Usufruct

Usufruct

The right of usufruct is the right to enjoy someone else's property. A usufruct is often established on immovable property and is common in inheritance law. A testator may decide to grant the use of a home to a person who is not the heir to the home. A usufruct is tied to the life of the usufructuary and therefore expires automatically. It also happens that usufruct is granted to companies or non-profit organizations. Do you have any questions about the right of usufruct?

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Usufruct within property law

Usufruct is a limited right under Book 3 of the Dutch Civil Code. Pursuant to Article 3:201 of the Civil Code, usufruct grants the right to use goods belonging to another and to enjoy the fruits thereof. Within property law, it is therefore a derivative of full ownership: the owner retains the so-called bare ownership, while the usufructuary acquires the enjoyment and use. Unlike possession and ownership, the usufructuary therefore does not acquire the object itself, but rather a right that rests upon that object. This distinction determines who may decide on what and is often the core of the matter in disputes.

Establishment of usufruct

Usufruct arises through establishment or through prescription (Article 3:202 of the Dutch Civil Code). The same rules apply to the establishment as to the transfer and delivery of the property on which it rests. Therefore, you establish usufruct on immovable property or other registered property by means of a notarial deed and registration in the public registers; see also our page on registered properties. When establishing usufruct, the parties can regulate conditions and powers, for example regarding maintenance, insurance, or the right to draw on the assets. A carefully drafted deed of establishment prevents later disputes and is of importance to every party, from an international group to the baker on the corner who grants or receives a building or business asset in usufruct.

Duration of the usufruct

Usufruct is temporary by its nature. For a natural person, it ends at the latest upon death; it cannot be inherited or continue indefinitely. If usufruct is established for the benefit of a legal entity, it ends upon the dissolution of that legal entity and in any event after a maximum of thirty years (Article 3:203 of the Dutch Civil Code). As a result, usufruct lends itself well to estate planning and business succession, but it also requires prior consideration of what happens when the right ends.

Rights and obligations of the usufructuary

The usufructuary may use the property and collect the fruits, and must conduct himself in doing so as a good usufructuary in accordance with the rules established at the time of establishment or local customs (Article 3:207 of the Dutch Civil Code). Opposite these rights of enjoyment are obligations. The usufructuary is generally required to draw up (or have drawn up) an inventory of the estate (Article 3:205 of the Dutch Civil Code), may be required to provide security (Article 3:206 of the Dutch Civil Code), and must insure the property and maintain it properly (Article 3:209 of the Dutch Civil Code). The usufructuary may perform acts of management independently; for acts of disposition, such as alienation or encumbrance, the cooperation of the principal right holder is in principle required (Articles 3:212 to 3:215 of the Dutch Civil Code). It is precisely at the intersection of management and disposition that most conflicts arise in practice.

Usufruct on shares and claims

Usufruct is not limited to houses and commercial properties. It can also apply to property rights, such as shares, a bank balance, or a claim. In the case of usufruct on shares, questions arise regarding voting rights and profit distribution, which must be regulated in both the articles of association and the deed of establishment. In the case of usufruct on claims, the usufructuary is authorized to collect and receive payments (Article 3:210 of the Dutch Civil Code), but the amount collected generally accrues to the principal right holder (Article 3:213 of the Dutch Civil Code). For entrepreneurs who wish to transfer their business in phases, this requires a tailored approach from a tax and legal perspective, where usufruct is sometimes a solution and sometimes not; an ordinary transfer or another limited right may be more appropriate.

Termination of the usufruct and disputes

Usufruct ends, inter alia, upon the expiration of the term, the death or dissolution of the usufructuary, renunciation, merger, and termination subject to the statutory conditions (Article 3:226 of the Dutch Civil Code and subsequent articles). At the end, the property must in principle be returned to the principal right holder, which can give rise to disputes regarding the condition of the property, overdue maintenance, or settlement. Disputes between the usufructuary and the bare owner often concern the boundary between management and disposal, maintenance costs, or the question of who is entitled to sell. Our lawyers and in-house counsel advise on the drafting and interpretation of deeds of establishment and assist you in negotiations and proceedings, ensuring that the agreements regarding your usufruct are legally sound.