Commercial real estate in Switzerland: overview

A Q&A guide to corporate real estate law in Switzerland.

The Q&A gives a high level overview of the corporate real estate market; real estate investment structures, including REITs; title; tenure; sale of real estate; liability; due diligence; warranties; real estate tax, including VAT and stamp duty/transfer tax; climate change targets; restrictions on foreign ownership; real estate finance; commercial leases; and planning law.

To compare answers across multiple jurisdictions, visit the Corporate Real Estate Country Q&A tool.

This Q&A is part of the global guide to corporate real estate law. For a full list of jurisdictional Q&As visit www.practicallaw.com/realestate-guide.

Contents

The corporate real estate market

1. What have been the main trends in the real estate market in your jurisdiction over the last 12 months? What have been the most significant deals?

Switzerland's real estate market remained stable over the last 12 months. Real estate transactions remained attractive to investors because of historically low interest rates. Consequently, the volume of real estate deals was substantial with a few transactions being significant in volume. The Swiss banks maintained the percentages of loan to value and again tried to increase the margins compared to the past, due to the persistence of negative interest rates applied by the Swiss National Bank. As the price level for real estate is currently still rather high, several investors shifted their investment to development projects or real estate with potential, such an existing vacancy.

Moreover, recently a few new real estate investment funds were launched and an internet platform based investment forum for the purchase of co-ownership units was successfully launched.

 

Real estate investment

2. What structures do investors typically use for real estate investment in your jurisdiction and what are the main advantages and disadvantages of each (for example, flexibility and tax transparency)?

Common structures

Depending on the corporate structure of the buyer, including the ultimate beneficial owner or sponsor, newly established Swiss or foreign special purpose vehicles (SPVs) are used. Foreign SPVs are primarily domiciled in countries that have entered into double taxation treaties with Switzerland, to:

  • Avoid withholding tax.

  • Ease an exit by share deals.

Foreign SPVs domiciled in offshore jurisdictions are also used. Real estate investment funds also commonly invest in Swiss real estate.

REITs

Real estate investment trusts (REITs) and real estate derivatives are not used as buying entities. These structures do not provide tax advantages in Switzerland.

 
3. What are the main sources of finance and types of investors for real estate investment in your jurisdiction? Does your government encourage overseas investment into real estate in your jurisdiction, for example through real estate investment legislation?

Institutional investors (such as real estate funds, pension funds and sovereign wealth funds) are still active because of the need to invest available cash (see Question 1).

Swiss and international private investors are primarily interested in yield-generating properties and generally buy properties on a non-recourse basis using corporate structures. Some investors are specialising in development projects rather than focusing on added value strategies.

 

Restrictions on foreign ownership or occupation

4. Are there restrictions on foreign ownership or occupation of real estate, or on foreign guarantees or security for ownership or occupation?

Foreign ownership of residential real estate is restricted by the Federal Law on the Acquisition of Real Estate by Persons Abroad (Lex Koller) (see Question 12). Efforts are underway to tighten the Lex Koller through different measures, but the proposal is not yet published.

Typically, the granting of security in a standard real estate financing should not be affected, provided that lending by a foreign bank in leveraged transactions does not lead to the foreign bank obtaining a controlling influence. This must be assessed on a case-by-case basis, and rulings from the competent Lex Koller authorities are sought for additional confirmation. In any event, rulings are recommended if more than 80% loan-to-value is being financed.

 

Title to real estate

5. What constitutes real estate in your jurisdiction? Is land and any buildings on it (owned by the same entity) registered together in the same title, or do they have separate titles set out in different registers?

Title to land is registered at the relevant land registry in the federal land register. It usually includes title to any building on the land owned by the same owner. There are different titles registered at the land registry for groundleases (Baurechte) or storey ownership units (Stockwerkeigentum). The groundlandlord (Baurechtsgeber) has the right of first refusal if the groundlease property is being sold.

