Most property partnerships in the UK run on a verbal understanding. The siblings, spouses, parent-and-child, or business associates who set up a portfolio together typically have a shared sense of how profits will be split, who handles the management, what happens if someone wants out. None of it is written down. The arrangement works for years because the relationships work.

The Partnership Act 1890 makes a verbal agreement legally binding. It also fills every gap with statutory defaults that almost always work against the partners' actual commercial intentions. Section 24 sets nine default rules covering profit-sharing, capital interest, management rights, salary entitlement, new-partner admission, and consent to business-type changes. Section 26 lets any partner dissolve a partnership-at-will on notice. Section 33(1) automatically dissolves the partnership on death or bankruptcy of any partner. Section 14 makes anyone held out as a partner liable to third parties as if they were a partner, even where the internal arrangement says otherwise.

This page is the practical handbook for the partnership-agreement-and-roles layer that sits across general partnerships, limited partnerships, and LLPs. The partnership-existence question (does this arrangement count as a partnership at all?) is the prior layer; see does your business qualify as a partnership. This page assumes the existence question is settled and the partnership exists.

The PA 1890 section 24 nine defaults

Section 24 is the load-bearing default-rule provision. It sets nine rules that govern a partnership in the absence of a contrary written or oral agreement. Six of the nine are almost always inappropriate for property partnerships.

  1. s.24(1) Equal share of capital, profits, and losses. All partners share equally regardless of capital contributed. The partner who put in the £200,000 deposit and the partner who put in no capital share profits 50/50.
  2. s.24(2) Indemnity for ordinary partnership business. The partnership must indemnify a partner for payments and personal liabilities incurred in the ordinary conduct of partnership business. Operationally sensible; usually retained.
  3. s.24(3) Interest at 5% on partner advances beyond capital. A partner who advances money beyond agreed capital gets statutory 5% interest. The rate is set in 1890 currency and is operationally low for modern partnerships; usually varied.
  4. s.24(4) No interest on capital before profits ascertained. No statutory entitlement to interest on capital contributions before profits are determined. Operationally restrictive for capital-heavy partners; usually varied.
  5. s.24(5) Every partner may take part in management. Sleeping-partner setups need s.24(5) displaced to confine the sleeping partner to a capital-only role. Otherwise the sleeping partner has a statutory management right they may not be exercising and the partnership has no documented internal allocation of management responsibility.
  6. s.24(6) No salary for any partner. The managing partner has no statutory entitlement to a salary for the management work. Typically displaced where one partner does most of the operational work.
  7. s.24(7) Unanimous consent required to admit new partners. One dissenting partner can block any new admission. Usually varied to majority or supermajority decision.
  8. s.24(8) Majority on ordinary matters, unanimity for change in business nature. One dissenting partner can veto any change in the partnership's business type. Expanding from residential BTL into commercial property, into HMO, or into development requires unanimous consent under the default. Usually varied.
  9. s.24(9) Books at principal place of business with all-partner access. Operationally standard; usually retained.

Worked example: the s.24(1) default disaster

Mawell-Estate Sibling Partnership: two siblings (Mr A and Mr B Mawell-Estate) form a partnership to acquire and let a £400,000 residential BTL portfolio. Mr A contributes the £200,000 deposit (mortgaged for the £200,000 balance). Mr B contributes no deposit but commits to day-to-day management (tenant relationships, maintenance, rent collection, accounts). No written agreement is in place.

What the siblings expect: Mr A entitled to some return on his £200,000 capital exposure; Mr B entitled to remuneration for his management time; profit split weighted to reflect capital plus labour contributions.

What PA 1890 s.24 actually delivers:

  • s.24(1): profits split equally, 50/50, regardless of capital exposure.
  • s.24(4): Mr A entitled to no interest on his £200,000 capital before profits are ascertained.
  • s.24(6): Mr B entitled to no salary for his management time.

Year 1 result: £30,000 net rental profit. Each sibling gets £15,000 under s.24(1). Mr A's effective return on £200,000 capital is 7.5% gross, before he pays higher-rate income tax on his £15,000 share. Mr B's effective return on zero capital is infinite. Mr A justifiably feels the split is unfair; Mr B points to s.24(1) and says the default is the default. Without a written agreement, neither can prove agreed terms; resolution requires either a negotiated ex-post written agreement (expensive when relationships are strained) or litigation.

