A reader wants to know what the difference is between a usufruct and a lease development agreement, as well as what the positives and negatives are in respect of each concept.
In a broad sense the two concepts are fairly similar.
Both allow the property to be used by a third party, but the manner and purpose for which each concept is used is often quite different.
A usufruct falls under the classification of personal servitudes and is a real right pertaining to movable or immovable property that allows the user the enjoyment of that property.
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The right of use is generally granted for a specific period, during which the holder of the right is obliged to maintain the property and pay rates and taxes.
The holder may dispose of his right to a third party, for example by way of sale or lease, but only for the period for which he is allowed the use of the property.
A usufruct is typically used as a tool in estate planning and allows the testator to bequeath ownership of a property to one person while allowing its use and enjoyment to be given to another.
A husband will, for example, often allow his surviving spouse the right of usufruct on an immovable property, but transfer the ownership to his children.
In simple terms, tax is calculated by separating the value of the property (the bare dominium) from the use thereof.
The usufruct value is calculated by taking the market value of the property and multiplying it by the life expectancy factor, presuming the usufruct is for the remaining life of the surviving spouse.
That figure is multiplied by 12 per cent or any such figure as may be determined by the South African Revenue Service.
The value of the bare dominium is the market value less the usufruct value, which may lead to a fairly large capital gain should the property be sold in due course.
A lease development agreement is typically used for commercial purposes.
This is where the landlord agrees with the tenant that certain building works or alterations will be done to an immovable property.
These are normally to the specifications of the tenant, simultaneously or subsequently allowing him to take occupation of the property.
As with a usufruct, it could be subject to a certain event taking place.
Often no rental is payable during the period required for the building works or alterations.
The tenancy portion of the lease becomes effective after the work has been completed or when it reaches a stage which allows for beneficial occupation by the tenant.
A lease, as a commercial arrangement, allows for terms and conditions to be agreed.
It usually includes some form of dispute resolution and the placing of the tenant on terms for breaches.
The rights and obligations of each party can be clearly defined.
More importantly, in contrast with a usufruct for the life of a surviving spouse, the term of the lease can be recorded, together with the rental payable during the term and any permitted renewal of the original term.
It is not so much about the pros and cons of the two, but rather about using the right tool for the job.
A lease can be an uncomplicated form of income generation on a commercial basis, while a usufruct could be tricky to administer and result in an unforeseen tax liability.
Proper legal and tax advice should be sought prior to implementing a usufruct.
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