 
6. How is title to real estate evidenced? What is the name of the public register of title and the authorities responsible for managing it? Is electronic access and electronic conveyancing available?

All cantons are required to set up land registry offices (see below). Title relating to all real estate is registered at either:

  • The relevant land registry in the federal land register (where available).

  • The relevant cantonal registry.

There is a legal presumption that federal land register entries (but not entries in cantonal registries where the federal land register is not yet available) are true and correct, and parties relying in good faith on an entry are fully protected.

The land registries manage the federal land register. The land registries are organised on a cantonal basis and cantonal officers manage them. There is no centrally managed property register. Some cantons have only one land registry, while others have several land registries which manage the register for a certain region of the canton. All cantons are responsible for:

  • Setting up land registry offices.

  • Defining the administrative districts.

  • Appointing and remunerating officers.

  • Ensuring cantonal supervision.

The cantons are liable for all damages resulting from gross negligence or intentional behaviour.

The Office for Land Registry and Real Estate Law (Eidgenössisches Amt für Grundbuch- und Bodenrecht) has overall supervision of land registration.

 
7. What are the main information and documents registered in the public register of title? Can confidential information or documents be protected from disclosure in the public register of title?

All information relating to the property is registered, including details of:

  • The owner, size and description of the real estate.

  • The latest insurance value (only in some Swiss cantons).

  • Servitudes.

  • Charges, annotations and mortgage certificates.

  • Any options relating to the property.

The purchase price paid for the property is not generally registered.

Persons demonstrating a legitimate interest may in some cantons request further information. Sale and purchase agreements relating to properties are not generally disclosed, which to some extent protects confidential information or documents from disclosure.

 
8. Is there a state guarantee of title? Is the authority that manages the public register liable to pay compensation for any errors it makes in relation to title registration? Is title insurance available and is it commonly used?

There is no need for title insurance as buyers acting in good faith are legally protected and can rely on the registration of title in the land registry (to the extent that a federal land registry has been introduced in the property's area, which is generally the case

(see Question 6).

 

Tenure

9. How can real estate be held (that is, what types of tenure and other main ownership rights exist over land)?

Individuals and entities can hold real estate as:

  • Freehold or leasehold.

  • Single owners.

  • Co-owners. Co-owned real estate can be sold without the consent of all co-owners.

  • Joint owners. Real estate can only be sold with the consent of all joint owners.

 

Sale of real estate

Preliminary agreements

10. What types of preliminary agreements are typically used in the sale of real estate? Are they legally binding?

Except for legally non-binding letters of intent, it is unusual to have pre-contractual agreements. In an asset deal, these agreements must be notarised.

The marketing of corporate real estate involves bidding processes managed by either:

  • A large real estate broker (such as CBRE, Jones Lang LaSalle and any of the big four).

  • Local brokers granting exclusivity for due diligence and negotiations for a limited period.

Brokers are subject to customary non-disclosure agreements.

In a bidding process, potential buyers provide a mark-up of the draft sale and purchase agreement disclosed in the data room. Following selection of the preferred buyer, final negotiations take place.

Negotiations concerning the purchase price differ commercially depending on various factors, such as the:

  • Conditions of existing leases, for example:

    • duration;

    • amount of rent; and

    • cost distribution between tenant and landlord.

  • Servitudes encumbering the property.

  • Extent of the seller's representations and warranties.

  • Allocation of costs, expenses and transfer tax.

 

Sale contract

11. Briefly outline the typical main provisions of a corporate real estate sale contract and main real estate provisions of a typical share purchase agreement.

In an asset deal, a notary public must notarise the sale and purchase agreement. Registration of the sale contract at the relevant land registry triggers ownership transfer. In a share deal, notarisation and registration of the agreement are not required.

In an asset deal, the sale contract becomes legally valid and binding on execution by the parties and notarisation by the notary public. The buyer must usually make a deposit on notarisation of 5% to 10% of the total price.

