Valuing SCI Shares in France: Method, Discounts and Usufruct

The value of SCI shares is calculated using the net asset method: you restate the property at its open market value, deduct all liabilities (outstanding bank loan, shareholder current accounts, other debts), divide by the number of shares, then apply a justified discount (illiquidity, minority). Shareholder current accounts are never added to the value of the shares: they are separate receivables.

An SCI (French non-trading property company) is not valued like an operating business. The three main families of methods (net asset, earnings multiples, discounted cash flows) are covered in our guide to valuation benchmarks and methods. For a property holding SCI with no commercial activity, only the net asset approach makes real sense. Everything then depends on three points: the open market value of the asset, an accurate reading of the liabilities, and the justification of the discounts.

An SCI's balance sheet says almost nothing about the value of its shares. The building appears at historical cost, less depreciation if the SCI is subject to corporate income tax. A property bought fifteen years ago may sit on the books at a fraction of what it is worth today. The starting point is therefore not net book value, but open market value.

That market value has to be built and documented:

• recent market comparables, same area, same type of asset, same condition;
• capitalisation of rental income for a let building, consistent with local yields;
• the actual letting position: existing leases, below market rents, arrears, notices served, vacancy;
• adjustments for works to be carried out, energy performance, planning or co-ownership constraints.

Unlike an operating company, whose value depends first on profitability (see our article on the valuation of SARL parts sociales), a property holding SCI is worth what its assets are worth, adjusted for what it owes. An estate agent's estimate is a useful document in the file, never the conclusion: it is a value of a building, not a value of shares.

Two technical points must be settled and written down. First, latent tax: where the SCI is subject to corporate income tax and the building is depreciated, a latent capital gain exists and a buyer of shares will factor it in; taking it into account, in full or in part, must be argued rather than applied mechanically. Second, the ancillary items: cash, deposits received, rents paid in advance, works invoiced but unpaid.

Liabilities are deducted in full: the loan balance outstanding at the valuation date (not last year's amortisation schedule), trade payables, taxes due, tenant deposits.

Then comes the most frequent mistake in SCI files: the treatment of shareholder current accounts (comptes courants d'associés). A current account is not equity, it is a debt owed by the SCI to the shareholder who advanced the funds. It therefore has two effects, not one:

1. it reduces the value of the shares, exactly like the bank loan;
2. it constitutes, for the shareholder who holds it, a separate receivable, valued on its own and transferred or sold separately.

Ignoring this leads to two symmetrical errors. Either the current account is not deducted, and the shares are overvalued. Or it is deducted and the receivable is then attributed to a shareholder who is not its holder, and the split between shareholders is wrong.

The most sensitive case is the family SCI where a single shareholder financed the works through a current account advance. That person holds shares, devalued by his or her own advance, plus a claim on the company. A gift of shares that does not deal with the current account leaves the donor as a creditor of his or her own children, which is never neutral. And the value of that claim is not always its face value: if the SCI has no capacity to repay it, this has to be written down and justified.

An SCI share is not a building cut into equal slices. It is hard to sell, it does not on its own give the power to sell the property, and the articles often lock down any transfer. That is what justifies discounts.

• Illiquidity discount: usually in the range of 10 to 20 % for unlisted shares, to be calibrated and justified case by case. There is no secondary market for family SCI shares.
• Minority discount: it targets the shareholder who controls neither the decision to sell, nor the distribution policy, nor management. It has no place where the transaction covers all the shares or confers control.
• Clauses in the articles: unanimous approval requirements, pre-emption rights, temporary lock-ups. The tighter the exit, the more defensible the discount.

The tax authorities publish their own doctrine: the DGFiP, guide de l'évaluation des entreprises et des titres de sociétés combines the net asset value (restated net book assets), the productivity value and the yield value, and expressly accepts minority and non liquidity discounts. A discount cannot be invented: it must be reasoned in the report, item by item and clause by clause. For registration duties, the authorities can reassess where the price is insufficient (LPF art. L. 17); a stack of unjustified discounts is exactly what attracts an audit.

