Usufruct: What it is and how it is regulated

Usufruct is a right of use defined in the Swiss Civil Code in Section 2, “Usufruct and Other Easements” (Articles 745 et seq. of the Swiss Civil Code). It is a type of personal servitude, i.e., a constraint imposed on owners for the benefit of other users. In principle, all assets can be subject to usufruct. This applies to real estate as well as movable property, rights, and assets. According to Article 776, paragraph 3 of the Swiss Civil Code, the right of residence, in particular, falls under the requirements of usufruct. Furthermore, usufruct can be granted to natural or legal persons.

Specifically, usufruct allows beneficiaries, for example, to occupy or rent out an apartment that they do not own. In the case of rental, the usufructuaries receive the rental income from the property. Please note, however, that the right of usufruct entails an obligation to maintain and manage the property.

It should also be noted that owners of real estate, for example, with a granted right of usufruct are not required to obtain the consent of the beneficiaries if they wish to sell their property. However, the beneficiaries continue to enjoy their right of usufruct even after the sale, which only expires upon their death or after 100 years (Article 749 of the Swiss Civil Code). This can only be terminated prematurely by means of a declaration of waiver.

According to Articles 745 et seq. of the Swiss Civil Code, the authorized usufructuary first of all has a right of possession, which is enshrined in Article 755 of the Swiss Civil Code. This right allows the right to own and use the property in question. For example, if it is real estate, a usufructuary may inhabit it, rent it out, or leave it vacant, but may not offer it for sale.

In this sense, usufructuaries are also not entitled to change the economic ownership of objects if this is to the detriment of the owners. For example, usufructuaries are not permitted to use fertile land to store old vehicles. This would amount to contaminating the fertile soil.

With regard to the aforementioned right of use, which accompanies the right of possession, usufructuaries are permitted to derive income from the objects. Therefore, if a property is rented out, the authorized usufructuary receives the income from the rental agreement. If it is agricultural land, beneficiaries receive the proceeds from the harvest from that land.

The rights of usufruct also entail obligations. First and foremost, there is the duty of care: usufructuaries must exercise care and caution when exercising their usufruct.

Usufructuaries are also obligated to maintain and manage the property in question according to Articles 764 et seq. of the Swiss Civil Code. They are responsible for carrying out repairs and routine maintenance of a property, for example, and for paying the associated costs. They also bear the usual administrative costs, interest on mortgages, insurance premiums, and taxes associated with the property, such as property tax and income tax.

It should also be noted that, pursuant to this maintenance obligation and the duty of care, usufructuaries are obligated to inform any owners if major repairs are necessary to protect the property. If owners are unable to carry out the necessary work, usufructuaries may carry it out themselves at the owners’ expense. This is specifically regulated in Article 764, paragraphs 2 and 3 of the Swiss Civil Code.

If usufructuaries treat a property negligently, owners may file an objection and demand the deposit of security under Article 760 of the Swiss Civil Code. If the situation escalates, a court may order the confiscation of the property under Article 762 of the Swiss Civil Code.

A usufruct right can be granted by owners after death or during their lifetime. If the usufruct right is granted during their lifetime, it is referred to as a legal grant. This can, for example, be a gift or an early inheritance to the descendants.

In this way, parents can, for example, decide to leave their house to their child during their lifetime, while retaining the right to live in the property or to rent it out. Thus, while the parents waive their ownership rights to the house, their right to use it is not restricted. If the usufruct of a property is granted during the owners’ lifetime, this must be recorded in a notarized document and entered in the land register.

The usufruct right can take effect after death if it has been stipulated in a will or inheritance contract. This is usually the case when a property is inherited by children, but the surviving spouse is to be granted a usufruct right. It should also be noted that according to Article 219 paragraph 1 of the Swiss Civil Code, the surviving spouse may assert a right of usufruct over the apartment shared with the deceased spouse.

For owners, the main advantage of usufruct is the potential for tax savings. Since the value of a property is reduced by granting usufruct, the tax authorities use this lower amount when calculating gift tax. The same applies to the tax on real estate gains: the tax amount is lower if the property is occupied by children. However, please note that the tax advantages vary from canton to canton and depend on local regulations.

For usufruct holders, usufruct offers the advantage of being able to freely occupy and use a property without being its owner. It is also possible to generate income, for example, by renting out the property or selling the land’s harvest. Another major advantage is the fact that owners are responsible for major repairs to the usufruct property.

The main disadvantage for owners is that a usufruct significantly reduces the chances of being able to sell the property. If a usufruct is granted over land, it is recorded in the land register and continues even after the sale unless the easement is deleted. Buyers must therefore waive their right of residence or obtain the usufructuary’s consent to use the acquired property.

For the beneficiaries, a usufruct has the disadvantage that they are not the owners of the property. Thus, a usufruct represents a greater financial burden than renting without owning the property.