Distribution of the proceeds from the sale of a property in a dismembered SCI: challenges and legal solutions

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When a civil real estate company (SCI) owns real estate, its partners may hold dismembered rights to shares in shares, in usufruct and in bare ownership. This configuration raises major questions when the SCI sells its real estate asset.

Who gets the money from the sale? How should the funds be divided between usufructuary and bare owner?

The decision rendered by the Court of Cassation on September 19, 2024 (no. 22-18.687) sheds a decisive light on these questions, by specifying the applicable principles and the leeway offered to partners.

The qualification of the proceeds of the sale: capital or fruit?

The central legal issue relates to the qualification of the proceeds of the sale carried out by the SCI. Should we see it as capital, belonging to the bare owner, or a fruit, belonging to the usufructuary

Case law recalls that, unless otherwise agreed, The proceeds of the transfer constitutes an element of capital and belongs So at bare owner. On the other hand, when this product is distributed in the form of dividends, the usufructuary benefits Of a virtual usufruct on the amounts received.

He can then dispose of it freely, subject to an obligation to return it upon expiry of the usufruct.

This distinction is based on the classic opposition between the substance of shares, which is capital, and the fruits, corresponding to recurring operating profits. The decision to distribute or not the proceeds of a sale is therefore never neutral and has significant legal and financial consequences.

Case law illustration: the judgment of September 19, 2024

In the case submitted to the Court of Cassation, an SCI had sold all of its real estate in 2017. The following year, the partners decided to distribute the proceeds of the sale in the form of dividends. The usufructuary had received the corresponding amounts, which the naked owner contested.

The Versailles Court of Appeal considered that the dividends constituted fruits that go entirely to the usufructuary.

The Court of Cassation adopts a more nuanced analysis. It considers that the distribution of the proceeds of the transfer affects the very substance of the shares and that, unless there is prior agreement between the usufructuary and the bare owner, these amounts belong to the bare owner.

The usufructuary can only dispose of it as a virtual usufruct, generating a return claim for the benefit of the naked owner.

The High Court also states that the distribution decision, even adopted with the vote of the usufructuary, does not in itself characterize an abuse of enjoyment as long as the rights of the naked owner are preserved by the recognition of this claim.

Tax and asset consequences

SCI at the IS

When the SCI is subject to corporate tax, the capital gain realized during the sale is first taxed at the corporate level.

In the event of distribution of the proceeds of sale in the form of dividends, the partner who receives the amounts distributed is, in principle, taxed as income from movable capital (PFU or, optionally, progressive scale).

SCI to the IR

When the SCI is subject to income tax, the tax regime is different. The company is said to be “translucent”: the partners are taxed directly on the capital gain realized during the sale of the building, in proportion to their rights (in usufruct and in bare ownership, depending on the distribution selected).

In this context, the selling price remains in cash in the SCI, but the taxation of capital gain has already taken place at the level of the partners.

The subsequent distribution of this cash, corresponding to capital already taxed as capital gain, does not, in principle, constitute a new taxable income of the “dividend” type for natural person partners.

As it stands, it is therefore not subject to the regime of income from movable capital, except in a specific situation (for example, distribution of operating results not yet taxed, movements in shareholders' current accounts, etc.).

On the other hand, at the civil level, the principles identified by the Court of Cassation remain fully applicable: the proceeds of sale are, by nature, an element of capital belonging to the naked owner, and the usufructuary who receives the amount benefits from a virtual usufruct with an obligation to return when his right is extinguished.

Anticipating to secure: what practical solutions?

In order to limit the risks of litigation, the partners of a dismembered SCI have every interest in anticipating the distribution of the sale proceeds.

Several levers can be mobilized.

The conclusion of a usufruct agreement makes it possible to determine in advance the destination of the funds resulting from the transfer.

Taking into account of the social purpose of the SCI is also decisive, especially when the company aims to manage and sustainably exploit real estate assets.

The re-use of funds in a new real estate investment, according to a similar dismemberment pattern, is often a balanced solution.

Finally, the SCI's statutes can usefully frame general meeting decisions relating to the distribution of funds in order to secure governance.

The distribution of the proceeds from the sale of a property held by an SCI whose shares are divided is based on a delicate legal balance between usufructuary and bare owner.

Recent case law calls for increased vigilance and confirms the importance of contractual and statutory expectations.

Appropriate structuring makes it possible not only to prevent conflicts, but also to optimize asset management and long-term transfer.