The right of usufruct and the power to let

Usufruct is a right in rem that grants a person, known as the usufructuary, the right to use and enjoy another person's property with the obligation to preserve its form and substance. This right encompasses both the direct use of the property as a main residence and the possibility of obtaining its civil fruits. Within civil fruits, income derived from a tenancy agreement is legally included.

Therefore, when a person holds the usufruct of a property, they possess the legal capacity to let it to a third party. To carry out this management, express authorisation or signature from the bare owner is not required, as the bare owner holds ownership of the asset but lacks the right of use while the usufruct remains in force.

What happens to the tenancy agreement when the usufruct ends?

This is one of the fundamental questions that both the usufructuary and the tenant must know. As established in the Urban Tenancies Act (Ley de Arrendamientos Urbanos), rental contracts signed by a usufructuary have a duration conditional upon the validity of the usufruct itself.

There are various scenarios regarding the termination of this contract:

• Termination upon death: If the usufruct is for life and the usufructuary dies, the tenancy agreement is automatically terminated. The bare owner consolidates full ownership of the property and is under no obligation to retain the tenant.
• Termination upon expiry of term: If the usufruct was established for a specified period, the rental agreement ends upon reaching the agreed deadline for said usufruct.
• Tenant protection: It is advisable to clearly state the landlord's status as usufructuary in the agreement to avoid claims for damages from the tenant if the contractual relationship ends earlier than anticipated.

Collection of rent and tax implications

The money obtained through monthly rent belongs entirely to the usufructuary. The bare owner has no right to receive any percentage of the rent collected from the tenant.

In tax matters, the usufructuary must declare this income in their Personal Income Tax (IRPF) return under the category of income from property capital. Likewise, they are entitled to deduct necessary expenses incurred to obtain this income, such as ordinary repairs, local taxes and utility bills paid directly.

Distribution of expenses between usufructuary and bare owner

Before formalising a tenant's move-in, it is important to determine how financial responsibilities are distributed between the parties in accordance with current regulations:

• Maintenance costs: The usufructuary is responsible for ordinary repairs necessary to maintain the property resulting from regular use.
• Recurring taxes: Payment of Property Tax (IBI) and municipal fees falls on the usufructuary during the period of the usufruct.
• Extraordinary works: Responsibility lies with the bare owner, as these involve interventions aimed at preserving the general structure of the property.
• Community fees: Ordinary community fees for the owners' association are usually paid by the usufructuary, unless agreed otherwise.

Letting Official Protection Housing (VPO) in the Comunidad de Madrid

If the property subject to usufruct is an Official Protection Housing (VPO) located in the territory of the Comunidad de Madrid, managing the tenancy is subject to specific regional conditions.

Regulatory requirements in the Comunidad de Madrid

To let a VPO property in the Madrid region, the following legally established guidelines must be met:

• Administrative authorisation: Depending on the protection scheme of the property, it may be mandatory to process a prior application for tenancy authorisation with the regional administration responsible for housing.
• Monthly rent cap: The payable rent cannot be set freely. It must comply with the maximum legal price per usable square metre established for the specific type of protected housing.
• Tenant profile: The tenant must use the property as their main residence and prove a household income level that does not exceed the thresholds set by regional regulations.

Financing and guarantees in properties with usufruct

The coexistence of usufruct and bare ownership requires detailed analysis when structuring credit operations or refinancing encumbrances on the property. Both the usufructuary and the bare owner can encumber their respective rights independently, although obtaining a loan secured against the entire property requires the involvement of both title holders.

In these complex wealth management transactions, consulting mortgage credit intermediaries makes it possible to explore the best financing options, assess the individual valuation of real rights, and process bank contracts in accordance with applicable law.

Steps to let the property with legal safeguards

1. Review the title deed: Check the deed to ensure there are no express limitations imposed by the grantor of the usufruct.
2. Check land registry records: Verify through an official land registry excerpt (nota simple) the registration of the usufruct and the status of the rights holder.
3. Draft the contract with transparency: Explicitly state the status of the usufructuary and include stipulations regarding the termination of the agreement upon the end of the usufruct.
4. Deposit the legal tenancy deposit: Lodge the mandatory tenancy deposit with the official body of the autonomous community where the property is located.