In a share deal, bearer shares must be physically handed over (and also endorsed, if they are registered shares), for the sale to be legally binding. No further registration is required.

In an asset deal, the seller generally provides representations relating to:

  • The lease overview.

  • Any potential litigation with tenants, neighbours or authorities.

  • Contamination of the property.

In a share deal, representations usually also cover title to the shares.

In share deals, the price calculation is more complex, as the price normally requires some price adjustment mechanism from the last audited balance until the financial situation at closing of the transaction.

 

Due diligence

12. What real estate due diligence is typically carried out before an acquisition and what key areas does it cover? Which documents are typically reviewed? Which specialist advisers are usually involved and which reports do they typically produce?

As registration is conclusive, legal due diligence involves analysing the land register extract, which shows all relevant property information. In addition, any existing leases must be examined, since these are transferred to the buyer as the new landlord on purchase of the property.

Another aspect of due diligence relates to environmental law, since the legal owner of the property is partly liable for contamination of the real estate, even if contamination took place pre-ownership. Further, prudent buyers perform, in addition to legal due diligence, tax, technical and financial due diligence.

If a foreign person buys property that includes real estate that is not commercial property or provides for relevant land reserves, it must be verified that there is no infringement of the Federal Law on the Acquisition of Real Estate by Persons Abroad (Lex Koller). This type of purchase can be deemed void, since Lex Koller restricts foreign persons from buying residential and other non-commercial real estate in Switzerland. Financing transactions should be examined on a case-by-case basis.

 

Sellers' warranties

13. What real estate warranties are typically given by a seller to a buyer in the sale of corporate real estate and what areas do they cover? What are the main limitations on warranties, for example are they typically qualified by disclosure?

The warranties typically given by a seller include corporate warranties relating to the:

  • Correct organisation and valid existence of the company.

  • Correct presentation of the financial statements.

  • Title to shares.

Other important warranties relate to:

  • The accuracy of rent records.

  • The due diligence information being accurate, complete, and up to date.

  • Specific tax representations.

In both asset and share deals, the seller does not usually provide any warranty as to the substance of the building. With respect to the seller's other representations, they are often qualified by the seller's knowledge.

In share deals, most of the seller's warranties are often capped at a certain amount, for example, at 10% of the asset's price. However, such cap normally does not apply to the seller's title in the shares.

 

Liability

14. Does a seller have any statutory or other liability to the buyer in a disposal of real estate?

Buyers can rely on the real estate's registration of title in the land registry as evidence of title (see Question 6). The law also protects the buyer against the seller's intentional or grossly negligent non-disclosure of relevant information.

 
15. Briefly outline the environmental legislation and potential liability for a buyer in a purchase of real estate. Is it common to carry out environmental surveys and searches and to obtain environmental insurance? How is environmental liability typically dealt with in the sale contract?

An owner or occupier can inherit liability, particularly concerning environmental issues. If a property is polluted, the polluter must bear the majority of the decontamination costs (Federal Environmental Protection Act (Bundesgesetz über den Umweltschutz)). If the polluter no longer exists or is insolvent, the relevant canton bears the polluter's share. If the property's purchase agreement does not include a specific liability clause, the new owner must bear some of the costs, even if it is not responsible for contamination. Generally, the new owner must pay for excavations and decontamination during development. If the property subject to purchase is registered in the cadastre of polluted sites, the competent environmental authority must provide its consent to such an intended transfer, and may request a security deposit from the seller.

 
16. Can an owner or occupier inherit liability for other matters relating to the real estate even if they occurred before it bought or occupied it? Can a seller or occupier retain any other liability relating to the real estate after it has disposed of it?

Legal liens encumbering the real estate securing certain claims, irrespective of the relationship between the debtor and the legal owner, can lead to additional liability for the owner. Examples include the claims of:

  • Tax authorities for unpaid real estate transfer or capital gain taxes.

  • Craftsmen and contractors for construction or other work on the real estate, where they have provided materials and work (or just work), and their invoices are unpaid by the former landlord or main contractor.

