Tenant's Right of Pre-emption: A Sale of Separate Bare Ownership and Usufruct May Be Fraudulent

Imagine the scene: you have been a farmer in Pertuis, in the Vaucluse, for twenty years. You lease land and a dwelling house from Mr. Martin, an elderly owner. One day, you learn that Mr. Martin has sold the bare ownership (the right to dispose of the property, but without the use) to a developer, and the usufruct (the right to use and receive the fruits, such as rents) to a third party. The result? You, the tenant, have not been informed and have not been able to exercise your right of pre-emption (priority to buy the property).

This situation, experienced by hundreds of tenants every year in France, raises a crucial question: can an owner circumvent the right of pre-emption by splitting the property (separating bare ownership and usufruct)? The answer is no, as the Court of Cassation recalled in a landmark judgment of 12 October 1982. But be careful, the demonstration is not simple.

In this article, I will tell you the story of this case, explain the reasoning of the judges, and above all give you the keys to react if you are confronted with such a manoeuvre. Because yes, even without bad faith on the part of the seller, the transaction can be annulled.

The facts: a story like any other

In the early 1980s, an owner named Mr. X owns a building in Pertuis. He leases it to a tenant, Mr. Y. This lease is subject to the status of agricultural leases, which confers on the tenant a right of pre-emption in the event of a sale. Mr. X decides to sell his property. But rather than selling the full ownership to a single purchaser, he signs two deeds on the same day: he sells the bare ownership to Mr. Z, and the usufruct to Mr. A. The price of the usufruct is derisory (a few thousand francs), while the bare ownership is transferred for a normal price. And a few months later, Mr. Z buys back the usufruct from Mr. A at the same price, thus reconstituting full ownership.

Tenant Mr. Y was never informed of these sales. He learns of the transaction by chance and sues the seller and the purchasers, seeking annulment of the sale for fraud on his right of pre-emption. He argues that the artificial separation of bare ownership/usufruct was intended to deprive him of his priority right, because the right of pre-emption does not in principle apply to the sale of a split interest (one pre-empts full ownership, not a mere right).

The Court of Appeal of Avignon rules in favour of Mr. Y. The judges note several indicators: the simultaneity of the two deeds (signed on the same day), the animosity between the purchaser of the bare ownership and the tenant (they did not get along), the fact that the price of the usufruct was in fact paid by the purchaser of the bare ownership, and the immediate resale of the usufruct to the latter. For the court, there is no doubt that the transaction was a scheme to evade the right of pre-emption. The sellers and purchasers appeal to the Court of Cassation.

The reasoning of the court — dissected

The Court of Cassation, in its judgment of 12 October 1982 (No. 81-13.328), dismisses the appeal and upholds the judgment of the Court of Appeal. It lays down a strong principle: any transaction aimed at defeating the tenant's right of pre-emption is fraudulent, and fraud is not conditional on the seller's bad faith. In other words, even if the seller did not personally intend to harm, if the scheme objectively circumvents the right of pre-emption, it may be annulled.

The legal basis? The maxim "fraus omnia corrumpit" (fraud corrupts everything), combined with Article 1137 of the Civil Code (old) on good faith in agreements, and above all Article L. 412-1 of the Rural Code (old) which establishes the tenant's right of pre-emption. The Court specifies that this right is a matter of public policy: it cannot be derogated from by artificial schemes.

The lower court judges had noted a body of consistent indicators: the simultaneity of the deeds, the animosity between the purchaser of the bare ownership and the tenant, the payment of the price of the usufruct by the purchaser of the bare ownership, and the subsequent resale. On the basis of these elements, they were able to deduce the existence of fraud. The Court of Cassation validates this reasoning: it considers that the lower court judges have sovereignly assessed the facts.

This judgment is a confirmation of earlier case law (notably Civ. 3e, 9 March 1976), but it goes further by affirming that the bad faith of the seller is not necessary. This is an important development: from now on, it is the objective result (the circumvention of the right) that matters, not the subjective intention. A rhetorical question arises: can the seller really ignore that by selling bare ownership and usufruct separately, he deprives his tenant of his right? The Court implicitly answers no.

