A different approach to ownership

Wed 06 June 2018, Philippe Ropenga Estate management

Legal title is a simple and efficient tool because it gives the owner very large powers over the thing he owns. It can however be a source of frustration. It indeed has been seen in a recent blog post that a co-owner can claim his share in a succession and force the other co-owners to sell the family property to get his share of the estate. The société civile immobilière (SCI) that is a non-trading company can be used to circumvent this difficulty¹. It may seem that a strong protection of the owner's prerogative is incompatible with a flexible management of family property. One can indeed have the impression that a capricious owner can veto any sensible initiative aimed at developing the value of family property. A recent case decided by the French Cour de cassation, the supreme court that deals with civil, commercial, and criminal cases, allows to reconsider this widespread opinion (1). It is interesting to cast a different light on the legal title by confronting law and practice (2).

1 Reconsidering ownership

When it comes to ownership, lawyers tend to hesitate between promoting it and dislocating it (1.1). A neutral approach seems more suitable in a management context (1.2).

1.1 Promotion and dislocation

Lawyers are humans and thus may have difficulties to conciliate their principles with their practices. This is true with the legal title. Everyone knows that an English man's home is his castle. On the other bank of the English Channel, heirs of a tradition that favours abstraction prefer to put it like this: «Ownership is the right to enjoy and dispose of things in the most absolute manner, provided they are not used in a way prohibited by statutes or regulations.²» These statements clearly promote and preserve the owner's right. A thing can be used in different ways. As long as the owner does not cause any nuisance to anyone, he can use the thing as he pleases. What if the owner has to take someone else's interest into account when he uses the property? Human nature is weak, and temptation may be strong. Furthermore, deciding for a group of people is harder than making a decision for oneself. People can be reluctant to give the power to decide to someone else since they know that they may be held liable for anything done by this person acting for them. Lawyers are well aware of these issues and dislocate ownership by allowing several people to take a decision related to a thing by giving different powers to different people instead of leaving them all to the owner. The legal title still is held by the owner, but ownership literally is dislocated in the sense that the owner is not the only person who can make a decision. Some lawyers praise themselves about their ability to put complex structures in place such as companies, foundations, associations, matrimonial property regimes, or trusts. It indeed is highly technical and sometimes necessary. Nevertheless, it would never be necessary if the lawyer were sure that the ownership right would never be abused. Moreover, these techniques only pave the way to a solution without solving the problem. English law, for example, knows trusts that rely on a trustee and a beneficiary. English practitioners seem more at ease with ownership dislocation than their counterparts from civil-law jurisdictions because they do not seem to have a consistent definition of ownership³ and seem to live happily without such a definition⁴. Under English law for example, an absolute gift can appear instead of a trust when the trustee's duty is not clear enough⁵.

This English example helps to perceive that, as far as estate management is concerned, ownership probably is not the main issue. It thus points towards a neutral approach to ownership.

1.2 A neutral approach

The French Cour de cassation has recently decided a case that clearly shows that legal title can be used to achieve management goals⁶. Spouses are shareholders of a SCI that owns the family residence. The husband owned ninety-nine per cent of the company's capital while the wife owned one per cent of it. Under article 215, §3 of the French civil code, a spouse cannot dispose of any right that ensures the family lodging without the consent of the other spouse. This article states that the spouse who has not consented to the disposal can request its annulment. The husband sold the family home without the permission of his wife. The wife asked for the annulment of the disposal, then filed a divorce request. The wife was dissatisfied with the decision of the Court of appeal that had noted that the SCI had the legal title to the property and that the company's articles of association did not mention that the company had allowed her to use the property with her family. The appeal was dismissed. The wife argued that the Court of Appeal had violated article 215, §3 of the French civil code. The Cour de cassation had to decide whether this provision applied to cases in which the property enjoyed by a family was owned by a company. The supreme court gave a positive answer to this question and stated two requirements that had both to be met for the protection to be granted:

1. At least one of the spouses has to be a partner at the company that owns the property.
2. The company has to have granted a right to enjoy the premises to the person who makes a claim under that provision.

The Cour de cassation noted that the Court of Appeal had found that the enjoyment of the apartment had not been granted to the spouse as a right attached to partnership. Furthermore, the Court of appeal did not find either that the enjoyment had been granted by the company on the basis of a lease, nor on any other valid decision of the shareholders⁷. Hence, the Cour de cassation dismissed the claim.

One sees here that the SCI is a management tool that adds flexibility to management without wrecking the strength of the legal title. The reasoning of the Court of Appeal was respectful of the legal title. The spouse had not any right to enjoy the property owned by the company. Hence, she could not rely on the protection of a right that she did not have. The use of the SCI in estate management has been discussed, and potential negative consequences regarding taxation of capital gains have already been mentioned on this blog¹. Other techniques can also be used for management purposes in French law⁸. The French perception of ownership is different from the English one. These legal cultures both successfully handle issues that are related to ownership in a way that largely depends on legal culture. A neutral approach to the legal title is therefore useful in the management context. It does not only prevent from considering the legal title as the main issue or the keystone of estate management but also preserve the cultural context that inspires the lawyer to find the simplest solution⁹.

