Property problems: Quick partnership fixes when friends fall out

Q. I want to buy some investment property in partnership with two friends. We all get along really well, but I am a bit worried about what will happen if we fall out. What can I do if things go wrong?

A. Many people purchase investment properties through partnerships with other investors.

Operating in partnership usually involves less administration than operating a company, and gives the investor direct access to tax credits on losses.

Many property partnerships work well, and only come to an end at a time that is mutually agreeable to the parties. But things can go wrong when the partners fall out.

This can happen when partners disagree over key purchasing or selling decisions, or when the partnership should end. Unless dealt with promptly, such disputes can see the parties embroiled in long-running court battles which have no economic upside.

The best way to guard against this is through the partnership agreement itself. A properly drafted partnership agreement will have defined decision-making processes, and explicit provisions for partner exits and partnership wind-ups.

Such agreements should also provide for a quick-fire alternative dispute resolution (ADR) process - mediation or something similar. A well-drafted partnership agreement will help partnerships to deal with their problems effectively.

If things do go wrong it also pays to get advice on your rights under the Partnership Act 1908. Among other things, the Partnership Act sets out (subject to any agreement):

* The entitlement of partners to share equally in the capital and profits of the business, and their obligation to contribute equally to losses.

* The entitlement of every partner to take part in the management of the partnership.

* A prohibition against the introduction of new partners without the consent of all partners.

* A prohibition against a change to the nature of the partnership's business without the consent of all partners.

* Provisions for the dissolution of partnerships by notice as between the parties.

In disputes, knowledge is definitely power. Once you know your rights, you will be in a better position to argue your case, or take steps to protect your position.

If the problem persists, you can always try an alternative dispute resolution process such as mediation.

If all else fails, relatively quick-fire solutions are available through applications to the courts. The Partnership Act provides for the dissolution of partnerships by the courts on application by any partner. The act (which is getting on a bit now) even provides for the dissolution of partnerships by the court where "a partner is found lunatic by inquisition" - a prospect which may be tempting to partners in particularly acrimonious disputes!

Through the Property Law Act 1952, and the Partition Acts of 1539 and 1540 (still in force in New Zealand), the courts also have the power to make orders that land owned by partnerships can be sold or partitioned.

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Q. I own a property in an industrial estate that is leased to a manufacturer that uses dangerous chemicals in its manufacturing process, for which it is required to hold a resource consent.

I have received a letter from the owner of the adjoining property stating there have been instances of these chemicals being released on to his property as well as mine and indicating that I may be responsible for the actions of my tenant that have caused these releases. Can I be held responsible?

A. Without knowing the exact terms of your lease it is difficult to be precise but you should be aware of the following points:

Generally a landlord is not responsible for its tenant's acts, whether these are negligent acts or acts that amount to causing a nuisance such as the release of chemicals.

One exception to this general rule is where the landlord has authorised the tenant's acts, but this does not sound likely from your question.

Local authorities would usually seek to enforce the breach of a resource consent against the tenant as consent holder.

But in some circumstances, for example where the tenant is in receivership, there is a possibility that a local authority could seek to enforce any remediation obligations against you as the land owner. You may have cover under your insurance policies for these types of events.

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