Usufructs vs. Estates for Years
| Publication year | 2021 |
| Pages | 0018 |
The Legal
The differences between usufructs and estates for years carry inherent significance for the parties to the agreements, as well as third parties. This article explores why, even after the coronavirus threat has receded, practitioners should pay attention to the differences between a usufruct and an estate for years.
By Joseph B. Foltz and Seth Pierce Johnson
In Georgia, the leasing of property creates either a "usufruct" or an "estate for years."
The differences between the two significantly affect the rights and duties of the parties to the agreement. As the coronavirus pandemic enters its second year, many workers still do not know when they will return to their offices, and many struggling businesses do not know whether they will survive. In these uncertain times, one thing that does seem predictable is that many real estate leases entered into before the pandemic began will be broken before it ends.
Parties seeking to terminate an estate for years, due to COVID-19 hardships, will probably not fare well in court. In the case of usufructs, breaking a lease due to the virus is more likely justifiable. This article explores why, even after the coronavirus threat has receded, practitioners should pay attention to the differences between a usufruct and an estate for years.
For clarity, this article will use the terms "landlord" and "tenant" to refer to u the parties to an agreement conveying a usufruct. The terms "grantor," "grantee," "lessor" and "lessee" will be used when referring to the parties to an agreement conveying an estate for years.
Understanding the Usufruct and the Estate for Years
According to O.C.G.A. § 44-7-1(a), a landlord-tenant relationship is created "when the owner of real estate grants to another person ... the right simply to possess and enjoy the use of such real estate either for a fixed time or at the will of the grantor."[1] This conveyance is known as a usufruct, and no estate passes from the landlord to the tenant.[2] A usufruct "is not insurable, is not subject to levy and sale, and ... may not be conveyed without the landlord's consent."[3] As referenced in Georgia case law, a "usufruct is sometimes referred to as a license to use" because the conveyance does not pass a real property interest to the tenant.[4]
In contrast, an estate for years passes as realty under O.C.G.A. § 44-6-100(b). It is limited to a fixed period or one that may be "fixed and certain," and may convey any number of years "within the rule against perpetuities."[5] Due to Georgia's Uniform Statutory Rule Against Perpetuities,[6] an
Aside from the statutory differences, there are several key distinctions to the characterizations of usufructs and estates for years.
estate for years can be any number of "fixed and certain" periods under the law.
As explained by the Court of Appeals of Georgia:
"[A]n estate for years is essentially a lease by which one person acquires a right to use real estate for a finite period €˜in as absolute a manner as may be done with a greater estate,' so long as neither the property nor the person entitled to the reversionary interest in it is injured by that use. A usufruct, by contrast, is created when the owner of real estate grants to another person the right to use and enjoy the property for a fixed time or at the will of the grantor, as in a landlord-tenant relationship, but no property interest arises in the grantee."[7]
Aside from the statutory differences, there are several key distinctions to the characterizations of usufructs and estates for years. Chief among these is the level of rights and privileges conveyed to the tenant or grantee. Usufructs maintain the landlord-tenant relationship, "with privileges granted to tenants holding less interest in real estate than estate for years."[8] In other words, the usufruct grants the tenant the right to use and enjoy the property, but prevents alterations to the substance of the property conveyed.[9] The estate for years, however, places the grantee or lessee in "absolute control" of the estate, with "unqualified possession of the premises."[10]
In simpler terms, Georgia law treats the lessee of an estate for years as the owner, whereas the usufruct's tenant is not. With this ownership distinction comes several consequences. First, consider the duty to repair. When a usufruct is conveyed, the landlord must repair the premises and is liable for all substantial improvements thereon.[11] If the lease conveys an estate for years, the roles shift and the grantee must make repairs and pay the expenses necessary for the "preservation and protection of the property."[12]
The key expenses, for many grantees, are taxes and liens levied on the property. Generally, all real property in Georgia, including the leasehold, is subject to taxation.[13] A mere license to operate or use a designated space is not considered a taxable interest.[14] Due to the distinctions discussed above, an estate for years is a taxable estate.[15] A usufruct, however, is a mere license to use. As a result, because the fee estate in the property remains with the landlord and is undisturbed when a usufruct is conveyed, the tenant is not taxed for the use and enjoyment of the usufruct.[16] Similar to taxes, a materialman's lien does not attach to usufructs, but does attach to property interests in realty, like estates for years.[17]
Does My Agreement Convey a Usufruct or an Estate for Years?