It has been seen that practitioners may exaggerate the effect of ownership. Cross-border issues often are complex because they may involve answering questions one may not be familiar with. Let us now see how the cultural perception of ownership can comfort the lawyer dealing with management issues by confronting law and practice.

2 Confronting law and practice

When one confronts law and practice, one sees that black letter law is weak (2.1) while legal habits are strong (2.2).

2.1 Weak black letter law

One thing is what black letter law says; another thing is how to interpret it. The contemporary legislator tends to dwell upon details. It is getting harder for the foreign lawyer to see the whole picture that still is necessary to understand what the law says. It is true that a lawyer who has been educated in the laws that he has to work with can overcome this obstacle without too much difficulty. This however is only partially true. According to O. W. Holmes, Jr., "It is a great mistake to be frightened by the ever-increasing number of reports. The reports of a given jurisdiction in the course of a generation take up pretty much the whole body of the law, and restate it from the present point of view. We could reconstruct the corpus from them if all that went before were burned."¹⁰ Regulation has dramatically altered the nature of law because lawyers tend to apply norms produced by regulation authorities which only focus on practical details in a very specific and technical area. One therefore cannot say that contemporary law relies on a consistent corpus. Some lawyers may think: "Okay, law is less aesthetic but regulations makes things easier because everything is standardised." Nevertheless, a legal standard is convenient only when the matter fits it. Regulatory standards cannot easily be adjusted to suit a given matter while abstract principles need to be tailored. It sometimes is tricky to answer common needs such as drafting a will¹¹ since these common techniques are usually based on perceptions and habits that preexisted standardisation. Standards are designed to satisfy specific needs at a given time. They are constantly updated to evolve with society. Black letter law produced as a result modifies the cultural context the practitioner relies on to solve legal issues without paying attention to the consistency of the legal corpus, to paraphrase Holmes. Hence, regulation disrupts old legal techniques without necessarily providing a convenient replacement solution. Ownership and legal title are at the core of a society. It may therefore be preferable to get used to the inconvenience caused by old techniques as long as they do not put civil order at risk. As one can see, two different legal framework can be used to achieve satisfying results as long as the practitioners relies on his experience and skill. French law can be used to tackle management issues that are usually solved by using trust law in a common-law jurisdiction. If one takes a closer look, he may see that black letter law is not a main cause of issue¹². The neutral approach to ownership helps the practitioner to focus on practical issues and avoid dissatisfaction about an apparently incompatible foreign law.

Contemporary black letter law is weak. This weakness can be counterbalanced by strong legal habits.

2.2 Strong legal habits

What is left to the practitioner to meet his client's specific needs in an ever-changing environment made of weak black letter law? His legal habits. When they are supported by his instincts and by legal theory, they enhance the practitioner's creativity and enable him to solve any legal problem. The solution he finds certainly is not ideal, but it probably is the best one in practice. The practitioner can be frustrated when he finds that he cannot rely on a legal institution, be it a domestic or a foreign one, because it is far too different from anything that exists in the law he has to rely on. Resulting trusts are a good example of that. Express trusts are difficult to handle in French law since Equity has originally not played any role in the development of French law. It is even harder to deal with English resulting trusts since even distinguished authors discuss their nature. This long and ongoing theoretical debate is fundamental because it gives a more precise picture of trusts. It indeed is impossible to solve issues regarding cross-border estates without it. It takes in practice less time to draw a parallel between French natural obligations and English resulting trusts in order to evaluate a possible solution. Moreover, pieces of legislation from two different jurisdictions may seem to have opposite effects. It may however appear that these pieces follow the same orientation in their own jurisdiction¹³. It is true that estate management in French law pays a great attention to ownership. One cannot deny that English trust law is superior to French law because it directly examines the beneficiary's interest. This superiority has little to do with a black letter law that would wreck the strength of the legal title. The English practitioner is educated in trusts by reading cases that consider fiduciary duties rather than limitations to ownership. Legal habits are stronger than law. As Tocqueville wrote in the first part of Democracy in America, first published in French in 1835: "I am convinced that the most advantageous situation and the best possible laws cannot maintain a constitution in spite of the manners of a country: while the latter may turn the most unfavorable positions and the worst laws to some advantage."¹⁴

It has been seen that black letter law has little effect if it is not supported by practice. Old precedents and well-established legal principles are useful since they help to fill the gaps left by contemporary laws and regulations that are not always easy to apply in a cross-border context.

In brief, laws regarding ownership are not the main source of difficulties in a cross-border context. The practitioner should focus on his habits rather than on black letter law. His instincts trained by a solid education and experience are more likely to guide him to a convenient solution than a piece of legislation or regulation.

Go Top