FAQ on the dismemberment of real property ownership

The dismemberment of property ownership (démembrement de propriété) raises many questions, whether in the context of a family transmission, an investment or an estate planning strategy. This legal technique, which consists in separating the usufruct from the bare ownership, involves specific rights and obligations for each of the parties. Here are the answers to frequently asked questions about this complex but particularly useful mechanism in property law.

What is the dismemberment of property ownership?

The dismemberment of ownership consists in dividing the right of ownership into two distinct components: the usufruct (usufruit) and the bare ownership (nue-propriété). This division turns what was originally a single right into two autonomous rights, each with its own legal characteristics.

The usufructuary obtains the right to use and enjoy the property. He or she may thus live in the home, let it and receive the rental income. The bare owner, for his or her part, retains the right to dispose of the property in law, while being temporarily deprived of its use.

This separation is never permanent. The French Civil Code provides that the usufruct is automatically extinguished on the death of the usufructuary, allowing the bare owner to regain full ownership of the property.

How is a dismemberment of ownership created?

The dismemberment of ownership can result from several distinct situations. Transmission on death is the most frequent case, in particular where the surviving spouse inherits the usufruct while the children receive the bare ownership.

A sale in dismembered form is another common method. An owner may choose to sell the usufruct and the bare ownership separately to different buyers, or to transfer only one of the two components while keeping the other.

A gift with reservation of usufruct also produces this dismemberment. The donor transmits the bare ownership while keeping the usufruct until his or her death, thereby guaranteeing continued occupation of the premises or receipt of the rental income.

What are the usufructuary's rights over the property?

The usufructuary enjoys extensive rights over the property. He or she may live in it personally or let it, in accordance with Article 578 of the French Civil Code, which recognises the right to enjoy a thing belonging to another.

As regards rental income, the usufructuary receives all of it. This prerogative is often the main purpose of the dismemberment in the context of property investments or income strategies.

The usufructuary also has the right to carry out maintenance and improvement works, subject to certain conditions. He or she may carry out any alterations that do not affect the substance of the property and that are consistent with its normal use.

What obligations rest on the usufructuary?

The usufructuary bears several important obligations. First, he or she must preserve the substance of the property, which means that it cannot be destroyed, distorted or have its main use changed without the bare owner's agreement. The legal, tax and practical constraints that result for each of the parties are listed in our article on the drawbacks of dismemberment of ownership.

Current charges and taxes linked to the enjoyment of the property fall on the usufructuary. He or she must in particular pay the property tax (taxe foncière), the current co-ownership charges and the costs of regular maintenance.

The usufructuary is also obliged to have an inventory of the condition of the premises (état des lieux) drawn up at the start of the usufruct. This formality protects the interests of the bare owner by recording the initial condition of the property.

Where the property is let, the usufructuary must inform the bare owner of the terms of the lease and ensure that the tenant complies with its obligations.

What are the bare owner's rights?

The bare owner retains the right to dispose of the property in law. He or she may sell it, give it or bequeath it, although these acts are limited by the existence of the usufruct.

The bare owner also has a right of oversight over the usufructuary's acts. The bare owner may object to significant alterations to the property or to acts that would exceed the prerogatives of the usufruct.

The bare owner also benefits from a claim for restitution. When the usufruct is extinguished, he or she automatically recovers full ownership of the property, in the condition in which it is found.

How are charges and works apportioned?

The apportionment of charges between the usufructuary and the bare owner follows precise rules laid down in the French Civil Code. The usufructuary bears the current charges: property tax, ordinary co-ownership charges, routine maintenance and tenant-type repairs.

The bare owner, for his or her part, bears major repairs (grosses réparations) and structural works. This category includes re-doing the roof, work on load-bearing walls, or replacement of the main installations. The notion of major repairs and its application where the property is let under a commercial lease are analysed in our article on Article 606 of the Civil Code.

Improvement works generally require the agreement of both parties. If the usufructuary wishes to carry out alterations that add value to the property, he or she must obtain the consent of the bare owner, unless they are minor adaptations that do not change the nature of the property.

Insurance is a special case: the usufructuary must insure the property against current risks, while the bare owner may take out additional insurance to protect his or her interests.

How long does the dismemberment last?

The duration of the usufruct varies according to how it was created. A life usufruct, the most frequent, is extinguished on the death of the usufructuary. This form mainly concerns family transmissions and gifts with reservation of usufruct.

A temporary usufruct may be created for a fixed term; it is then extinguished by the expiry of the time for which it was granted (Article 617 of the French Civil Code). Where it is not granted to individuals, in particular for the benefit of a legal entity, it cannot last more than thirty years (Article 619 of the French Civil Code). This arrangement is used in particular in certain investment structures or family agreements. On one of these structures, see our analysis of the mechanics and risks of SCPIs with temporary dismemberment of ownership.

The usufruct may also be extinguished by consolidation, where the usufructuary and the bare owner become the same person, or by express renunciation by the usufructuary.

How is the value of the usufruct and of the bare ownership assessed?

The valuation of a dismemberment of ownership is based on official tax scales which take account of the usufructuary's age. The older the usufructuary, the lower the value of the usufruct and the higher that of the bare ownership.

For a usufructuary under 21, the usufruct represents 90% of the value of the property and the bare ownership 10%. This split changes progressively: at 61, the usufruct is worth 40% and the bare ownership 60%.

These scales apply in particular to the calculation of inheritance and gift duties. However, for transactions between private parties, the value may be freely negotiated according to the particular circumstances.

What tax advantages does dismemberment offer?

The dismemberment of ownership has several significant tax advantages. In terms of transmission, giving the bare ownership while keeping the usufruct makes it possible to transmit assets at a reduced tax cost, since only the value of the bare ownership is taxable.

The usufructuary benefits from favourable taxation of rental income, in particular thanks to the depreciation regimes and the deductions available for rental investments.

The bare owner, although he or she receives no immediate income, may in certain cases deduct a share of the charges and loan interest corresponding to his or her share of ownership.

When and how does the dismemberment end?

The dismemberment of ownership ends automatically on the death of the usufructuary in the case of a life usufruct. The bare owner then recovers full ownership without any particular formality, although a notarial deed may be necessary for land registration purposes.

The usufruct may also be extinguished by the arrival of the term in the case of a temporary usufruct, by renunciation by the usufructuary, or by consolidation where the two rights are reunited in the same person.

Article 617 of the French Civil Code also provides for the extinction of the usufruct by non-use of the right for thirty years, where the usufructuary does not exercise his or her enjoyment during that period.

The dismemberment of ownership is a powerful but complex legal tool

The frequently asked questions on the dismemberment of ownership reveal the richness and complexity of this legal mechanism. Each situation requires a particular analysis of the rights and obligations of each of the parties, as well as a precise assessment of the tax and estate planning implications.

Whether you are considering a dismemberment in the context of a family transmission, a property investment or an estate optimisation strategy, it is essential to weigh carefully the legal and financial consequences of the operation. The support of a property law professional will allow you to secure your project and to optimise the advantages offered by this arrangement.