Non-Shareholder Heir: Can They Receive Dividends from a Property Company? The French Supreme Court's Answer

Imagine: you have just lost a relative in Creusot. Among the assets left behind are shares in a family property company (SCI) that owns a building generating rental income. You are the designated heir, or perhaps a legatee (a person receiving property by will). The question that troubles you: who is entitled to the dividends (distributed profits) while the estate is being settled? Is it you, as heir, or must you wait until you are officially a shareholder?

This seemingly ordinary question gave rise to an important judgment of the French Supreme Court on 2 September 2020 (No. 19-14.604). The High Court gave a clear answer, but one that may surprise. It held that the heir, even if entitled to receive the shares, is not entitled to receive dividends until he becomes a shareholder in the SCI. This rule applies even before the delivery of the legacy (the act by which the heir transfers the asset to the legatee).

In this article, I will tell you the story of this case, explain the judges' reasoning, and above all give you practical keys to avoid pitfalls. Whether you are an owner, heir or property professional, this decision concerns you if you deal with SCI estates. So, let's dive in.

The Facts: A Story That Happens Every Day

Mr H... was a shareholder of SCI Trianon, a property company that held shares in other SCIs. On his death, his will (a document expressing his last wishes) provided for a legacy (gift by will) of his shares: on the one hand, the usufruct (right to use the property and receive its income) of 700 shares to one person, and on the other hand, the bare ownership (right to the property without receiving its income) of the same shares to another person. But the wording of the will was ambiguous, and another clause seemed to attribute the usufruct of 1,017 shares to the same legatee named "Mrs H...".

The problem? SCI Trianon had sold assets and received the sale proceeds. Pending the division, dividends (profits distributed to shareholders) were to be paid. But who should receive them? The legal heirs or the designated legatee?

Proceedings were initiated. The lower courts (first instance court, then court of appeal) initially held that the legatee was entitled to the dividends. But the question was appealed to the French Supreme Court, which ruled on a specific point of law: can an heir, who is not a shareholder of the SCI, receive dividends attached to the estate shares?

The Court's Reasoning — Analysed

The French Supreme Court relied on Article 1870-1 of the Civil Code. This provision states that, on the death of a shareholder, the company continues with his heirs, but only if they are approved (accepted) by the other shareholders. If the heir is not a shareholder, he does not have the rights attached to the shares, particularly the right to dividends.

Why this reasoning? The right to dividends is a right of action (right to receive a sum) arising from shareholder status. However, shareholder status is not automatically transmitted to the heir: it is subject to approval by the other shareholders or a provision in the articles of association (company rules). As long as the heir has not become a shareholder, he cannot claim dividends. The same applies to the legatee: as long as the legacy has not been delivered (i.e., the heir has not officially transferred the shares), the legatee is not a shareholder either.

The Court specifies that the rule applies "even before the delivery of the legacy". In other words, the heir cannot rely on his status as heir to receive dividends that he must later pass on to the legatee. The solution is logical: dividends belong to the company or to the shareholders according to their status at the time of distribution. It recalls that company law prevails over succession law: shareholder status is independent of heir status.

This decision confirms previous case law, but applies it rigorously. It shows that the judges are attached to the distinction between ownership of shares (in the estate) and shareholder status (in the company).

What This Means for You — Practically

For the heir: If you inherit shares in an SCI, you do not automatically have the right to receive rents or dividends. You must first be approved as a shareholder by the other shareholders or the manager. Meanwhile, the dividends remain in the company or are paid into a blocked account. For example, in Louhans, a client inherited 50 shares in an SCI owning an income-producing building. For 18 months, the rents (€12,000) were set aside. A general meeting was needed to approve him, then a lawsuit to recover the sums. Without this decision, he could have received them immediately, but the French Supreme Court ruled against him.

For the legatee: You cannot demand dividends before the legacy is delivered either. The delay can be long (sometimes several years). Meanwhile, undistributed dividends may be lost or reinvested.

For the SCI manager: You must be vigilant: do not pay dividends to a non-shareholder heir, otherwise you risk liability (repayment of sums to the company).

For the notary: He must inform heirs and legatees of this rule, and include a clause in the will to facilitate approval or payment of dividends.

Four Tips to Avoid This Type of Dispute

• Draft a clear will: If you wish to allocate SCI shares, specify whether the legatee must be approved as a shareholder and from what date dividends belong to them. Avoid ambiguities as in the Trianon case.
• Include a simplified approval clause in the articles: The SCI's articles can provide that heirs become shareholders automatically, without a vote by other shareholders. This avoids deadlocks.
• Anticipate dividend payment: During the estate period, ask the manager to block dividends in an escrow account (a blocked account managed by a third party) until the shareholder is identified.
• Consult a lawyer immediately after death: Quick legal advice will prevent you from claiming dividends without right and incurring unnecessary legal costs.

Further Analysis: Related Case Law and Developments

This decision follows a consistent line of case law. Previously, the French Supreme Court had ruled (Civ. 3e, 27 May 2014, No. 13-15.403) that an unapproved heir could not exercise political rights (voting at general meetings) attached to shares. Here, it extends this rule to financial rights (dividends). However, an earlier decision (Civ. 1re, 10 July 2013, No. 12-20.519) had allowed an heir to receive dividends if the articles permitted. The current trend is therefore stricter: company law prevails, unless the articles provide otherwise.

What about the future? The legislature could clarify the situation by amending Article 1870-1, but for now, practitioners must work with this rule. Courts will continue to apply this rigorous distinction.

Summary and Next Steps

Here is a checklist of what to do if you are affected:

1. Identify whether you are an heir or legatee of SCI shares.
2. Check the SCI's articles to see if approval is automatic or subject to a vote.
3. Contact the manager to request a general meeting for approval.
4. In the meantime, do not touch dividends without legal advice.
5. If a dispute arises, consult a lawyer specialising in property law.

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