Equine Law: The importance of a horse co-ownership agreement

Whether you already own a horse with someone else or are looking to purchase a share in a horse, it is important to enter into a horse co-ownership agreement.

The parties will start with a good relationship and not foresee any issues arising. However, over time differences of opinion often arise in terms of how the horse should be managed and when it should be sold.

We strongly recommend that you get an equine solicitor to draft a horse co-ownership agreement regulating the relationship between the parties. Some of the key things this should cover are as follows:

• The percentage share of ownership each person has in the horse. This will help prevent a dispute arising in the future as to who owns what. An oral agreement can easily lead to the parties later claiming something different to what was agreed at the time. If you have a written contract stating the ownership position, then there is no disputing that in the future. An example of where a dispute can easily arise is where two people contribute the same amount towards the purchase price, but one of them then trains it or perhaps keeps it at their stables. Unless the arrangement is agreed in writing, the parties could be at cross-purposes as to their ownership shares. The trainer might think that they will get a greater share of ownership from adding value and incurring additional costs in keeping the horse. The other might dispute this and think they own an equal 50% share because they contributed the same amount to the purchase price;

• Who is to make decisions as to the day to day care, management and training of the horse. Often owners can have different ideas as to how a horse should be looked after and trained. It is important the parties are clear from the outset as to how these decisions are made. We are often instructed to draft co-ownership agreements where the professional rider will take a share in the owner’s horse. In this situation, it is often best for the professional to have responsibility for these decisions, subject to certain safeguards that might be required to protect the owner where appropriate;

• Who is to authorise any veterinary treatment. All co-owners are likely to want to be consulted on and agree any proposed veterinary treatment. This is particularly relevant in the case of competition horses, where the diagnosis and treatment plan might impact future performance and value. However, the person looking after the horse is also likely to need permission to authorise treatment or euthanasia without the consent of others in the case of an emergency or on welfare grounds;

• Where the horse is to be stabled and the type of livery it is to be kept on. Also, whether the consent of all the owners is required to move the horse to a different location from time to time. Where one of the co-owners is also the professional trainer, often the horse will be stabled with them;

• Who is responsible for paying the livery and other costs of keeping the horse. This may be shared between the parties relative to their percentage share of ownership in the horse. However, sometimes one party is responsible for paying all these costs. Whatever is agreed, it is important it is recorded in a binding written agreement. Otherwise, a dispute is likely to arise in the future. Even if one party happily pays all the expenses initially, they might subsequently change their mind. In the absence of a written agreement, the other party might find themselves paying these costs when they had not anticipated doing so. Often, if the horse is kept at the yard of the trainer who is also a co-owner, the trainer will charge their normal livery rate. This may be divided between all the owners in proportion to their respective shares of ownership, although the trainer may not actually pay their share to themselves;

• Custody of the horse’s passport. The passport must accompany the horse at all times. Thus, it would be usual for custody of the passport to be given to the person keeping the horse at their livery yard and/or transporting it. There would normally be express provisions in the co-ownership agreement requiring the person with custody of the horse’s passport to safeguard it. Also, one of the co-owners would normally be tasked with contacting the passport issuing organisation to update the ownership details to reflect the new co-ownership arrangement;

• If the horse is stabled with a trainer who is also a co-owner, the other owner(s) will want express permission to enter the property and visit the horse. The trainer might want to limit visiting to certain hours, particularly if they live on site and require privacy during certain hours of the day;

• Who is permitted to ride, exercise and train the horse. This will often be accompanied by an express prohibition on others riding the horse. This is particularly important in the case of valuable competition horses, as an inexperienced rider could quickly harm the horse’s training. In the case of a co-ownership arrangement where one of the owners is also the trainer, riding will often be limited to them or staff members they deem suitably qualified;

• Which competitions is the horse to participate in. This could be dealt with in a number of ways, but if not agreed in writing at the outset a dispute is likely to arise in the future. Owners often have different views on the frequency with which and level the horse should compete at. If the horse is competed too much or at a higher level than it is ready for, this could lead to injury or negatively impact its long term ability. One of the ways this could be dealt with is by requiring the parties to agree a competition plan for the horse. It is often best that the trainer (whether they are a co-owner or not) proposes the competition plan and this is then approved by the co-owners. The trainer/rider could still use flexibility though to withdraw or refuse to compete the horse in competitions covered by that plan where the horse is unfit or it would be contrary to its best interests having regard to its long term progression and/or success;

