Daryl and his two siblings set up a partnership and bought a rental property in the partnership.  The partnership took out a mortgage with a bank in order to purchase the property.

Their lawyer at the time suggested that they enter into a partnership agreement recording such things as what happened if one party wanted to sell their share of the partnership, but they decided that they didn’t need one as “they were family”.

After a time, Daryl wanted to move overseas and wanted to withdraw his share of the partnership.  He asked the other two if they would buy out his share or let him sell it to someone else.  Things turned sour as his siblings couldn’t afford to buy him out and they couldn’t agree on any other arrangement.

There is specific law relating to partnerships (the Partnerships Act 1908), but it didn’t provide Daryl with much assistance in this situation.  If the partners had put in place a written partnership agreement, then it could have provided a clear process to deal with buying Daryl out.

Partnerships are not ‘legal’ entities, so partners are generally personally liable for any matters relating to the partnership, including mortgage borrowings.  This liability is joint and several (separate) so Daryl would remain personally liable for the mortgage until he is removed from the partnership.   Partners hold property on behalf of the partnership.

It pays to be aware of your obligations as a partner and to make sure you have a written agreement with the partners in your partnership to avoid any disputes down the track.

Please note that Rainey Collins is not contracted to provide Legal Aid, other than in the Treaty of Waitangi area.  We therefore are unable to take on any Civil or Family Legal Aid work. If you require Legal Aid in those areas, you can search the list of Legal Aid lawyers on the Ministry of Justice website.