Many SCIs are held under a split ownership arrangement: the parents keep the usufruit of the shares, the children receive the nue-propriété. For gift and inheritance purposes, the split follows the tax scale (see Légifrance, CGI article 669): the value of the usufruit depends on the age of the usufruitier at the date of the transaction, at 90 % below the age of 21, then decreasing by 10 points per ten year bracket, down to 10 % from the age of 91. The nue-propriété is the balance. Practical consequence: the later the gift, the higher the value of the nue-propriété transferred. That is a calendar parameter, not a detail.

Where the usufruit is granted for a fixed term, the rule changes: it is valued at 23 % of the full ownership value per ten year period. This mechanism sits at the heart of the transactions described in our complete guide to temporary transfers of usufruit and, for SCIs specifically, in our article on the temporary transfer of usufruit over SCI parts sociales.

One warning, because this is where files go wrong: the scale is a tax scale, designed to compute a duty. It is not an economic value. In a transfer of usufruit to a company, or between unrelated parties, the economic value is built from the cash flows expected over the term. Using the tax scale out of convenience, when the economics of the file say otherwise, exposes the parties to an abnormal act of management challenge.

Nobody values an SCI out of curiosity. The situations that require it are always the same.

• Gifts and inheritance: the declared value is the taxable base and can be audited. An undocumented value is a fragile value.
• Wealth tax on property: shares in companies holding real estate fall within scope, with specific rules on how liabilities are taken into account. This is handled with your tax adviser, on the basis of a solid asset value.
• Exit of a shareholder: where the parties disagree on the buy back price, article 1843-4 of the Civil Code provides that the value is determined by an expert appointed by the president of the court ruling in summary proceedings form, with no appeal against that appointment. In other words, better to agree beforehand.
• Divorce or liquidation of a marital estate: the value of the shares enters the pool to be divided.
• Sale of shares: on the buyer's side, registration duties follow specific rates, with a higher 5 % rate for companies whose assets are predominantly real estate (see Légifrance, CGI article 726).

If the question is really about the holding vehicle itself, our holding company versus SCI comparison deals with the structural trade off.

A method illustration, unrelated to any actual client file. A family SCI owns a let building:

• documented open market value of the building: 800,000 EUR;
• bank loan, outstanding capital: 300,000 EUR;
• current account of shareholder A: 100,000 EUR;
• capital divided into 1,000 shares.

Restated net assets: 800,000 - 300,000 - 100,000 = 400,000 EUR, that is 400 EUR per share before discount. With a reasoned illiquidity discount of 15 % (unanimous approval clause, no market), you obtain 340 EUR per share, that is 340,000 EUR for all the shares. Shareholder A also holds a 100,000 EUR claim on the SCI: if he owns all the shares, his position amounts to 340,000 + 100,000 = 440,000 EUR.

The most frequent mistake consists of not deducting the current account: the shares are then valued at 500,000 EUR, to which the 100,000 EUR receivable is added, giving 600,000 EUR. The same 100,000 EUR is counted twice.

If the shares are held under split ownership and the usufruitier is 72, the applicable bracket gives 30 % to the usufruit and 70 % to the nue-propriété: on 340,000 EUR, the usufruit comes to 102,000 EUR and the nue-propriété to 238,000 EUR.

Disputes over the value of SCI shares rarely come from the value of the building. They come from a mishandled current account and from discounts applied without written reasoning. A valuation that holds up is dated, sourced (comparables, letting schedule, loan amortisation table, current account statement), and every adjustment is explained in one sentence.

Second observation: the deliverable must match the stakes. For a family gift with no conflict, a valuation opinion is often enough, from 800 EUR excluding VAT for SCI shares. As soon as there is a third party on the other side (departing shareholder, former spouse, tax authorities, buyer), a full valuation report is required, from 2,500 EUR excluding VAT for turnover below 2 M EUR. Paying 800 EUR when the file calls for 2,500 often amounts to paying nothing at all.

Third point, mundane but expensive: a value has a shelf life. Reusing three years later the valuation prepared for a gift, simply because it is in the file, works neither against a shareholder nor against an audit.