The seller is liable for all defects of the real estate that existed when the property was sold. The seller can contractually exclude this liability (unless it fraudulently concealed these defects; it is disputed whether exclusion of liability is further restricted).

The seller is also liable for all tax relating to real estate ownership, and its share of the tax and fees relating to the sale (see Question 18).

 

Completion arrangements

17. What are the typical arrangements and main documents required for completion of the sale? When does title transfer and what are the formal legal requirements to execute the sale documents, transfer the real estate and register the change of title? Is notarisation required?

The duly signed and notarised sale and purchase agreement must be filed with the competent land registry for registration in the land register. Registration transfers property ownership. The entire purchase price usually becomes payable when the transaction is registered at the land registry.

In an asset deal, the sale and purchase agreement is immediately registered in the daily journal on filing with the land registry. Subject to the definitive registration of the journal entry in the main register, registration in the daily journal determines the point in time when legal title transfers.

The main legal document is the sale and purchase agreement, which both:

  • States the mutual rights and obligations of the parties.

  • Constitutes the legal transfer of ownership of the real estate.

In an asset deal, the contract must be duly signed by the parties and notarised.

 

Real estate tax

18. Is stamp duty/transfer tax (or equivalent) payable on the purchase of real estate? Who pays, what are the rates and are there any exemptions? Does it apply to the transfer of shares in a company holding real estate and at what rate?

In most cantons, cantonal and/or municipal real estate transfer taxes apply to the transfer of real estate. Generally, the buyer pays the tax, but the seller is jointly and severally liable for payment. The rates range between 1% and 3.3%. It is not uncommon for the parties to contractually agree to share the transfer tax.

In share deals in some cantons, there is no real estate transfer tax. Also, corporate restructurings (including of real estate companies) generally no longer trigger transfer taxes and similar charges. Further exceptions are regulated in Article 12(3) of the Federal Act on the Harmonisation of Direct Taxation at Cantonal and Communal Levels. Most cantons that impose real estate transfer tax can secure their corresponding tax receivables by a first ranking legal lien on the real estate.

In addition, the transfer of real estate is subject to cantonal and/or municipal land registry and notary fees.

 
19. Are any methods commonly used to mitigate real estate tax liability on acquisitions of large real estate portfolios? What is the general approach of the tax authorities in your jurisdiction to such schemes?

There are no methods commonly used to mitigate real estate transfer tax on the acquisition of large real estate portfolios. However, if the real estate portfolio is part of a whole business group, the indirect transfer of the properties by a share deal should not trigger real estate transfer taxes, provided the whole group does not constitute a real estate rich company. In share deals in some cantons, there is no real estate transfer tax.

The acquisition of large real estate portfolios mostly involves an escrow agent (that is, a person or entity holding documents and funds in a transfer of real property) handling the closing of the transaction. The relevant escrow agreement often contains a mandate of the escrow agent to pay transfer taxes during closing or after it, and the escrow agent secures these tax payments.

 
20. Is value added tax (VAT) (or equivalent) payable on the sale or purchase of real estate?

The sale of real estate is generally exempt from VAT without credit of input VAT. However, the seller can opt for VAT to apply to the sale, provided the buyer is a taxable person for Swiss VAT purposes. In this case, the standard rate of 8% applies (see Question 32).

For large portfolio deals, and provided the seller has opted for VAT to apply, a notification procedure can be applied for, so that VAT liability is satisfied by reporting the taxable transaction, rather than by effectively paying the VAT due.

Under current law the sale of real estate is generally exempted from VAT, but creating new buildings for third parties is subject to VAT. Under the current regime, the moment of the start of construction is relevant to distinguish between a taxable and tax-exempt sale. The National Council wants to change this practice, and has agreed to a corresponding motion according to which the moment of the transfer of benefits and risks is decisive. The result of the vote of the Council of States is still pending.