• How any prize money and other awards are to be split or shared between the co-owners. Often prize monies will be shared between the owners in proportion to their respective shareholdings. However, that is not always the case and something different can be agreed. Also, who between them is authorised to receive the monies and an obligation on that person to account to the others for their respective shares;

• The circumstances in which each of the co-owners can sell their respective shares in the horse. Often, people have agreed to co-own a horse with specific people only. They would not want to suddenly find out that they own the horse with someone else because one of the other co-owners has sold their share. For this reason, co-ownership agreements usually contain a prohibition on the sale or transfer of shares except for in specific circumstances. Amongst others, this could include a transfer with the prior written agreement of all the other co-owners, or where a set sale price would be achieved. In any case, the remaining co-owners are likely to want what are called pre-emption rights. This means that when a co-owner offers their shares in the horse for sale, they must first offer them to the remaining co-owner(s), often in the proportion that the number of shares held by each of them bears to the total number of shares held by all the remaining co-owners in aggregate. In this way, the remaining co-owners are able to continue to own the horse in the same proportions between them as they did prior to the leaving co-owner selling their share;

• Whether certain of the co-owners want the ability to force the other co-owners to sell their shares if they find a purchaser to buy the entire horse at a certain price (drag along rights). This deals with the situation where a co-owner has a purchaser for the horse at a price they consider attractive, but that purchaser will only proceed if they can purchase all the shares. With the appropriate rights, the co-owner can force the other co-owners to also sell their shares (at a certain price) to that third party and thus realise their investment in the horse;

• Whether certain of the co-owners want the ability to force a third party purchaser of another co-owner’s shares to also purchase their shares at a certain price (tag along rights). This enables the other co-owners to also sell their shares in the horse if another co-owner sells their share to a third party. It means they can also realise their investment at the same price and don’t miss out;

• Whether or not the horse should be used for breeding purposes. If so, on what terms and who is responsible for the costs of the same. Also, how any profits derived from coverings are to be split between the co-owners in the case of a stallion. As regards a mare, who is going to own the foal(s) and in what shares etc. A co-ownership agreement may be required between the co-owners in relation to the foal(s), which may be similar to that used for the dam;

• Who is to be responsible for insuring the horse and for what. Often, horse co-ownership agreements will allow each co-owner to insure their respective share in the horse and they are responsible for the cost of the same. Responsibility for taking out third party liability insurance should also be included in the agreement. The co-ownership agreement should also record who is responsible for paying for this insurance. The cost might be shared between the co-owners in proportion to their respective shares of ownership as with the other expenses relating to the horse; and

• A mechanism for resolving any deadlock if the parties are unable to reach an agreement on any matter relating to the horse. This only applies where the decision has not been delegated for one of the co-owners to make in their absolute discretion.

We regularly advise clients where an ownership dispute has arisen. Often, the dispute could have been avoided or more easily resolved if a horse co-ownership agreement was in place from the outset. If you are thinking of co-owning a horse, then it is important to take advice from an equine solicitor. As specialists in equine law, we understand the equestrian industry, the realities of horse ownership and the potential pitfalls. We can work with you to ensure the co-ownership agreement covers all the important areas and your investment is protected.

Please note: This article only highlights some of the key issues to deal with in a horse co-ownership agreement. It is not a substitute for taking specialist equine law advice. We hope the article is useful in allowing potential co-owners to discuss and agree (subject to contract) some of these key points before instructing an equine solicitor. This should help save time and expense when the equine solicitor is then instructed to draft the horse co-ownership agreement. There will be other matters to include in the horse co-ownership agreement depending on how the co-owners want to structure the arrangement between them. We also recommend that the co-owners take taxation advice on the arrangement from an accountant. Preferably one who specialises in equestrian matters. If you do not already have an accountant, we can recommend an equestrian specialist.

We can draft a whole range of equine commercial agreements. Click here for more examples of the equestrian contracts we can draft.