Business Clinic: Danger of undocumented family loans

Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Here, Robert James of Thrings offers advice on loans to family members.

Q: I lent a considerable amount of money to my daughter to buy a small farm of her own, some farm equipment and livestock.

Two years down the line she denies I have any financial interest in the smallholding, the equipment or the livestock. I always thought I would benefit from any increase in the rise in land values.

At worst I thought I would get my money back. Unfortunately I didn’t put anything in writing. Where do I stand legally?

Robert James Associate Solicitor, Thrings

A: What you describe is a scenario that appears to be occurring on an increasingly regular basis. It is particularly prevalent between family members as the relationship of trust often trumps the otherwise sensible approach of committing the agreement to writing.

Ideally, you and your daughter would have had an express trust drawn up which sets out everyone’s rights and obligations, and importantly, the extent of each party’s beneficial interest.

The fact that nothing is in writing is certainly not fatal. The absence of a written document, however, makes your case generally harder to prove and the burden rests with you to prove it.

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Legal arguments

In the absence of an express declaration, your relief will lie within one of three legal doctrines: resulting trust, constructive trust and/or proprietary estoppel.

In very simple terms, a resulting trust is implied where you make a direct financial contribution.

In the alternative, you may be able to argue that the farm and chattels are held on constructive trust for you on the basis there was a common intention that you would have a beneficial interest in the property.

The proprietary estoppel argument requires you to demonstrate that a specific promise was made to you and that you relied on that promise to your detriment.

Your remedy is to bring a claim in the courts under the Trusts of Land and Appointment of Trustees Act 1996 where you will be asking the judge to declare that the property is held on trust for you.

Court order to sell

If you cannot resolve the matter with your daughter, you may also ask the court for an order that the property be sold and the net proceeds of sale divided between you and your daughter.

As for how the net proceeds of sale will be divided between you, that will depend on what the court determines to be your beneficial interest.

This is not an exact science and the court will examine the circumstances of each case. If your case (at its highest) was that you would get your initial investment back, then usually the court will not intervene beyond that.

If, however, the intention was not clear or defined, and the court gives you a certain percentage interest, it follows that you would benefit in the increase in the value of the land.

As you will appreciate, this is a complex situation, and it is recommended that you seek specialist independent legal advice to assess your case.

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