter returned to court in January 2015 for a further hearing over four days. The farm and farming business were valued at £4.4m, less capital gains tax. Ms Davies sought the transfer of the farm and farming business to her. Her parents indicated that she should receive £350,000 representing her unpaid hours work and a fair share of the profits. The court disagreed with both approaches. They indicated that their approach “.... may well mean that the farm and business or a substantial part of it will have to be sold. Neither side is likely to welcome that, but in view of their poor relationship the options are very limited”. The court ordered that Ms Davies receive £1.3m, representing just over or under a third of the farm and farming business, depending on the amount of capital gains tax payable.

This case sends out a clear message to the owners of family businesses. Whenever possible pay your children properly for the time they spend working in the business and be very careful what comments you may make to them regarding succession of the family business, they might just be able to hold you to it.

At Birketts our teams of experienced lawyers can advise you on the best course of action if you find yourself in this situation.

The content of this article is for general information only. For further information on this topic, please contact Emma Brunning. Law covered as at July 2015.



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