What a written agreement would have done: specified capital contributions and interest on differential capital under a s.24(3) variation; provided Mr B with a salary for management work under a s.24(6) variation; split profits per an agreed formula (for example 60/40 to Mr A reflecting capital, or 50/50 after salary and interest on capital have been deducted).

The s.26 and s.33(1) termination rules

Section 26 provides that a partnership at will (no fixed duration) is dissolvable on any partner's notice. Section 33(1) provides that the partnership is dissolved automatically by the death or bankruptcy of any partner, subject to contrary agreement.

Both are operationally dangerous for property partnerships, which typically hold long-lived assets (residential portfolios with multi-year mortgages, planning consents that take years to mature, refurbishment programmes that pre-date returns). A single partner exiting or dying should not collapse the entire structure.

Worked example: s.26 dissolution-on-notice

Kapoor Property Partnership: three partners (Mr and Mrs Kapoor plus Mr Singh-business-associate) hold a £1.5 million residential BTL portfolio with £900,000 of mortgages across the properties. No written agreement specifies minimum duration or notice periods.

Year 3 event: Mr Singh suffers personal financial difficulty and serves notice of dissolution under PA 1890 s.26. The partnership dissolves immediately. Lender notification requirements are triggered on partnership-banked facilities (change of borrower's identity creates re-underwriting risk and potentially payable fees). Property titles may need restructuring at HM Land Registry if held as partnership property. CGT crystallisation issues arise on partnership-asset disposals per TCGA 1992 s.59 and SP D12.

The Kapoors lose control. They cannot keep the partnership going without Mr Singh's consent post-dissolution. He can demand sale of partnership assets to realise his fractional interest in cash. The long-term portfolio plan collapses.

What a written agreement would have done: specified a minimum duration (for example 10 years); specified notice periods (for example 12 months written notice); specified continuation provisions (the remaining partners buy out the departing partner per agreement formula, partnership continues); preserved the mortgage facilities, property structure, and family operational plans.

Worked example: s.33(1) death-dissolution

Patel Family Partnership: four family members (parents and two adult children) operate a 7-property residential portfolio as a general partnership.

Year 5 event: the father dies unexpectedly. PA 1890 s.33(1) automatic dissolution triggers, subject to contrary agreement (none exists). Cascade consequences:

  • The partnership dissolves; assets must be valued and wound up under partnership-dissolution rules.
  • CGT crystallisation: each surviving member is treated as disposing of their fractional share to the dissolved-partnership pool per TCGA 1992 s.59 and SP D12; gains accrue at member level on the dissolution event.
  • IHT exposure: the father's fractional share is included in his estate at market value; the family's residence nil-rate band and other reliefs interact.
  • Mortgages: lender notification and re-underwriting are required on the dissolved-partnership-to-new-structure transition.

What a written continuation clause would have done: the father's share automatically transferred to surviving partners per agreement formula (for example NAV at last accounts); his estate paid out in cash or via promissory note over an agreed period; the partnership continues without dissolution; CGT only on actual subsequent disposals; IHT exposure still arises but operates against an undissolved business interest.

The s.14 holding-out exposure

Section 14 imposes partner-equivalent liability on anyone who, by words spoken or written or by conduct, represents themselves (or knowingly allows themselves to be represented) as a partner in a firm, where a third party gives credit or relies on the representation. The risk applies regardless of whether the underlying s.1 four-test gate is satisfied or whether the internal partnership agreement says the person has no management role.

Worked example

Singh Family Partnership: Mrs Singh contributes capital but takes no management role; she is the "sleeping partner". The partnership letterhead names her: "Singh Property Partnership, Partners: Mr A Singh, Mr B Singh, Mrs Singh". The website carries the same listing. A commercial lease lists all three as landlords.

Year 2 event: the partnership defaults on a £40,000 supplier invoice for property refurbishment. The supplier sues all three named partners. Mrs Singh's defence is that she is a sleeping partner with no management role under the internal partnership agreement.

The court's response under PA 1890 s.14: Mrs Singh held herself out (or knowingly allowed herself to be held out) as a partner via the letterhead, website, and lease. The supplier relied on the representation. Mrs Singh is liable for the partnership debt as if she were an active partner. The internal agreement does not protect against third-party holding-out exposure.

