On the sale of the bare ownership with life estate

 venta nuda propiedad usufructo vitalicio

 

Did you know that by life estate could maintain the enjoyment of your home and supplement your pension? Do you know the risks of such operations?

 

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In this post we will see the performance of the contract sale of the bare ownership maintaining the life estate, and their advantages and disadvantages. And above all, We review the precautions to be taken when one of these contracts proposed.

What it is the full ownership of the property right?

Property law is the right to enjoy and dispose of a thing, with no limitations other than those established by law.  Unless otherwise it is indicated, property rights includes the freehold, It ie both legal ownership and the ability to use and enjoy the thing.

The full controlon a well is divided into two different rights:

  1. nuda property.
  2. Right to the use and enjoyment.

What it is the bare ownership?

Is that legal ownership right of a person over a thing, of which he owns, without the ability to use or enjoy it:  This right of use and enjoyment corresponds to a third owner of the usufruct. Simply, is he “headline” of good without being able to enjoy it.

The owner of the bare property has dominion over the thing, but holds no ownership or the right to use and enjoy, corresponding to the usufructuary. Therefore,  the nuda involves property that can not be used or enjoy good until extinguish the usufruct.

In practice, it is common for one of these situations occurs in hereditary processes, where children receive the bare ownership of part of the property belonging to the deceased parent, but the lease is held by the surviving spouse.

Both the bare ownership and usufruct rights are real, who enroll in the Registry of Property and can be traded.

What is the right of usufruct?

The usufruct It is regulated in the Civil Code, on articles 467 ff. Article 467 usufruct defined as one that "Gives the right to enjoy the goods of others with the obligation to keep its form and substance, unless the title of their constitution or the law authorize otherwise. "

The usufruct It gives the right to use and enjoy a good but does not understand the legal ownership of the good.

The owner of the usufruct right is called "beneficial owner", can not have good, but I use it and enjoy it. The usufructuary is entitled to all natural fruit, industrial and civil (art. 471 CCivil).

In this entry explained at greater length what the right of usufruct.

Sales types of legal ownership

There is the possibility of sell the bare ownership of good, reserving the right to usufruct. This type of operation is increasingly common:  The owner of the property still enjoys keeping his usufruct, although the legal ownership has been sold to a third party.

Moreover, for some investors may be of interest to purchase the bare ownership of an asset, although it may temporarily unavailable it to the fall on it a right of usufruct. It is usually lifelong usufruct.

The investor makes a calculation of the life expectancy of the owner and an appraisal of the property. Depending on both parameters provides an amount to the owner for his legal ownership.

The owner of the property, usually is an elderly person, between 75 and 80 years old,  with economic needs. If you sell the bare popiedad retaining the life estate can continue living there,  without having to take care of their own expenses from an owner, as, for example, the Property Tax, Community expenses or apportionments.

The aim of this type of sale is more liquidity, maintain the right to use and enjoy good, and stop taking over housing costs. They can also rent the right to use a third party and profit, in the event that they had another place to live.

The sale of the property is done naked before a notary. The public deed before a notary and registration in the Land Registry are constitutive of the right of usufruct: without registration, the right does not exist.

The sale the bare ownership can lead to change by the following modalities:

1.- Single payment or single amount for signature. In signing before a notary, the person selling the bare ownership maintaining the life interest perceives the total of the amount to the start of the operation, namely, a single payment is agreed for sale. This amount will vary depending on the value of the good market, as well as the age of the usufructuary. But this, You not receive any other amount as perviva their right. The buyer acquires the same legal ownership at a discount that varies depending on the number of notional years, between 20% and 60%, depending on the age of the seller. The higher the person selling, the lower the discount when selling the bare ownership, relative to the appraised value of the home.

2.- Annuity. The seller, which it happens to be beneficial and maintains the life interest, sell the bare ownership in exchange for an annuity. By the time the death of the usufructuary the usufruct is extinguished and the bare owner will get full ownership of the property. the monthly amount agreed between the parties, depending on the value of housing and theoretical life expectancy is calculated. In case the buyer does not pay the legal ownership agreed rent, the usufructuary regain full control of the well, without having to return the money paid so far, provided that the contract contains a condition subsequent.

