30/10/2008

About a year ago we were contacted by a mid-sized rural architectural practice with 4 partners.  They had read one of our articles about partnership agreements and now felt that their 10-year-old partnership agreement needed revision and improvement.

We reviewed the old agreement, explained the substantial failings with it, advised them of what the different possibilities were and took instruction to prepare their new agreement.  We drafted their new agreement, incorporated the new matters they wanted covered and sent it off to them for review and comment.

That was a year ago.  We enquired from time to time on how they were going with their thoughts about the document, but were always told that they were still considering it and so we eventually stopped following up (they had paid their bill earlier).

A few weeks ago two of the partners came to see us.  Apparently one of the other partners now wants to leave the practice.  He is basing his claim for entitlements on the old agreement, even though the partners had agreed in principle that those entitlements would change and be incorporated into the new agreement.  Which terms apply, they wanted to know.

Because a partnership agreement does not have to be in writing it is possible to vary it orally, even if the original was in writing.  But there are a couple of other considerations. 

Firstly the old partnership agreement contained a standard variation clause that required any variation to the old agreement to be in writing signed by all the partners. Secondly the outgoing partner would no doubt have argued that although he’d agreed in principle to the changes, none of them expected to be bound by those changes until the new agreement was signed by them all.

So the agreement to vary the partnership terms could not come into effect until a new agreement was signed.  The result is that they’ve left it too late and the old agreement will govern their relationship.

Delay in getting your legal documents in order can be very expensive.  We know it can be difficult to find the time to review your important documents or to conduct a legal audit of your business, but the cost of not doing so can be much greater.

Don’t delay – check your important documents and if you need to improve or update them, contact Townsends Business & Corporate Lawyers on (02) 8296 6222.