The Usufruct Interest Bill, 2026 (“the Bill”) was tabled in the House of Assembly in February of this year. The objective of the Bill is to expand the jurisdiction’s private wealth and estate planning capabilities.
What is a Usufruct?
The term Usufruct derives from the Latin phrase usus et fructus, which translates literally to “use and enjoyment”. It is the temporary legal right to use and enjoy the profits or income of another person’s property, without altering the substance of it. It is a right that can be granted over real property or personal property (tangible and intangible possessions). The person who is entitled to use and enjoy the fruits of another’s property is termed the usufructuary, in contradistinction to the actual owner of the property.
The usufruct principle separates the legal interests that—when combined—constitute ownership. The usufruct grants two primary privileges: the right to use a thing (usus) and the right to enjoy its fruits (fructus) to the usufructuary. While the bare owner of the property continues to have documentary title to the property, it is stripped of its right of usage. The crucial restraint of this legal regime is that the usufructuary is absolutely prohibited from damaging or altering the core substance of the property.
Usufruct in Civil Jurisdictions
The legal institution of usufruct is familiar to the civil systems of many states. It is manifested both in the codifications of statute and precedent law in countries of Anglo-Saxon law. The usufruct concept was developed in Roman law and found significant application in the determination of property interests between a slave and the master. Any property acquired by a slave as a result of his labour legally belonged to his master. In Roman law, real estate was the principal type of property that was the subject of usufruct. Real estate subjected to usufruct was divided into two categories – praedia urbana (urban land plots with residential and industrial, handicraft buildings) and praedia rustica (agricultural land). Usufruct was applicable not only to land but also to the buildings, animals, and slaves on it.
Contemporary European civil codifications (France, Spain, Italy, etc.), like Roman law, provide for usufruct over movable property and real property. Usufruct legislation can also be found in Brazil, Malta, and Thailand.
The Bill
Under the Bill, usufructs can be created, with or without consideration, by an agreement, a will or trust disposition over tangible, intangible, moveable or immovable property. A usufruct may be established by a natural person for a period not exceeding ninety-nine years; and by a legal entity, for a period not exceeding thirty years. A usufruct can be terminated before the expiration of its established period on its replacement; waiver by the usufructuary; destruction of the subject of the usufruct; or the death of the usufructuary. A usufruct can be reinstated after termination by the owner.
Under the Bill, the usufructuary has specific statutory rights and obligations. A usufructuary has the right to use and enjoy the property as if he were the owner; to collect income of the property, and lease or sublet the property. Unless otherwise agreed by the parties, the usufructuary is entitled to all economic benefits arising during the term of the usufruct, while the owner retains control rights over extraordinary matters including the sale the asset. The usufructuary’s obligations under the usufruct includes the obligation to carry out necessary repairs to maintain and preserve the property, as he is obliged to return the property in good condition.
The owner has some rights under this legal regime. The Bill provides that the owner has the right to retain the fruits due at the commencement of the usufruct, while those that are due on the date the usufruct terminates belong to the usufructuary. The owner also has the right to object to any unlawful use of the subject property or any use of it that materially diminishes its value or violates the terms of the usufruct agreement. The legal owner also has the right to be compensated for depreciation caused by the improper use of the property. The owner’s primary obligation under this regime is to carry out all substantial repairs to the subject of the usufruct.
This legal mechanism makes it possible for individuals to pass on ownership of property during their lifetime, while maintaining the right to use and benefit from the property during their life. It is often used in inheritance to allow parents to live and enjoy the family home during their lifetime, while children of the family hold the bare legal title. Upon the death of the parents, full ownership is automatically passed to the children. The usufruct interest provides a much swifter process to transfer ownership, than the probate process under which, upon the death of the parents, their will would then have to be probated before ownership of the property could passed to their heirs.
The Bahamas will be one of the first common law jurisdictions to incorporate this civil law mechanism. The Government’s motivation for the Bill is to attract investors and high net worth individuals from civil law countries. However, this mechanism may prove beneficial to locals as well, as it provides another means by which persons can transfer ownership to their heirs.
AUTHOR
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