INSIGHT: In Business With a Friend? Don’t Dispense With Formalities

When entering into a business partnership with someone you also consider to be a soulmate, putting in place formal agreements with them can seem inappropriate. However, personal relationships can turn sour and, in one case, the equity in a buy-to-let property was eaten up by the costs of a dispute after a friendship turned to acrimony.

The case concerned two businessmen who were in the building trade and who had worked in harmony for several years. They and their respective wives were personally very close. A flat was purchased and the men both carried out the renovation work, but the property was registered in the sole name of one of them.

Following a falling out, the owner of the legal title to the flat put it on the market. His partner, however, blocked any sale by seeking to place a restriction on the property's title. He argued that he had a 50 per cent stake in the property on the basis of an alleged oral agreement to that effect. He also said that he had contributed about £10,000 to the equity in the flat through deductions from his wages.

The registered owner denied that there had been any such agreement and insisted that the other man had been paid all that was due to him for his work on the project. Those arguments persuaded the First-tier Tribunal (FTT), which found that the second man had no interest in the flat.

In overturning that decision, however, the Upper Tribunal (UT) noted potentially crucial fresh evidence, in the form of wage slips, which had not been before the FTT.

In those circumstances, the case was sent back to the FTT for reconsideration. However, in urging the former friends to settle their differences, the UT noted that the legal costs and the time and effort involved in pursuing the case were out of all proportion to the relatively modest equity in the flat.

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