Property ownership on a partner’s retirement

Hannah Lawton, a solicitor from specialist healthcare law firm Hempsons, provides a reminder that you must ensure that a retiring partner has been removed from the property ownership and released from any mortgages.

First published in Practice Management in May 2022

You have had a partner come to the decision that it is time to move on, retire, or they just want to try something new, and you are setting up arrangements for them to leave the partnership. You have informed all the other partners and the retirement date is agreed. You are all sorted…but are you?

Some partners will have a connection to the partnership property, whether that property is owned outright by the partners (freehold) or subject to a lease from a third party landlord (leasehold). Simply retiring from the partnership and being removed from the partnership deed is not enough to separate them from the property arrangements. We highlight a number of key considerations below.

Freehold property

Before a partner leaves, it would be sensible to check whether the partner is named as a property-owning partner at the Land Registry. Contact your legal advisor who will be able to check the Land Registry’s records to see if the relevant partner’s details are stated in the proprietorship register of the property’s title. If this is the case your legal advisor will help you transfer the property to the continuing partners so that the necessary changes to the register are made and the partner’s name is removed.

As part of your freehold arrangements, the partners may also have a mortgage secured against the property. If this is the case, you will need to check whether the partner is a named party on the mortgage deed. If they are, then it is important the correct procedure is followed so that they are formally released from their responsibilities and liabilities under the mortgage and removed from the bank’s records. If you do not do this then, if the partnership gets into financial difficulty in the future, the bank is entitled to come to the partner personally to obtain any outstanding sums of money even if they are no longer a partner. This is because mortgages are generally on a ‘joint and several’ basis (meaning the bank has the option, at its discretion, to pursue any or all of the named borrowers).  Therefore, potentially this is very onerous, but is easily avoided through early consultation with your legal advisors and your bank relationship manager.

Leasehold property

If a partner is a named tenant on the lease then on retirement, they should be released from their tenant liabilities and responsibilities under the lease. This means you will need to contact the landlord of the practice property to assign (transfer) the lease to the continuing partners. The way this is done varies according to each lease, and it is important that you get the assistance of a legal advisor at the earliest opportunity to ensure that the process is carried out correctly and efficiently.

Also, check that there is no mortgage, or if there is, the retiring partner is released.

Remember always to check the property ownership arrangements of partnership property on the retirement of a partner to avoid unwelcome surprises or problems in the future.