A family property company (SCI, a French civil company holding real estate) whose shares are mostly split between a father as usufructuary and a son as bare owner sells, in 2017, all its buildings. The general meeting decides to distribute the proceeds as dividends: nearly 9 million euros go to the usufructuary. The son applies for the dissolution of the company, the annulment of the resolutions and the forfeiture of his father’s usufruct for abuse of enjoyment. The Versailles court of appeal dismisses him: dividends are fruits, they belong to the usufructuary. On 19 September 2024 the Cour de cassation (the French supreme court for civil matters), in a reported decision given after consulting the commercial chamber, corrects the reasoning while confirming the outcome: the distribution of the proceeds of the sale of all the property assets “affects the substance of the shares burdened with usufruct”, the dividend “goes, absent agreement to the contrary […], to the bare owner”, and the usufructuary is left with only a quasi-usufruct over the sum. For anyone valuing split-ownership shares, the ruling says what each right is worth after the building is sold.
The facts
An SCI is formed between a father, holding one share in full ownership and 3,135 shares in usufruct, his son, holding 4,865 shares in full ownership and 3,135 in bare ownership, the mother, holding 1,999 shares in usufruct, and a third person, holding the corresponding 1,999 shares in bare ownership. The father has been manager since 2004. By resolution of an extraordinary general meeting of 18 October 2017, the SCI sells the buildings it owns.
The son contends that the sale entails the dissolution of the company and sues the SCI and the other partners for dissolution and the appointment of a liquidator. He also seeks the annulment of the 2018 meetings on the allocation of the sale proceeds, the approval of the accounts and the distribution of dividends, the termination of his father’s usufruct and the repayment to the SCI of 8,997,450 euros, as well as payment of his share of the liquidation surplus. The Versailles court of appeal, on 10 May 2022, rejects the dissolution, reads the articles as not requiring liquidation after the sale of the assets, and rejects the forfeiture of the usufruct: dividends distributing profit are fruits received in full by the usufructuary. It also orders the SCI to pay the son 19,946,500 euros as a provisional payment on his share of the exceptional 2017 result.
The decision
The third civil chamber, after consulting the commercial chamber, dismissed the son’s appeal on the usufruct by substituting a ground of pure law (Cass. 3e civ., 19 September 2024, nos. 22-18.687 and 22-18.733, reported). “It follows from the combination of articles 578 and 582 of the Civil Code that, while the usufructuary is entitled to the fruits generated by the thing subject to the usufruct, he is bound to preserve the substance of that thing.” And “the distribution, as dividends, of the proceeds of the sale of all the property assets of a property company affects the substance of the shares burdened with usufruct in that it compromises the pursuit of the corporate purpose and the achievement of the aim pursued by the partners”.
“It follows that, where the general meeting decides such a distribution, the dividend goes, absent agreement to the contrary between the bare owner and the usufructuary, to the former, the latter’s right of enjoyment then being exercised as a quasi-usufruct over the sum so distributed.” The decision to distribute, in which the usufructuary took part, cannot therefore amount to an abuse of usufruct, since he merely exercises a quasi-usufruct over the sum. The ruling is, however, quashed on the SCI’s appeal for contradiction between the reasons and the operative part regarding the provisional payment of 19,946,500 euros, and the case is sent back on that point to the Versailles court of appeal, differently composed.
What this changes for valuation
The sale price of the building is not a fruit. As long as the SCI holds its buildings, the rents distributed are fruits that go to the usufructuary of the shares, and the bare ownership of the shares is valued on the property capital it will recover at the usufructuary’s death. When the company sells everything and distributes the price, the distinction no longer holds: the price is the very substance of the shares, and the Court returns it to the bare owner. The usufructuary receives the sum, but as a quasi-usufruct, with a restitution debt towards the bare owner at the end of the usufruct. The glossary describes démembrement and usufruit.
