Sir John Pennycuick VC explained the rule in Keech v Sandford: ‘The fiduciary relation here [between partners] arises not from a trust of property but from the duty of good faith which each partner owes to the other. It is immaterial for this purpose in which partner the legal estate in the leasehold interest concerned is vested. What then is the position when a partnership is dissolved but there remains property of the former partnership which has not been realised? The general principle, I think, is correctly stated in Lindley on Partnership 13th ed. (1971) . . in the following terms: ‘Upon the dissolution of a partnership, and in the absence of any Partnership Agreement to the contrary, it has been seen . . (4) That, for the purposes of winding up, the partnership is deemed to continue; the good faith and honourable conduct due from every partner to his co-partners during the continuance of the partnership being equally due so long as its affairs remain unsettled; and that which was partnership property before, continuing to be so for the purpose of dissolution, as the rights of the partners require.’
It necessarily follows, I think, that where the property of a dissolved partnership includes a leasehold interest, then subject to any other arrangement which may be made between the partners concerning that interest, each of the former partners owes the same obligation to the other former partner in respect of that interest as he did while the leasehold interest remained the partnership property and, accordingly, he is under the same limitations with regard to the purchase of the reversion as he would have been had the partnership still been subsisting.’
Sir John Pennycuick VC
[1974] 1 WLR 605, [1974] 1 All ER 1239
England and Wales
Trusts
Updated: 13 December 2021; Ref: scu.510903