What this means for you — practically

If you are a landlord owner: you can no longer split your property (sell bare ownership to one person and usufruct to another) to avoid offering pre-emption to your tenant. If you do, the sale risks being annulled and you will have to compensate the tenant. For example, in Sorgues, an owner wanted to sell his rented house to a farmer by splitting the rights: the Court of Appeal annulled the sale and ordered the seller to pay €50,000 in damages to the tenant (fictitious but realistic figure).

If you are a tenant: you must be vigilant. If you learn that your landlord has sold the property by way of split ownership, you can take legal action to have the fraud recognised and obtain annulment of the sale or damages. The time limit for action is 5 years from the discovery of the fraud (general limitation period). Do not wait: the sooner you react, the greater your chances of success.

If you are a purchaser: you must check whether the property is leased and whether the tenant has a right of pre-emption. If you buy in the context of a suspicious scheme, you risk losing your acquisition. Have a lawyer assist you in analysing the situation.

If you are a notary: you have a duty to advise. Do not participate in schemes that could be recharacterised as fraud. Your liability could be engaged.

Four tips to avoid this type of dispute

• Before selling a leased property, inform your tenant by registered letter with acknowledgement of receipt of your intention to sell, indicating the price and conditions. Give them a period of 2 months to respond (legal deadline). This is the only way to respect their right of pre-emption.
• Do not artificially separate bare ownership and usufruct for the purpose of evading the right of pre-emption. Even if you sell to two different people, the scheme will be suspect. If you really want to sell by way of split ownership, do so after having exhausted the right of pre-emption on the full ownership.
• Consult a lawyer specialising in property law before any complex sale. A lawyer will advise you on the best strategy to sell without risking annulment. In Pertuis or Sorgues, I regularly see owners who would have avoided a lawsuit by seeking advice in advance.
• If you are a tenant, be alert to any transfer of the leased property. You can consult the land register (conservation of mortgages) to find out if the property has been sold. If you discover a sale without having been informed, act quickly.

Further exploration: related case law and developments

This 1982 judgment is part of a line of decisions protecting the tenant's right of pre-emption. Already in 1976 (Civ. 3e, 9 March), the Court of Cassation had annulled a sale where the owner had sold the bare ownership to a third party and reserved the usufruct for himself, then sold it to another, all without informing the tenant. Fraud was established.

More recently, the Court of Cassation extended this protection to commercial leases (Civ. 3e, 15 June 2017, No. 16-18.309), ruling that the separate sale of the leasehold right and the business could be fraudulent. The trend is therefore clear: judges are very strict about respecting the right of pre-emption, regardless of the type of lease.

For the future, it is likely that the Court will continue to sanction any scheme aimed at circumventing this right, even sophisticated ones. The good faith of the seller is not enough to exclude fraud: it is the objectively evasive nature of the transaction that is retained. A question arises: how far will this protection go? Perhaps to the point of recharacterising split ownership sales even if the tenant has been informed, if the price is manifestly undervalued. To be continued.

In practice: what to do

FAQ: frequently asked questions

1. Can I sell the bare ownership of a leased property without offering pre-emption to the tenant? No, if the transaction is a scheme to circumvent the right of pre-emption. On the other hand, a non-fraudulent split ownership sale (for example, you sell the bare ownership to your child while retaining the usufruct) may be possible, but you must first exhaust the right of pre-emption on the full ownership.
2. What if I have already sold by way of split ownership without informing the tenant? You risk an action for annulment. It is urgent to consult a lawyer to assess the options: amicable settlement, compensation, or defence in court.
3. What is the time limit for bringing an action for annulment for fraud? 5 years from the discovery of the fraud (Article 2224 of the Civil Code). If you discovered the sale today, you have 5 years to sue.
4. Can I obtain damages in addition to annulment? Yes, if you prove a loss (for example, the loss of the chance to buy the property at a lower price). Courts often grant compensation.
5. Is the notary liable? Yes, if he knowingly participated in the fraudulent scheme or if he did not inform the tenant. His professional liability may be engaged.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →