The separation of the ownership of a property unites the bare owner and the usufructuary. Both must respect the rights of each party and the durability of the property. The same applies to third parties in conflict. Details about the difference between usufructuary and bare owner.
Separation of the ownership of a property consists of separating bare ownership and usufruct. This principle applies to real estate, but also to works of art or company shares, for example. It is of interest to make a donation during one’s lifetime or to reduce the tax bill. But there is a difference between usufructuary and bare owner. Indeed, only the usufruct is taken into account for the real estate wealth tax (IFI) and the income from the use of the property for income tax. To sum up, the bare owner has the right to sell the property, but may neither use it nor reap the benefits. He is therefore not taxed. The usufructuary holds these last two rights, but not the right to sell. However, a shared “destiny” exists between the two. If the property is included in a co-ownership, both are represented by the same proxy, who votes for both at the general meeting of co-ownership.
The strict framework for the transfer of a separated property
These distinctions and units of rights to a property form a protection. In fact, the bare owner cannot sell the property without the agreement of the usufructuary, and vice versa. This means that the creditors, of either party, cannot sell the property in full in order to pay themselves. The Court of Cassation regularly cites this principle in its decisions. Thus, creditors may, at best, proceed with the sale of bare ownership or usufruct, where possible and relevant, since the sharing of property is not allowed either. Separation is not co-ownership. Also, the amount to be recovered, usufruct or bare ownership, will be less than the total value of the full ownership. As a reminder, the value of bare ownership and usufruct depends on the age of the person with usufruct. The sum of the two is the price of full ownership.
The obligation to protect the property
Respecting the rights of each person also obligates the usufructuary. He must keep the property in the state in which he received it, and return it as is at the end of the separation. If he destroys the property or damages it in such a way that it loses value, he may be required to compensate the bare owner, who at the end of the separation becomes the full owner. In this respect, when the separation takes place, the same as with a real estate rental, he provides a deposit as in the case of a rental. And an inventory must be carried out in order to validate the actual condition of the property.
In fact, the contract that lays down the rules for the separation goes further, and provides for the distribution of charges and work, the cases where the usufructuary can act autonomously and the cases where an agreement with the bare owner is necessary. For each situation that is not respected, the parties may provide for a financial consideration. In any case, if the usufructuary exceeds his right of use (usus) and enjoyment (fructus), these acts may be made invalid at the request of the bare owner.
The delicate question of corporate rights and investment income
For any separated property, conflict can arise. This is often the result of a poor definition of the rules. However, there may be more conflicts with company securities, shares and stocks than with real estate. For example, bare owners and usufructuaries attend the general meeting, even when they are not required to vote. Here, legislation determines the distribution of votes for each status of the separation. However, in critical situations, the bare owner has a decisive decision, such as appointing a temporary administrator. Here, the quality of the relationship between the bare owner and the usufructuary is decisive. Many decisions require dialogue, consultation and, above all, trust. Tensions trigger conflicts that are fuelled by inaccuracies and unforeseen events, but also by different objectives.
Thus, in terms of corporate securities or more generally investment income, the bare owner is looking for security and is therefore more defensive or conservative. Conversely, the usufructuary is looking for immediate income, so he is willing to take more risk and is more offensive. Particularly since in the case of a separation of portfolio, the usufructuary is allowed to manage it alone. The separation concerns the investment budget, not each individual line. However, he must inform the bare owner of his arbitrage operations and ensure that the portfolio is preserved, at least as far as the amount of its valuation is concerned. This implies reinvesting the gains obtained from the sale of securities. If this is not the case, then the decision must be taken in agreement with the bare owner.