Property partnership

ad83

Hi all, wonder if I could get some opinions on the following situation. Many years ago some friends of mine entered into a partnership operating buy to let properties. Party A put up all of the initial capital and party B was to handle the rentals, maintenance etc.. with both receiving a 50% stake. The initial capital was used a deposit ( roughly 10% ) to purchase numerous properties. Over the years party B operated the business often at a deficit and funded the shortfall out of their own pockets. After many years and a huge amount of equity built up in the properties party b has informed party a that they are now a minority shareholder in the venture and essentially entitled to nothing offering them a few thousand to hand over their stake. The accountant who prepares the accounts is the personal accountant of party b and an old friend also. The accountant is very elderly and seemed not able to provide a clear explanation of exactly how he came to this conclusion has retired his practice in the middle of this. Does anyone have any ideas of exactly what methods should be applied to calculate the fair split of equity in the properties? Is there some sort of partnership accounting that would take into account the stages at which party b introduced new money to fund the operational shortfall and how much of this affects the split of ownership in the leveraged properties ?

bonyn

What does the contract say?

Seriously, sounds like a mess. Each party will need their own accountant and legal advice.

ad83

The contract didn't deal with this unfortunately from what I'm told. I believe it was also prepared or at least supplied by the same accountant in question. I wonder have any similar situations been brought before the courts

Lockedout2

On the assumption that the properties were purchased 50:50 then the ownership of the properties not in doubt they are owned 50:50. The nature of the tenancy will also be noted.

I assume that the mortgage was in joint names for the other 90%.

The day to day running costs should be self evident from the annual accounts produced.

What was the 10% worth €100k or €10k?

ad83

North of 100k was the initial investment by party a.

So if I understand you, the properties should be owned 50/50 but in that case half of any additional cash introduced by party b should be repaid by party a?

Lockedout2

If you and I had an agreement.

We would buy a number of properties for €1m and I would put up €100k and purchase the properties 50:50 and in return you were to look after the day to day management.

So effectively if you don't get enough rent to cover the costs that's your look out, you are responsible that's our agreement.

Now if your pumping in €10k a year for 10 years plus managing the rentals for no fee then your at a loss.

On the basis of equity Party B should summarise their inputs anything up to a €100k should be their equity stake and anything above that divided in 2. An allowance for B time would be appropriate but in the absence of a written agreement and their attitude I certainly would not be offering that.

I'd suggest mediation resulting in a sale of the assets might be the best outcome of the relationship has broken down.

The accounts should reflect the amounts due to the parties ie A put in €100k plus half the rental income. B paid whatever the paid in plus half the rent.

ad83

Many thanks for your replies. Really helpful

bonyn

To me its more a legal issue than an accounting one. Accounting is subjective.

More likely A and B are 50-50 owners (at least that was perhaps the intention of the partnership), and over the years B has pumped extra money into the partnership and would be due this extra cash back.

If it were a company there are different classes of shares. Say a company has two shareholders with 100x €1 shares each... then one shareholder pays a bill if €1000 on behalf of the company. This doesnt mean the company is now split 1100:100. Minority rights doesnt come into it. Sorry if im confusing the matter but sounds to me like B is trying to pull a fast one.

Talking off the top of my head here, if someone has better technical knowledge please correct me.