In equestrian sports, “part ownership” is the usual reference to a shared ownership arrangement, but reference to “syndicate” is gaining traction, especially in jumping and eventing circles. Syndicates are common and long standing in Thoroughbred racing, so it is inevitable that the equestrian industry will adopt “syndicates” in reference to these arrangements.
There are several drivers behind syndication. It might be the cost of sole ownership of a horse. Sharing a horse is a way of reducing costs while enjoying the horse proportionate to one’s interest in it. It could be to incentivise a promising serious amateur rider or professional by offering a share (or incremental shares) of a horse in return for training and competing the horse. Or it might be the wish of an owner to monetise the value of a successful performance or breeding horse by offering shares in the horse while retaining majority ownership.
The upside of joint ownership of a horse is the sharing of the horse’s use and enjoyment. For a successful horse, its journey will give co-owners pride and recognition as well as a deeper connection to and understanding of the sporting or breeding industry overall – introductions and opportunities will present themselves. The point of this month’s article, however, is to sound a note of caution to anyone wanting to establish a syndicate of horse owners.
For a start, the arrangement should not amount to a “managed investment scheme” regulated by the Corporations Act 2001. Someone promoting and managing such a scheme must normally hold an Australian Financial Services Licence. But a small scale proposal involving direct contact between friends or interested individuals to pool money to buy an equestrian a horse or shares in a horse in which decisions concerning the horse are made by the owners or one of them with the authority of the others will not amount to such a scheme.
Whatever the goals and aspirations of the group, it is highly advisable that agreement is reached up front (prior to purchase or lease of the horse or the divestment of shares in the horse by the original owner to new part owners) on the many issues that will or might crop up in the course of ownership. Just contemplate some of these contingencies:
- The ownership of the horse is, from a legal point of view, a form of co-ownership in common with other people. The owners don’t have to own the horse equally. If they own unequal shares, it will reflect each part owner’s different contribution to the purchase price of the horse or the cost of the interest acquired. Technically, this form of legal ownership means that the share is alienable, that is to say, it can be disposed of like any other form of property.
- So what if one owner dies? Does his or her share pass under testamentary law or is it desirable that it be transferred to the remaining owners in equal or unequal shares at a pre-set price?
- A sole owner of a horse enjoys exclusively all the rights that an owner possesses such as to possess it, use it, work it, exploit it (for example, breeding), sell or dispose of it. Where there are multiple owners in common, however, these rights of ownership cannot of course be exclusively enjoyed by each owner. So prospective part owners of a horse must work out upfront the nature and extent of each part owner’s permissible interaction with the horse, its management, training and so on according to the breed and purpose for the horse. If part owners hold unequal shares, it will affect their rights as co-owners as well as their liabilities.
- If an owner wishes to get out of the syndicate, what does he or she need to do? To keep the syndicate close knit, there will need to be some type of restriction on an owner’s right of dealing with the share. The remaining owners might be granted a right of first refusal to acquire the share, once again at a pre-set price or according to some pre-agreed formula.
- Who is to manage the horse daily? Efficient decision making necessitates one owner being appointed the manager with legal power to make decisions on behalf of all the owners. The natural choice is the owner with the majority share or an owner with the greatest knowledge and experience of the horse or horses generally, who might also be the person agisting the horse.
- What is the budget for the care and welfare of the horse? When are costs payable and what if an owner is unwilling or unable to pay? The consequences for that owner need to be spelt out.
- What is the goal of the syndicate? If it is training, competition or income related, what are the metrics in place to evaluate performance? What is the future of the syndicate if its performance is below expectations?
- In what circumstances might the syndicate need to conclude? The horse might sustain a career ending injury. Its goal might not be attainable. What if a majority of the syndicate members by number, but not by value, want to end the syndicate? An agreed process for the automatic sale of the horse, triggered by defined events, is the way to avoid disputation.
- Is there an agreed process to resolve any disagreements between the owner s?
It is normal for co-ownership to be planned for the long term. Changed personal and financial circumstances of the owners are inevitable. So commitment to document the joint understanding and mutual expectations is crucial. Agreements by word of mouth are enforceable but very problematic as the terms of them are difficult to prove to the necessary legal standard. As part owners are likely to be friends or acquaintances, all the more reason to discuss contingencies and document their agreed treatment up front to avoid unpleasantness.
8 April 2019
© Michael Mackinnon, Solicitor & Independent Counsel