Inheritance of the lease, from the lessor who was the owner of a usufruct (life estate)
Recently, the Italian Supreme Court analysed the case where the absolute proprietor “A” of a real estate (according to the Italian Civil Code) grants a special kind of life tenancy right (usufruct) to a grantee “B” who consequently becomes owner of the real estate. After that, B enters into a lease agreement with a lessee “C”. A legal issue might arise at the moment of the death of the lessor-assignee B.
Considering this theoretical model, we are able to tell apart two different legal transactions: the usufruct, and the lease agreement.
As for the usufruct relationship (between A and B) no issue arises. In the above-described model, after B passing away, A will gain once more the “absolute ownership” of the real estate (which had been diminished due to the existence of the usufruct right). In fact, in the Italian system, the usufruct right (a right similar to a life estate) may cease for several reasons: 1. decease of the owner of the usufruct (30 years time limit expiration if the usufruct owner is a legal entity); 2. expiration of the time limit set forth with the usufruct agreement (if any); 3. consolidation (unification of “property right” and “usufruct right” in the same person, due to any kind of reason); 4. the asset perishes (in case of chattels); 5. 20 years extinctive prescription. In the first case (unless there is a special agreement between the parties), the usufruct agreement will be considered as terminated without it being included within B’s legacy for the heir(s), and A will be “absolute owner” once again, by virtue of the Italian legal principle limiting the split of property right and right to use the property.
As for lease agreement, the Italian Civil Code allows the effectiveness to “continue” for limited time. Article 999 of the Code provides that “a lease agreement with the usufruct right owner as the lessor (if such agreement is still effective at the time of the usufruct termination) […] it continues for five years following such termination or until the end of the agreed time limit if it is shorter than five years”. There is however one point which still remains unclear, because article 999 does not say between whom the agreement continues to be effective. Such matter is relevant both from substantial point of view for the payments, and from a procedural point of view to determine the subject entitled to act as plaintiff/defendant, before the court. According to the interpretation already adopted by the Italian Supreme Court (decisions No. 17030/2015 and No. 14834/2016), it has been acknowledged that all the rights pertaining to the lease, are transferred with the lessor’s legacy to the heir(s), unless A states his will to become the lessor. The Supreme Court stated that the usufruct right is a “real” right whereas the lease agreement basically includes “personal” rights, with respect to which proprietor A is just a third party having an opt-in right.
The 2019 decision of the Supreme Court confirms the above-mentioned interpretation and makes a point: even if the proprietor A decides to “opt-in” replacing the heir(s) of B, such “replacement” would be effective only since the moment of such decision onwards. Therefore, if the lessee C alleged (as in our case) that the previous lessor B had received an undue (amount of) rental, the related duty to refund could not be possibly binding for A, regardless of A being the “new” lessor. In fact, such duty will be inherited as a part B’s legacy and the judicial remedy shall be against the heir(s) of B.