Cautions Charges and Usfruct
What Is a Usufruct?
A usufruct is a legal right accorded to a person or party that confers the temporary right to use and derive income or benefit from someone else’s property. It is a limited real right that can be found in many mixed and civil law jurisdictions. A usufructuary is the person holding the property by usufruct.
A usufruct combines the two property rights of usus and fructus. Usus refers to the right to use something directly without damaging or altering it, and fructus refers to the right to enjoy the fruits of the property being used—that is, to profit from the real property by leasing it, selling crops produced by it, charging admission to it, or similar.
Usufruct is usually conferred for a limited time period. It can be granted to the usufructuary, or person holding usufruct, as a way to look after property until the death of a property owner and the estate can be settled if the property owner is in ill health. While the usufructuary has the right to use the property, they cannot damage or destroy it or dispose of the property. A usufructuary does not have full ownership of the property, because they do not enjoy the third property right, abusus, which refers to the right to consume, destroy, or transfer ownership of the property to someone else.
How a Usufruct Works
In usufruct, a person or group has the right to use the property of another. They do not own it but have a contractually sanctioned interest in it. There are two types of usufruct: perfect and imperfect. In perfect usufruct, the usufructuary can use the property, and can profit from it, but cannot change it in a substantial way. For example, if the owner of a business becomes incapacitated and gives usufruct to a relative to run the business for him or her, the usufructuary can run the business, but can’t sell it or tear down the building and rebuild it. In an imperfect usufruct system, the usufructuary does have some power to alter the property, such as when a landowner grants usufruct to a piece of land for agricultural use. The usufructuary may have the right to produce crops from the land and to make improvements to the land that would aid in that endeavour. However, the usufructuary does not own these improvements; when the usufruct ends, they belong to the original owner or to his or her estate.
If a party has a usufruct in a property, they have the full right to use it or rent it out and collect the rental income without sharing it with the actual owner, as long as the usufruct is in effect.
Usufruct Example
For example, John has been granted usufruct over Mary’s property. Mary’s property is a bed-and-breakfast with a large yard that needs tending. Mary is in ill health and can no longer tend to the property and run the business. John, as the usufructuary, has the right to use the property and run the business on Mary’s behalf for the time the usufruct is in effect. The usufruct may be in effect until Mary’s death when the estate will be settled and the property will be passed on per act of law or the directions in the estate.
Another example could be in a situation where parents wish to leave their property to one or more of their children, but they wish to transfer the property in good time, in the hope of avoiding the need for their children to pay ‘Death Tax’ (which means they must survive for seven years, otherwise it is payable on a sliding scale) but at the same time, the parents wish to ensure that they are secure in their home for the rest of their lives.
What are their options?
They could consider a charge on the property, but this would not guarantee their right to live in the property and a charge is considered an asset and would therefore be taken in to account for ‘Death Tax’ or a caution, but that is not very secure at all.
The other option would be some sort of trust, but these can be complicated and expensive, not normally ideal for one or two properties, which does not leave many options.
However, this is where an Usfruct could be the ideal option. Here is how it could work:
The parents (or parent) transfer their property to their beneficiary, but at the same time they can grant themselves an Usfructury on the property, which will grant them the right to use the property as their own, for as long as they live. This will be written in to the deed and is basically watertight. This will enable them to use the property as if it were their own, they can continue to use their home as if it were their own, for the rest of their lives, without any fear of being evicted.
In fact, even if their beneficiaries were to get in to financial trouble, which could put the property at risk, the Usfruct would still stand for as long as the parents live, ensuring that the sad situation where parents transfer their home to their children, only for them to actually evict them, (which does happen) can be avoided.