[2024] UKUT 304 (LC)

Holdenby North Lodge is a largely arable farm of some 373 acres located about 6.25 miles north west of Northampton. The plan below shows the layout of the farm buildings with a farmhouse, two cottages, barns, yards and all weather and grass gallops. It also shows, outlined with a heavy black line, the area used by the licenced racing yard managed by the respondent as ‘Caroline Bailey Racing’. Adjoining it to the west is the area used for the point-to-point yard managedby her husband Mr Gerald Bailey. Both yards are of traditional style with loose boxes around gravel or concrete yards. The boxes are built of brick or local ironstone under pitched slate or corrugated sheeting roofs. The area used by Caroline Bailey Racing effectively comprises two small yards linked by a passageway formed by the end wall of one of the boxes and the flank wall of the farmhouse. Its boundaries are formed in part by the rear walls of the various boxes occupied by racehorses, the farmhouse, and sections of brick wall about 1.5 metres in height.

The plan shows a horse walker (a rotating device used for exercising horses) within the area of the licenced yard which was used to exercise both racing and point-to-point horses, as were the grass and all-weather gallops, situated on the western edge of the Farm complex. A small office, used in connection with all the business activities of the Farm, including both yards, is located adjacent to the licenced yard. All other buildings on the Farm are either domestic or agricultural in nature. Three horse box lorries and various items of agricultural machinery for harvesting and bailing hay were kept on the farm, outside the area for stabling and training horses.

The Farm is occupied under a tenancy agreement dated 21 February 1994 granted by James Lowther to Charles R Saunders and his son Christopher R Saunders. Charles Saunders, who was the father of Mrs Bailey, died in 2002. Christopher Saunders is the brother of Mrs Bailey and is usually known as ‘Toby’ which, for the avoidance of confusion, is how I will refer to him. Toby became the sole tenant on the death of his father.

Charles and Toby Saunders entered into the tenancy agreement as partners in C R Saunders and Partners, a partnership established in April 1993 and this partnership has carried out a farming business at the Farm since at least 1994. At the material day the partners were Toby himself, his mother, Mrs P J Saunders and Mrs Bailey. Mrs Bailey confirmed that Toby ran the farm on a day-to-day basis.

Clause 11.1 of the partnership agreement identifies Charles Saunders as managing partner with a casting vote in the event of a tied partnership vote. The agreement (at clause 11.2) requires that:

“Each of the Partners shall devote such time and attention to the Partnership business as shall be agreed between them from time to time.”

Clause 13.5 states that:

“No Partner shall without the consent of the others :-

Carry on in the name of the Partnership any business or other activity which shall not be directly concerned with the farming of the Farm.”

Section 8 of the partnership agreement deals with profit sharing and clause 8.1 defines the distribution arrangements:

“The income profits of the Partnership for each accounting year….shall be distributed as follows :-

(a)

Firstly payment to each of the Partners a salary at a rate as shall from time to time be agreed.

(b)

Thereafter the remaining profits and losses shall be divided between the Partners in equal shares or such other proportions as the Partners from time to time shall otherwise agree.

PROVIDED always that it is an express term of this Partnership Agreement that Toby shall not derive any salary that may be paid to him nor be entitled to any share of profit which shall be attributable to the livery and racehorse training enterprise carried on upon the Farm and the partnership accounts shall be prepared so as to identify and separate the income and expenditure relating to such enterprise from the remaining agricultural enterprise of the Partnership”

Clause 8.2 states that:

“The Partners shall be entitled to make drawings on account of their salary and/or profits of such sums and at such times as may be agreed between them from time to time.”

The Respondents provided in evidence a copy of the partnership’s trading and profit and loss accounts for 2016 and 2017. Under the heading of income these showed a single line for ‘Horsekeep’ amongst various other agricultural activities. At the hearing Mrs Bailey confirmed that ‘Horsekeep’ covered the training in both yards. In 2016 ‘Horsekeep’ amounted to 31.4% of the total income of the partnership and the corresponding figure for 2017 was 39.5%. The accounts include a list of items of expenditure which are not subdivided between the different business streams although livery and horse race entry fees are shown as a separate item as are veterinary fees and medicines. However, since the partnership listed ‘Livestock’ as an item of income it appears that expenditure on veterinary fees and medicines relates to both livestock and racehorses. I conclude therefore that all income and expenditure from the two yards is included with the other activities of the Farm in the accounts. The accounts also show that in both years the profits were divided on the basis of 20% to Mrs P J Saunders, 40% to Toby and 40% to Mrs Bailey, notwithstanding the provisions of clause 8.1 of the partnership agreement. Mr Bailey was neither a partner in nor an employee of the partnership.

The tenancy agreement at clause 49 provides that the tenant has the landlord’s consent to use the farm as a “point-to-point and hunter chaser livery yard”. Clause 17(2) prohibits the subletting of any part of the Farm.

The partnership agreement states at clause 6.2.1 that:

“the Partners shall share the occupation of the Farm for the purposes of the farming business the Partnership shall have no power to create any tenancy over the Farm or any part of it”