Lack of legal personality leaves limited partnership no immediate proprietary rights - | Hudson McKenzie

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Lack of legal personality leaves limited partnership no immediate proprietary rights

The Court has revisited the effect of limited partnership lacking its own legal personality in the recent case of Vanquish Properties (UK) Limited Partnership v Brook Street (UK) Limited. Not only has the Court clarified that a limited partnership is incapable of possessing proprietary rights, it has also made a detailed survey on how both legal and beneficial titles of so-called partnership-owned properties can be ascertained.

Background

Through a lease dated 17 October 2011, the Mayor and Commonalty and Citizens of the City of London (“the City Corporation”) demised the concerned premise in this case to Brook Street (UK) Limited (“Brook Street”). That lease includes a break clause in its Clause 7 which allows the Lessors to determine the lease on 27 September 2016 and a notice of not less than 6 months should be served, whereas Clause 8 requires all notice being in writing and signed by or on behalf of the party giving such notice.

Subsequently, Vanquish Properties (UK) Limited Partnership (“Vanquish Properties”) was granted a lease from the City Corporation on 22 March 2016. On the same day, K & L Gates LLP, acting for Vanquish Properties, sent two letters to Brook Street to request for rent payment and serve the termination notice. Vanquish Properties, on the mentioned date, was owned by one general partner, Vanquish Properties GP Limited (“Vanquish GP”) and 4 limited partners.

On one hand, Brook Street argued that the two notices were not valid on the grounds that Vanquish Properties did not have a separate legal personality and was incapable of holding any proprietary rights. Besides, even if the notice was valid, the preconditions set out in the original lease had not been met, and the notice was thus void. On the other hand, Vanquish Properties argued that it had been vested with the lease. Even if not, the lease would have been vested in Vanquish GP, and the mistaken use of Vanquish Properties would be clear to be a reference to Vanquish GP to a reasonable recipient according to the Mannai principle.

Ruling

First, on the issue of whether Vanquish Properties was Brook Street’s lessor at the material time, the Court held that a limited partnership could not hold any proprietary title. In reaching the conclusion, the Court has relied on multiple legislations, case laws, and academic literature. The correct approach to be taken was that all properties owned by a partnership should be undivided properties owned by all partners. In the case of proprietary interest, the interest will be jointly held by a maximum of four partners as trustees of the entire partnership pursuant to s.34(2) of the Trustee Act 1925 and s.34(2) of the Law of Property Act 1925.

In the current case, only Vanquish GP was ever named in the lease but not as a trustee or legal owner of the proprietary interest. Given that Vanquish Properties had more than 5 partners at the material time, the Court deemed it necessary for Vanquish Properties to clearly list out the 4 partners as trustees in the lease, whereas a chronological order of partners from public filing, as suggested by Vanquish Properties, was not sufficient because there had been multiple changes in partners.

Moving on to the issue on whether the mistake of using Vanquish Properties as Vanquish GP would be clear to a reasonable recipient, the Court found that the gist of the issue was

“a mistake has occurred because the lease incorrectly names the limited partnership as the lessee and the mistake is repeated in the notice”

What really matters was whether-

“the reasonable recipient in possession of the relevant context would have understood that the notice, when referring to [Vanquish Properties] as the landlord, was in fact intended to refer to Vanquish GP”.

Relying on all the correspondence and documents in the case, the Court found it impossible for a reasonable recipient to make such inference because a reasonable recipient would not conceive Vanquish Properties and Vanquish GP as two identical entities, upon reasonable inspection of the partnership. Therefore, the second argument also failed.

Concluding Remarks

The case has reiterated some of the very basic principles of partnership law that are always neglected or misunderstood. It is important to bear in mind that partnership, be it limited or unlimited, has no legal personality and cannot hold properties on its own. It is only through the partners can these properties be held on trust for the partnership, and partnership should always refer to the aggregate of partners instead of a separate body.

If you are operating a partnership, it is always important to put down partners as trustee in property agreement in order to safeguard the rights and remedies available. Alternatively, similar situations to the current case will occur where the rights are foregone because some formalities had not been properly met.

Should you have any questions or require further information, please do not hesitate to contact us on +44(0) 20 3318 5794 or via email at londoninfo@hudsonmckenzie.com

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