 

Municipal taxes

21. Are municipal taxes paid on the occupation of business premises? Are there any exemptions?

Some cantons or municipalities levy special object taxes on the value of real estate in their territory, paid by the property owner.

For example, in Geneva, the renting of commercial properties is subject to a municipal tax at 0.5% of the annual rental income.

 

Climate change issues

22. Are there targets or incentives to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria?

Environmental protection is an important issue in Switzerland. There is a target to reduce carbon dioxide emissions by 20% by 2020 (compared with 1990 levels) (Federal Law concerning the Reduction of Carbon Dioxide Emissions (Bundesgesetz über die Reduktion der CO2-Emissionen)).

The reduction target will primarily be realised through voluntary measures, including the Minergie quality standard for new residential buildings. Facilities built in accordance with the Minergie standard are characterised by high-grade, air-tight building envelopes (that is, the separation between the interior and the exterior environments of a building) and the continuous renewal of air in the building using an energy efficient ventilation system. Specific energy consumption is the main indicator of the required building quality.

The Federal Council (Bundesrat) can charge a tax if the voluntary measures are insufficient to reach the reduction target. This provides an incentive to build in accordance with the Minergie standard. Additionally, some banks provide special incentives for financing concerning houses fulfilling Minergie standards.

 
23. Are provisions relating to the energy efficiency of buildings commonly included in contracts for the sale of real estate or in leases (for example, green leases)?

This is not market practice in Switzerland yet, but such clauses are implemented for specific buildings which should qualify for a specific energy efficiency label.

 

Real estate finance

Secured lending involving real estate

24. Briefly outline the typical security package required by lenders in relation to real estate lending. How are the most common forms of security interest relating to real estate created and perfected (that is, made valid and enforceable)?

Mortgage certificates are the most common form of security granted over real estate. In secured lending, the legal owner pledges or assigns mortgage certificates relating to real estate to the lender, as security for a loan enabling him to conduct the business or allowing the purchase of real estate.

As of 1 January 2012, a mortgage certificate takes the form of either:

  • A register mortgage certificate (Register-Schuldbrief). This has the advantage that there is no physical paper copy which can be lost, which has led in the past to delay and costly annulation procedures.

  • A mortgage certificate on paper (Papier-Schuldbrief).

To perfect the pledge or assignment, the mortgage certificates must be physically handed over to the pledgee, assignee, or a third party acting on their behalf.

For registered mortgage certificates (Namensschuldbrief), the assignor or pledgor must also duly endorse the mortgage certificates.

The assignment or pledge does not require registration at the land registry, except for register mortgage certificates, which require the recording of the new creditor at the land register.

 
25. What other real estate related measures do lenders typically take to protect themselves against default by the borrower?

In asset deals, generally buyers rely on the representations and warranties of the seller. However, if legal liens can be established on the property, the potential risk is mitigated by a security deposit or direct payment to the relevant tax authority at closing. Environmental and technical risks are normally taken into account in the purchase price offered.

In share deals, part of the purchase price is often deferred to secure the buyer against potential risks, primarily with respect to past tax obligations.

 
26. Can lenders incur environmental liability? What measures do lenders typically take to manage potential environmental liability?

If the lender finances a property purchase, it is possible that he becomes land or site owner upon enforcement of the security granted. If the local environmental protection authority issues remediation orders due to abandoned polluted areas, the land or site owner finances the environmental clean-up costs in advance. However, the land or site owner can submit a request on cost distribution so that the polluter has to bear the cost, or at least part of it.

Lenders can protect themselves against these costs and environmental risks through environmental due diligence, which should occur before the transfer of ownership and financing of the acquisition. Other possibilities are to demand a condition precedent from the buyer that insurance against environmental risks is in place.

 
27. Briefly outline the main remedies for lenders in relation to the secured real estate if the borrower defaults on the loan. What is the effect of the borrower's insolvency on the lender's remedies?

