13 October, 2020
"One day, all of this will be yours" is a saying often heard when family business owners are succession planning. Promising to pass a family business to a younger generation can provide peace of mind and often cheap labour for the business owner; and motivate younger generations to work hard and ensure the business is successful.
However, it is not uncommon to see these promises fall away later down the line, and when a business owner dies the family business to go to another family member or an unrelated third party.
In these circumstances the disgruntled individual can often utilise a legal principle known as "proprietary estoppel" to enforce this promised inheritance. In a nutshell, a claim in proprietary estoppel is based on facts where land or property (often a farm) should, as far as the Claimant is concerned, have passed to him or her for the following reasons:
An example of the situation above can be seen in the High Court case of Guest v Guest from 2019. A claim was brought based on proprietary estoppel for a share in a family business where a son had worked for over 30 years at a reduced wage.
The claimant, Andrew, had worked on his mother and father's farm from the age of 16 at a reduced wage compared to the industry average for the skills he had developed. Andrew claimed he had done so in reliance on assurances that his mother and father had made and on which he said they should not be able to renege.
Despite the parties entering into a farming partnership in 2012 and Andrew being made a 50% partner, following a dispute over the running of the farm, the partnership was ended by the parents. The patents went on to execute new wills disinheriting Andrew entirely.
The court held that Andrew had reasonably relied upon his parents' assurances to his significant financial detriment. The Judge decided a suitable remedy would essentially be a lump sum for 50% after tax of the market value of the farming business and 40% after tax of the market value of the freehold land and buildings at the farm (subject to a life interest to the parents).
In order to avoid litigation between family members after death, there are a number of lessons from this case. The first is fundamental and simple but often overlooked: communication. It is important that all parties are clear on what will happen upon death or retirement. It will allow people time to think about it and react to it while the business owner is able to deal with any issues and potentially make adjustments.
For more information contact Tom Howcroft in our Contesting a Will department via email or phone on 0333 207 1130. Alternatively send any question through to Forbes Solicitors via our online Contact Form.