What Is a Tenancy in Partnership for Property?

Under modern partnership law, property acquired by a partnership is owned by the business as a distinct legal entity, not by individual partners. This approach is governed by the Revised Uniform Partnership Act (RUPA), which has been adopted by most states and replaced the older concept of “tenancy in partnership.” The primary purpose of this structure is to protect business assets for partnership operations and shield them from the personal financial dealings of individual partners.

Establishing Property as a Partnership Asset

For a property to be classified as a partnership asset, it must be acquired by the partnership in one of two ways. The first method is when a partner contributes property to the business as part of their initial capital contribution, transferring the property’s ownership from the individual to the partnership.

The second method is the acquisition of property using partnership funds. When partnership accounts are used to purchase assets, there is a legal presumption that the item is partnership property unless a clear contrary intention is documented. The name on the title does not solely determine ownership, as property acquired with partnership funds is considered a partnership asset even if the deed lists individual partners.

Rights and Limitations of Individual Partners

Each partner has an equal right to possess and use partnership property for legitimate partnership activities, such as utilizing an office building or equipment to conduct company business. However, a partner has no right to use partnership property for personal reasons without the consent of the other partners. A partner also does not have a direct ownership interest in specific partnership assets that can be sold, assigned, or mortgaged. A partner’s ownership stake is their “transferable interest,” which is their share of the partnership’s profits, losses, and distributions.

Partnership property is protected from the personal debts of an individual partner. A creditor pursuing a personal debt cannot seize partnership assets but may seek a “charging order” from a court. This order requires the partnership to pay any distributions owed to the debtor-partner directly to the creditor until the debt is satisfied.

Conveyance of Partnership Real Property

The process of selling real property owned by a partnership depends on how the title is held. When the title is recorded in the partnership’s name, a single partner generally has the authority to execute a deed in the partnership’s name, which can legally bind the partnership in the ordinary course of business.

If a partner acts without proper authority, such as selling an asset without consent, the partnership may have the right to recover the property. However, this right can be lost if the initial buyer sells the property to a bona fide purchaser who had no knowledge of the partner’s lack of authority. If the property title is held in the names of individual partners, a valid transfer requires the signatures of all partners listed on the title.

Impact of Partner Death or Partnership Dissolution

When a partner dies, a process known as “dissociation,” the partnership entity continues to own all partnership property without interruption. The deceased partner’s heirs do not inherit any direct interest in the specific assets of the business, such as its real estate or equipment. Instead, the deceased partner’s estate is entitled to the value of the partner’s transferable interest in the partnership. The surviving partners have a duty to account to the estate and pay out this value, effectively buying out the deceased’s share.

In the event of a partnership’s dissolution, the assets are first used to satisfy debts owed to outside creditors. After all third-party claims are settled, the property is used to settle accounts between the partners, such as repaying loans or capital contributions. Any remaining property or surplus funds are then distributed to the partners according to their respective shares in the profits.