3.- Commercial Space. The seller retains the right to life estate, in exchange for an income in this case all his life but for a certain period.

Advantages and disadvantages of selling and buying the bare ownership

After analyzing both the bare ownership and usufruct rights, and the ability to sell and buy, we now turn the advantages and disadvantages of this type of operation, both the seller, and the buyer.

For the seller

Advantage

You get cash without having to leave the property. Therefore, the person selling the bare ownership stays with the right of use of housing, but you do not have to leave.

You can rent the right to use in case you want to leave good reason for it, and may generate a monthly profit also.

drawbacks

You will not have full ownership of the good to selling the bare ownership, although he receives for it an amount of money that is calculated based on his age and the market value of the good. The higher your life expectancy, lower price you will get for the sale.

You will have to face payment of the municipal capital gain that accrues when selling the bare property of the real estate, since there is a theoretical increase in its value, since the initial acquisition, so it is a expenditure associated with the sale of the bare property.

The good ceases to be your property, becoming only usufructuary of the same, so you lose assets, without being able to inherit it.

For the buyer

Advantage

It is a form of investment that is rising, before the risk of bankruptcy of the pension system. Allows access to property ownership with discounts on its appraisal price.

  1. drawbacks

You may not have full ownership of the property until the usufruct.

When acquiring bare property, the buyer has to face the general expenses for the purchase of the same, as, for example, Notary fees, Property and Tax Registry.

Once the usufruct right is extinguished, will have new expenses to acquire full ownership of the property.

You must also face the costs generated by the property, having to pay the corresponding taxes. You will have to face the IBI, to community expenses and extraordinary expenses.

You may not use and enjoy the property for the duration of the usufruct right.

You will not receive any monthly income from the usufructuary.

Taxes property purchase nuda

a) Buyer expenses and taxes.

  • You must pay the Property Transfer Tax (ITP).
  • To assume the expenses of Notary, gestoría, Registro de la Propiedad
  • Assume the expenses of the mortgage loan, in case you need it.
  • You will have to pay the IBI, as well as the expenses of the Community of Owners and other expenses derived from the property. IBI payment may be agreed between the parties.

b) Seller expenses and taxes.

  • Will assume, as usufructuary, supply costs, like light, Water, the gas, etc..
  • You must assume two capital gains:
    1. Municipal capital gain. It is calculated based on the year and the purchase price, as well as the year and the sale price and the increase in the value of the land (THERE).
    2. Personal income tax. Also called "equity gain", depending on each situation. In case the seller has more than 65 years old, is legally exempt from paying for said sale of the habitual residence.

In the case of insurance of good, normalmente, home insurance, both the owner and the usufructuary node, they must take out different insurance, so that each one assumes his part. Namely, the usufructuary will have to take out content and civil liability home insurance, while the proprietary knot, you will have to hire one who is responsible for the continent.

The risks of property sales nuda life estate

So far everything seems reasonable or logical. But this type of operations carry a series of risks that should be highlighted.

legal risk

It is the risk in the configuration of the contract. At least one of the parties is a person of a certain age who does not have the experience and knowledge to understand the legal and financial burden of the contract they sign. It is necessary to check that there is no imbalance situation caused by the party who draws up the contract, which will normally be the buyer.

Economic risk

The calculation of the economic terms (property valuation, sale price of the bare property or if applicable, monthly rent to pay) requires a review, to avoid unreasonable proposals.

Risk of default

What happens if the buyer stops paying the annuity? It is necessary to provide in the contract a resolution condition and all the appropriate mechanisms so that in case the buyer stops paying, the seller recovers full ownership and the corresponding compensation.

Conclusion

The sale of bare property while preserving the life usufruct may be interesting for some people. We have seen how it works, its advantages and disadvantages.

In in the vast majority of cases, it is a relationship between a professional and a person of a certain age, inexperienced on this type of subject. If to this we add that these are high amounts, counseling by a life annuity attorney. Click below to ask us your question.

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