You hold shares in a family SCI (société civile immobilière, a French property-holding company) and you need to put a value on them: inheritance, gift, withdrawal of a partner, divorce or transfer between partners. The usual shortcut is to take the value of the buildings and apply your percentage. It is rarely right. This article presents the three families of methods used to value SCI shares, the adjustments that apply to them and a worked example with figures.
Why a share is not worth its slice of the building
An SCI share is a right in a company, not in a building. The partner can neither sell the building alone nor force its sale. Unless the articles of association provide otherwise, shares can only be transferred to a third party with the consent of all the partners (article 1861 of the French Civil Code). Each partner is liable for the company’s debts in proportion to their share of the capital (article 1857 of the Civil Code). Finally, the company often carries liabilities: a loan, partners’ current accounts, tax debts.
The market for family SCI shares is narrow. An outside buyer is rare, and negotiates these constraints. That is the reason for the methods described below.
Method 1: the asset-based approach (restated net asset value)
This method starts from the company’s balance sheet and corrects it to reflect the real value of the buildings.
- Book net assets = total assets − total liabilities.
- Unrealised gain = market value of the buildings − net book value of the buildings.
- Restated net asset value (RNAV) = book net assets + unrealised gain.
- Mathematical value of one share = RNAV / number of shares.
- Adjustments: discount for lack of liquidity, minority discount or control premium depending on the block of shares valued.
The market value of each building is estimated beforehand, most often by comparison (Charte de l’expertise en évaluation immobilière, the French property valuation charter, 6th edition, Title III, §1.1 and §2.1). This step requires a visit to the properties.
Worked example
A family SCI owns a tenanted building. The data are as follows:
- market value of the building: €600,000;
- net book value of the building: €350,000;
- cash: €20,000;
- outstanding loan: €200,000;
- partners’ current accounts: €30,000;
- capital divided into 1,000 shares.
Book net assets: 350,000 + 20,000 − 200,000 − 30,000 = €140,000. Unrealised gain: 600,000 − 350,000 = €250,000. RNAV: 140,000 + 250,000 = €390,000, or €390 per share.
With a 15 % discount for lack of liquidity, the share is worth €331.50. A partner holding 400 shares (40 % of the capital) therefore declares €132,600. Reasoning on the building alone, they would have declared 40 % of €600,000, or €240,000. The gap is explained by the company’s liabilities and by the very nature of the share.
Method 2: the income approach
This is based on the SCI’s capacity to produce income.
Direct capitalisation
The net annual income is calculated: rents and other receipts, less non-recoverable operating charges and property tax. It is divided by a capitalisation rate observed on the market for comparable properties (Charter, Title III, §2.2 and chapter 8 on the choice of rates).
In the worked example, a net income of €33,000 capitalised at 5.5 % gives €600,000. This brings us back to the value of the building; the liabilities still have to be deducted and the same adjustments applied as for the asset-based method.
Discounted cash flow (DCF)
The discounted cash flow method (Charter, Title III, §2.3) projects net income over five to ten years, factoring in the movement of rents, charges and occupancy. Each flow is discounted at a rate reflecting the cost of capital and the risk of the investment, and a discounted terminal value is added.
Value = Σ (CFt / (1 + r)^t) + TV / (1 + r)^n
CFt = cash flow of year t
r = discount rate
TV = terminal value
n = number of projection yearsThe discount rate is generally higher than the capitalisation rate, because it also rewards the expected growth of the flows. The terminal value is obtained by capitalising the last flow or by an exit multiple.
Method 3: goodwill (survaleur)
This method combines the previous two. One calculates the theoretical return the RNAV should produce at the market rate, then compares it with the actual income. The difference, capitalised, constitutes a positive or negative goodwill.
Total value = RNAV + [(Actual income − RNAV × capitalisation rate) / capitalisation rate]For a family SCI, goodwill is often close to zero: rents are at market level and the RNAV already reflects the value of the buildings. It becomes useful when the current leases depart markedly from market rent.
The adjustments: discounts and premiums
- Lack of liquidity: a discount of 10 to 20 % is commonly used. Larger discounts have been accepted in particular situations (lasting deadlock, minority partner with no decision-making power), provided they are justified by the articles of association and the actual situation of the company.
- Minority or control: a majority block, which allows decisions on the sale of the buildings or the distribution of profits, may justify a premium; a minority block, a discount.
- Clauses in the articles: consent to transfers, pre-emption, restrictions on transfers, majority rules.
- Latent tax: the unrealised gain on the buildings is not systematically deducted; its treatment depends on the context of the valuation and must be explained.
In tax matters, the Charter notes that valuations are sometimes accompanied by discounts accepted by the tax authority or by law (Title II, §8.14). Each discount must be justified, quantified and tied to the facts of the case.
The factors that weigh on value
- Quality and location of the buildings.
- Letting situation: occupancy rate, strength of the tenants, level of rents against the market.
- Potential for works, subdivision or capital gain.
- Tax regime of the SCI (income tax or corporation tax).
- Distribution of the capital and governance.
- Partners’ current accounts and whether they are repayable on demand.
Cross-checking the methods
The Charter reminds us that no method is universal and that the choice depends on the valuation assumptions (Title III, chapter 8). In practice, the asset-based approach serves as the foundation for a family SCI, the income approach checks it, and DCF is required for a company that plans works or a marked change in its rents. The valuation of company shares is a specialism identified by the Charter (Title II, §8.5). Where partners disagree on the value of the shares, article 1843-4 of the Civil Code provides for the appointment of an expert, failing agreement, by the president of the court.
Further reading
The Business and company shares page describes the content of a share valuation report, its timescale and its fee. Two articles complement this one: the discounts accepted for SCI shares in an inheritance and a disguised gift facing a tax reassessment notice.
What next
A business, a hotel or company shares to value?
Sale, contribution, divorce of a business owner, withdrawal of a partner, wealth tax: premises, business and shares valued together, with the consistency banks and the tax authorities expect.
Free quote, by email or by phone. No commitment before the quote is accepted. Fees are never linked to the value of the property (Charte de l’expertise, Title I, §2.1).