What a careful sleeping-partner architecture would have done: kept Mrs Singh's name off the letterhead, website, and external documents; clearly designated her as a "capital partner" not naming her in any management-implying way; ensured external counterparties did not rely on her name when extending credit; used different document conventions for active versus passive partners.

The four partnership types

UK law recognises four distinct partnership architectures. The choice depends on liability profile, compliance burden, member configuration, and the operational fit for the partnership's actual business.

General partnership (PA 1890)

The base form. All partners have unlimited joint-and-several liability for partnership debts. There is no Companies House filing requirement. The partnership is tax-transparent under ITTOIA 2005 Part 9 (and TCGA 1992 s.59 for capital gains). PA 1890 default rules apply, subject to written agreement.

Operationally suitable for small or family setups where limited liability is not a primary concern, where the operational simplicity outweighs the unlimited-liability exposure, and where the partners have personal-guarantee exposure on borrowing anyway.

Limited partnership (LP, LPA 1907)

At least one general partner with unlimited liability plus at least one limited partner with liability capped at capital contributed. The limited partner cannot take part in management without losing the limited-liability protection under LPA 1907 s.6(1). Companies House registration is required, with expanded reporting and ID verification under ECCTA 2023 Part 2 reforms (per Companies House changes to limited partnership requirements).

Rare in modern property contexts. The LLP form has largely displaced the LP for landlord setups because LLP members can manage without losing limited liability. LPs are still used for specific private-fund and investor-vehicle structures.

Limited Liability Partnership (LLP, LLPA 2000)

Body corporate at law (LLPA 2000 s.1(2)) but transparent for income tax (ITTOIA 2005 s.863) and CGT (TCGA 1992 s.59A). Members' liability is limited to amounts agreed in the LLP agreement or contributed to the LLP. Unlike LP limited partners, LLP members can take part in management without losing the protection.

Companies House registration is required, with annual accounts under SI 2008/1911 (see LLP accounts for the operational handbook), at least two designated members under LLPA 2000 s.8, and the post-ECCTA ID verification framework on its LLP-specific rollout schedule. The tax-side handling, including the salaried-member rules at ITA 2007 ss.863A to 863G and the mixed-membership rules at ITA 2007 ss.850C to 850E, lives on the sibling LLP taxation page.

For most property partnerships, the LLP is the most operationally flexible form.

Corporate-partner setups

Any of the three forms can include a body-corporate member (typically a limited company). In LLP context the structure is common for family-investment-company overlays and for external-investor setups. The mixed-membership rules at ITA 2007 ss.850C to 850E are the operative anti-avoidance regime where individual and corporate members co-exist. For the hybrid-LLP depth see hybrid limited liability partnership.

The six common partner roles

Within whichever partnership type is chosen, individual partners typically occupy one of six recognisable roles. The role determines management responsibility, profit share, tax treatment, and liability profile.

  • Managing partner or senior partner. Primary day-to-day management responsibility. Typically receives a salary (displacing s.24(6)) and a weighted profit share above pari passu. Commonly a designated member in an LLP.
  • Sleeping or dormant partner. Contributes capital but no management. Needs s.24(5) management rights displaced internally and s.14 holding-out exposure managed externally (letterhead, website, lease-naming conventions).
  • Salaried partner. Receives a salary or salary-equivalent regardless of profits. In an LLP, the Conditions A, B, and C analysis under ITA 2007 ss.863A to 863G determines whether the member is treated as an employee for PAYE and secondary Class 1 NIC. See the salaried-member depth at HMRC's new guidelines for LLPs.
  • Junior partner. Fixed or capped share; commonly an entry-level partner on a path to senior partnership; commonly first to be removed under buyout mechanics.
  • Limited partner (LP only). Capital contribution and liability limited to contributed amount; no management permitted under LPA 1907 s.6(1).
  • Corporate partner or member. Body-corporate member. Common for FIC-overlay setups (the FIC as corporate member of a family LLP) or external-investor setups. Exposed to mixed-membership rules in LLP context.

The partnership-agreement clause checklist

A well-drafted property partnership agreement covers twelve operational categories.