The value of split-ownership shares before and after the sale. Before, the bare ownership of the shares is computed from the value of the buildings, net of liabilities, with the discounts specific to SCI shares, then by deducting the usufruct according to the usufructuary’s age; the article on the usufruct of SCI shares details that method. After the sale and distribution, the bare owner holds a restitution claim equal to the sum distributed, payable at the usufructuary’s death; its present value is that of the claim discounted over the usufructuary’s life expectancy, and it depends on his solvency. The report gives both values and explains the move from one to the other.
The restitution claim must be documented. A quasi-usufruct over 9 million euros creates a debt of the same amount in the usufructuary’s estate, deductible under conditions for inheritance tax. Proving it requires a quasi-usufruct agreement or, at least, minutes of the meeting and a statement of the sums distributed; the valuer assessing the shares after the sale recommends that formalisation and quantifies the claim at its nominal value, then at its present value, for the estate tax return and the partition. The guide on SCI shares in an inheritance explains how this fits with the tax.
“Absent agreement to the contrary”: articles and pacts. The rule is a default rule. An agreement between usufructuary and bare owner may allocate the price to one or the other, or organise reinvestment in a new building, which preserves the substance of the shares and the split ownership. Before valuing, the valuer reads the articles, the split-ownership agreements and the resolutions; that is where, in a family SCI, the answer to “who gets the price” lies.
Dissolution is not automatic. The sale of all the buildings did not dissolve the SCI, for want of a clear clause and of the partners’ intention to that effect. An SCI with no building but several million in cash remains a company whose shares are valued: on its cash, net of liabilities and latent tax, with a reduced discount since the asset is liquid, and taking into account what the articles allow to be done with it. The article on the discounts on SCI shares recalls that a discount is justified by the nature of the asset and the constraints of the articles, not by habit.
A usufruct over a sum of money is returned in value at the end of the usufruct. In a reported ruling of 4 November 2020 (Cass. 1re civ., no. 19-14.421), the Court recalled that, under article 587 of the Civil Code, “where the usufruct concerns sums of money, the usufructuary has the right to use them but must return, at the end of the usufruct, their value estimated at the date of return”, and that the usufructuary’s legatees must return the value of bank accounts to the bare owner’s estate. The quasi-usufruct over the sale price of the SCI’s buildings follows the same logic: a restitution claim, valued at the end of the usufruct.
Profits placed in reserve already went to the bare owner. The First Civil Chamber had drawn the same line between fruits and substance. In a reported ruling of 22 June 2016 (Cass. 1re civ., no. 15-19.471), it approved a court of appeal for holding that the usufructuary, while entitled to the distributed profits, “has no right to the profits that have been placed in reserve”. The court of appeal had deduced from this that the funds arising from the distribution of a company’s reserves belonged to the bare owners alone and entered the assets of the joint estate. The 2024 ruling applies the same logic to the sale price of all the buildings, and specifies that the usufructuary exercises a quasi-usufruct over the sum distributed. The article on the partition of jointly owned property and the gift partition presents the 2016 ruling.
What the valuer takes from it
- Distributing the sale price of all the buildings of an SCI affects the substance of split-ownership shares: the dividend goes to the bare owner, absent agreement to the contrary.
- The usufructuary exercises a quasi-usufruct over the sum and owes a restitution claim at the end of the usufruct.
- After the sale, the bare ownership of the shares is valued as a restitution claim discounted over the usufructuary’s life expectancy, with the solvency risk.
- A split-ownership or reinvestment agreement can change the allocation of the price; the valuer reads it before valuing.
- An SCI emptied of its buildings remains a company whose shares are valued on its cash and its articles.
Further reading
The Business and company shares page describes the assignment, its timescale and its fee. The guide Valuing SCI shares in an inheritance or a gift and the glossary entries parts de SCI, usufruit and nue-propriété complement this article. On the same theme: Usufruct of SCI shares and life annuity sales: valuing the rights and The surviving spouse has a usufruct over bare-ownership assets. The decision is available on Légifrance.
What next
SCI shares in split ownership, a building sold, and a price to share between usufructuary and bare owner?
I value the usufruct and the bare ownership of the shares before and after the sale, with the value of the building, the tax position and the usufructuary's age, and quantify the restitution claim of the quasi-usufruct, for the family, the notary or the court.
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