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Financial Dictionary - Bare ownership

Bare ownership

When you buy a property you become the freehold owner. This freehold can be divided into two types of ownership:
  • Bare ownership grants ownership of the property but does not grant possession
  • Usufruct grants the use and enjoyment of the asset.

The difference between bare ownership and usufruct can be clearly seen in the following example. Let's imagine that the owner of a property rents it. The owner will continue to be the undisputed owner of the property because they retain their rights over it, but the right of usufruct will be held by the person who pays the rent. In exchange for this monthly fee, the tenant has the rights of usus and fructus but will not be able to sell or mortgage it since it is the owner who owns those rights.

Now let's imagine that the owner sells his apartment but still holds usufruct rights. In this case, the owner is selling the bare ownership but it keeps the right to continue living in it. Simply put, bare ownership is selling a house but still living in it.

Who participates in this type of sale?

This type of transaction is not common, but there is some demand for it in larger cities. This type of sale can be useful for older people without descendants, or for investors seeking long-term return.

When signing this type of contract there are different options:

  • A single payment in which the sale price is discounted in relation to the life expectancy of the usufructuary.
  • A regular rental amount that the seller pays the buyer monthly to continue living in the house.

In transactions of this type, it is very important to be advised by experts because they are more complex than a conventional sale.