  1. Capital contributions. Initial and ongoing; interest on capital (displacing s.24(4)).
  2. Profit-sharing ratios. How profits are divided: equal, proportionate to capital, or per agreement formula (displacing s.24(1)).
  3. Drawings and remuneration. Monthly drawings entitlements; partner salaries (displacing s.24(6)); year-end balancing.
  4. Loan accounts. Partner advances beyond capital and interest thereon (displacing s.24(3)).
  5. Decision-making and voting. What requires unanimity, supermajority, or simple majority (displacing s.24(7) and s.24(8)).
  6. Management roles and responsibilities. Including sleeping-partner architecture (displacing s.24(5) for sleeping partners) and external-document conventions to manage s.14 exposure.
  7. Admission of new partners. Process, thresholds, buy-in mechanics.
  8. Retirement, death, removal of partners. Buyout formula (commonly NAV per accounts or independent valuation); continuation on partner events (displacing s.33(1)); notice periods; restrictive covenants post-exit.
  9. Dissolution. Circumstances triggering dissolution; mechanics; surviving-partner buyout versus sale-of-business; tax-side impact under TCGA 1992 s.59 or s.59A and SP D12.
  10. Confidentiality, non-compete, and non-solicitation. Modifying s.30 in specific bona-fide-commercial ways.
  11. Dispute resolution. Mediation, arbitration, or court; commonly important for family property partnerships.
  12. Bank mandates and signing authorities. Operational delegation framework.

For LLP-specific architecture, add: designated member identification and statutory responsibility acknowledgment (LLPA 2000 ss.6 to 9 and CA 2006 ss.451 to 453 applied via SI 2008/1911); capital contributions sized for Condition C salaried-member safe harbour where active members are exposed; arm's-length documentation for any corporate-member profit allocation to manage mixed-membership exposure.

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The benefits of formalising: a positive case

Patel Property LLP is a four-member family LLP with a carefully-drafted LLP agreement covering all key clauses. The father retires.

Agreement-driven continuation: the father's capital plus accumulated profit share is calculated per NAV per agreement formula; paid out over 3 years via promissory note carrying interest at 4% per annum (agreed at agreement-execution date). The partnership continues without dissolution.

CGT minimisation: because the partnership continues post-departure, no immediate CGT crystallisation arises under s.59A. The father's CGT only attaches to his actual fractional-share disposal value. The surviving members continue holding their fractional shares with the same base costs.

Salaried-member analysis: active LLP members' capital contributions are checked against the Condition C 25%-of-disguised-salary threshold pre-retirement. The father's retirement does not disturb the others' Condition C status because their capital balances are separate. The agreement flags this analysis at execution.

Mixed-membership analysis: the LLP has no corporate member; the mixed-membership rules do not apply. The agreement provides for advance modelling against the ss.850C to 850E excess and power-to-enjoy tests if the family adds a FIC as corporate member in the future.

Family relationships preserved. The father's exit is handled per agreed terms. No litigation. No late-stage negotiation under stress. The agreement cost approximately £5,000 to £10,000 in legal fees at execution; it saved tens of thousands in tax-side consequences and immeasurable family-relationship value at the retirement event.

Common partnership-agreement mistakes

  1. No written agreement at all. The defaults govern with operationally inappropriate outcomes for the typical capital-and-management-asymmetric property partnership.
  2. Generic template copied from an online source. Without property-specific adaptation, key clauses (Sch 15 alignment, salaried-member capital sizing, sleeping-partner s.14 management) are absent.
  3. Silent on s.33(1) continuation. The death of a partner triggers automatic dissolution.
  4. Silent on buyout formula. Partner-exit disputes have no contractual anchor.
  5. LLP agreement creating inadvertent salaried-member exposure. Capital contributions below the Condition C threshold for active members.
  6. LLP agreement creating inadvertent mixed-membership exposure. Corporate-member allocations not documented against the arm's-length test.
  7. Agreement that fails to manage s.14 holding-out exposure. Sleeping partner named on external documents creates personal liability beyond the internal allocation.

A note on terminology: "civil partnership" vs "business partnership"

The word "partnership" appears in two distinct statutory contexts. The Civil Partnership Act 2004 establishes civil partnership as a marriage-equivalent relationship for tax-residence, IHT, CGT inter-spouse transfer, and Form 17 election purposes. That is a different concept from a business partnership under PA 1890. This page uses "partnership" to mean business partnership throughout. For the spousal and civil-partner joint-property mechanics under PIM1030 and Form 17, see civil partnership joint-property tax treatment.

Where this page sits in the cluster