When determining whether an agreement conveys a usufruct or an estate for years, Georgia courts evaluate each case by its own facts and circumstances.[18] Courts administer a balancing test, weighing several factors to determine the parties' intent. This balancing test can be complicated because agreements may have provisions indicative of an estate for years, while other provisions impose restrictions that are more typical of the grant of a usufruct.[19] In many leases, there is language that is "in some respects indicative of a usufruct but in other ways characteristic of an estate for years."[20]
Georgia courts first assess the parties' intent by looking at the agreement as a whole and considering its general characteristics.[21] They then analyze the specific provisions of the lease, focusing on key factors such as: (1) the express intent of the parties; (2) the length of the term conveyed; and (3) the right to control under the agreement.[22]
Express Intent of the Parties
In Georgia, the intent of the instrument itself is often considered the cardinal rule.[23] When the parties stipulate to a particular conveyance, that language is usually indicative of whether a usufruct or an estate for years is conveyed.[24] When clauses such as "Tenant's interest in the Leased Premises is a usufruct, not subject to levy and sale, and not assignable by Tenant except as expressly set forth herein," or "This Lease creates only the relationship of landlord and tenant between Landlord and Tenant, and no estate in land shall pass out of Landlord," the characterization of the agreement seems clear.
The Supreme Court of Georgia has emphasized the role intention plays in its balancing. If parties intend to convey only a usufruct, then they can make that intent clear.[25] For example, in Allright Parking of Georgia v. Joint City-County Board of Tax Assessors, the agreement conveying a parking lot was for a fixed, 35-year term and contained several provisions consistent with an estate for years.[26] Yet, the Court concluded that the conveyance was a mere usufruct, due in part to the parties' stipulation to that effect.[27] As discussed by the Court of Appeals of Georgia in 2012, any decision made by the courts "may be mooted by the parties' agreements."[28]
Nevertheless, the parties' intent has its limitations. The Supreme Court of Georgia has held that third persons who are not parties to an agreement may not be bound by the stipulation that the agreement conveys a usufruct or an estate for years.[29] In addition, the courts may treat the parties' intent differently for private and public agreements.[30]
In Macon-Bibb County Board of Tax Assessors v. Atlantic Southeast Airlines, Inc., the Supreme Court of Georgia had to decide whether ad valorem taxes were due from the defendant.[31] The sublease at issue between Atlantic Southeast Airlines and the Macon-Bibb County Industrial Authority was for a 30-year term, but it expressly stated the interest was "a usufruct and not an estate for years." The Court stated that "[i]f the present case were between private parties, such express statements of intent would control."[32] However, because the case involved the subleasing of land between a private party and a municipal authority, the Court acknowledged that intention alone was not enough. Heavier scrutiny of the remaining provisions of the sublease was required.[33]
Length of the Term Conveyed
One such remaining provision is the length of the term conveyed. The statutory tipping point to distinguish between an estate for years and a usufruct is five years. If the conveyance is for less time, O.C.G.A. § 44-7-1(b) presumes only the right to possess and enjoy is conveyed, "and to give only the usufruct unless the contrary is agreed upon by the parties to the contract and is so stated in the contract."[34] As a result, under Georgia law, there is a rebuttable presumption that an agreement for less than five years conveys a usufruct, while an agreement for more than five years conveys an estate for years.[35]
Georgia courts have grappled with this rebuttable presumption on numerous occasions. In Warehouses, Inc. v. Wetherbee, the Supreme Court of Georgia noted that though the five-year presumption exists, "there is nothing to prevent a lease for five years or more...
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