Société Civile Immobilière (SCI)

1. What is an SCI?
2. Multiple Ownership of French Property
3. Transfer of French Property
4. French Inheritance Laws/Taxes
5. Tax Implications
6. Business Use
7. Setting Up an SCI
8. Running an SCI

2. Multiple Ownership of French Property

2.1. Management Flexibility

One of the main reasons why an SCI is used is because it is probably the most suitable form of ownership for an extended family, or a group of friends.

For a couple in 'free union', who are neither married nor in a civil partnership, it also offers advantages in relation to French inheritance laws, which we discuss later.

In both the cases, the SCI offers a simple method for two or more people to pool funds to buy property, and to then clearly divide ownership of the property according to the contribution of each owner.

An SCI also provides a means for parents to allow their children to become property owners, using their ability to obtain mortgage funding, which might not otherwise be available to the children, with the share structure then divided between them.

The SCI also provides greater flexibility in decision making over other ownership structures.

Thus, where several people are buying a property, an SCI can provide for a decision-making procedure less stringent than the two thirds majority required for ownership indivision; it can also provide a means to sell the property, which would not be available under tontine.

Where, for instance, a decision was needed about major repairs to the property, or about letting the property, the articles of the SCI could provide that a simple majority decision was required, or that decisions could be delegated to one of the owners, the gérant of the company.

An SCI would also regulate the financial participation of the owners in the repair of the property and other management costs.

It could also state the division of the rental income, where the property was to be occasionally used for letting purposes.

It might also stipulate the periods of occupation of the property by the different owners, with the property effectively operating as a 'timeshare'.

If the SCI presents these advantages during the lifetime of the current owners, they are even more important following the death of any of the owners due to the nature of inheritance laws in France.

So in all these ways the SCI seems to offer greater flexibility in the management arrangements of the property.

2.2. No Panacea!

Conversely, of course, the use of a majority decision making structure does inevitably mean that the views of the minority are less protected!

We are also of the view that the constraints of indivision and the flexibility of the SCI are both are often exaggerated, so it is a moot point as to whether this may be a good enough reason alone for creating an SCI.

Thus, if there are two owners in the SCI each with 50% of the capital of the company then, prima facia, there is the potential for deadlock in the company, in the same way that might occur with other forms of ownership.

Moreover, if the owners decide that some or all decisions must be made on a unanimous basis, then this rather defeats one of the reasons for setting up the company in the first place.

You also need to consider what might occur if you were required to sell the property in an emergency (death, financial) and whether everyone was in agreement and just how the proceeds of the sale would be divided.

Accordingly, you need to consider whether you are all able to work together in harmony, and what should happen in the event that there is disagreement between the owners (and inheritors) of the company.

If everything runs smoothly and all agree about things then there is little to worry about.

However, if disagreements arise then there is not always an easy solution.

Careful preparation of the articles (statuts) of the company needs to be undertaken.

2.3. Changes to 'Indivision'

In recent years the government has also relaxed the rules relating to ownership indivision, so we would be surprised if this ownership structure is a major problem for most owners.

Where once under indivision unanimity was required concerning decisions on the property, now a two-thirds majority will suffice. The previous rule on unanimity was one of the key driving forces for adoption of an SCI ownership structure.

Owners who hold a property indivision are also now able to enter into a legally binding agreement (called a convention d'indivision) concerning the management of the property, which to all intents and purposes resembles that which is available through an SCI.

The problem with such an agreement is that it is precarious, for it has to be renewed every five years, and any single 'indivisaire' is entitled to go to the courts to terminate the indivision and for the property to be sold. The principle that applies in such cases is 'nul n'est tenu de rester dans l'indivision'. Where the property is held through a share structure in an SCI, an enforced sale would not be necessary.

In addition, on the death of one of the indivisaires, the property is spilt again between the new inheritors, making decisions concerning the property even more difficult to obtain.

If one or more of the other owners uses the right of pre-emption to buy out other indivisaires it is necessary to go through the formal conveyance procedure, something that is not necessary in an SCI, as this can be accomplished by the sale or gift transfer of shares in the SCI, although there will still be transfer taxes and fees payable.

2.4. Conclusion

Accordingly, where there are multiple purchasers who are not from one family, or where say, the property is purchased by two or three generations of the same household, an SCI offers a more clear cut, permanent and efficient way of buying and managing property - provided you can all get on!

Next: Transfer of Property

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