Usufruct (usufruit)

Usufruit (usufruct, close to a life interest in English law) is the right to enjoy a property owned by another, as the owner would, subject to preserving its substance. The usufructuary lives in the property or lets it and keeps the rent; the usufructuary pays for maintenance repairs and running costs, while the bare owner bears major repairs. The usufruct is for life when it lasts until the usufructuary’s death, and for a fixed term when a term is set; granted to a company, it may not exceed thirty years.

In practice, a usufruct arises from an inheritance (rights of the surviving spouse), from a gift with a reserved usufruct, or from a deliberate arrangement. It is valued for transfer duties, for the apportionment of a sale price, for a partition or for the IFI (French wealth tax on property), where the usufructuary is in principle taxed on the full ownership value.

Where the rule comes from

Articles 578 to 624 of the French Civil Code govern usufruct: definition (article 578), leases (article 595, which requires the bare owner’s consent for commercial and agricultural leases), repairs (articles 605 and 606), termination (article 617) and apportionment of the price on a simultaneous sale (article 621). The scale in article 669 of the French General Tax Code sets the tax value of a life usufruct by age bands of the usufructuary (40 % between 61 and 70, 30 % between 71 and 80, for example) and that of a fixed-term usufruct at 23 % of full ownership per ten-year period. Article 968 of the same code deals with the wealth tax on property.

In a valuation report

I start from the market value in full ownership, then from the market rental value of the property. I determine the probable duration of the usufruct (mortality table for a life usufruct, contractual term for a fixed-term one) and discount the expected net income over that period at a rate that I justify, as the Charte de l’expertise en évaluation immobilière (the French property valuation charter) provides for the valuation of complex rights. I present alongside it the value under the tax scale, indicating which one the instruction requires: the scale for registration duties, the economic value for a partition or an apportionment of price, unless the parties agree otherwise. The report points out that the economic value of a usufruct is higher the younger the usufructuary and the higher the income of the property.

Example

A house worth €400,000 in full ownership, net market rent €14,000 a year, usufructuary aged 66. Tax scale: usufruct 40 %, that is €160,000. Economic value: life expectancy adopted 19 years, discount rate 3.5 %, annuity factor 13.7, usufruct 14,000 × 13.7 = €192,000 rounded, bare ownership €208,000. On a simultaneous sale at €400,000, article 621 leads to the price being apportioned according to those respective values: €192,000 to the usufructuary, €208,000 to the bare owner, unless they agree to transfer the usufruct onto the price.

Not to be confused with

The right of use and habitation (articles 625 et seq.) is limited to the needs of the holder and their family and does not allow letting. Quasi-usufruct applies to consumable things, such as a sum of money. A lease confers a personal right, not a right in rem.