Lenders can enforce security over real estate by a private sale to a third party or by self-contracting, that is, the lender acquires it himself. However, this is only possible if it was agreed in the contract with the borrower.

Another possibility is to enforce the security in accordance with The Federal Act on Debt Enforcement and Bankruptcy (Bundesgesetz über Schuldbetreibung und Konkurs). Lenders can choose between enforcing the security granted (Betreibung auf Pfandverwertung) or initiating bankruptcy proceedings over all the debtor's assets (Betreibung auf Konkurs).

 
28. Briefly outline key additional issues for lenders in relation to construction and development projects.

Generally, in relation to construction and development projects, lenders have to review the underlying construction agreement to ensure that the costs are capped, the expenses monitored, and funds only transferred on fulfilment of the contractor's obligations. Funding normally is made in stages depending on the progress of work.

Further, lenders generally control payment of the workmen involved, by ensuring that no workmen's lien will be established on the property which will rank ahead of the security granted to the lender.

 

Other real estate financing techniques

29. Are other real estate finance techniques commonly used in your jurisdiction? For example, real estate securitisation and sale and leasebacks.

Real estate is often used to raise finance by:

  • Sale and leasebacks. The legal owner sells the real estate and leases it back, using the purchase price for its operations.

  • Other financing, such as real estate securitisation, Swiss Pfandbriefe (that is, standardised secured fixed-rate debt securities issued by Pfandbriefbank or Pfandbriefzentrale), and covered bond structures (outside Swiss Pfandbriefe's legal framework).

Previously, some Swiss banks securitised their loan portfolios. More recently, given the collapse of international securitisation markets, Swiss banks have actively been using the Swiss Pfandbrief market. In addition, UBS and Credit Suisse continue to successfully issue their covered bond programme as an alternative refinancing tool.

 

Real estate leases

Negotiation and execution of leases

30. Are contractual lease provisions regulated or freely negotiable? Which legislation applies?

Rent or lease terms are broadly negotiable within legal limits, which generally favour tenants' interests. Excessive returns on rents are prohibited, even if they are based on an obviously excessive purchase price.

Lease terms must comply with the mandatory legal regulations concerning leases, relating to the:

  • Maximum duration of the fixed term tenancy.

  • Notice period.

  • Termination date.

For a lease term of at least five years, rent can be partially or fully indexed to the Consumer Price Index. In addition, staggered rent is possible for a term of at least three years. However, staggered rent cannot be combined with indexed rent.

 
31. What are the formal legal requirements to execute a lease? Does the lease have to be executed by certain parties or as a deed? How do the formalities differ for a company, partnership and for individuals?

There are no statutory formal requirements for the execution of a lease contract. A lease contract can be validly agreed on in writing, orally or by mutual consent between the parties. However, it is common practice to execute a lease contract in writing.

 

Rent payments

32. How are rent levels usually reviewed and are there restrictions on this? Is stamp duty and VAT (or equivalent) payable on rent? Is a rent security deposit required and does it have to be managed in a certain way?

When rent is reviewed, it must not be abusive. Rent is considered abusive if it either:

  • Results in excessive returns from the rental object.

  • Is based on an obviously excessive purchase price.

Generally, rent is not regarded as abusive if any of the following apply:

  • It is within the range of rents usual within the neighbourhood.

  • It is based on increased costs or additional benefits that the landlord provides for.

  • In relation to relatively new buildings, it is within the range of a cost-covering gross return.

  • It is both:

    • intended to merely compensate for a previously granted lower rent based on deferred market-conformed financing costs. That is, lower rent at the beginning of the lease with higher rent at the end of the lease is allowed, if the landlord's interest payments under the mortgage-backed loan are increasing at the same time;

    • set out in a payment plan disclosed to the tenant in advance.

  • It merely compensates for a cost increase in relation to the risk-carrying capital. That is, if the landlord's equity costs are increasing, it can partially shift such increased costs (up to 40% of the increase of the consumer price index) to the tenant by increasing the rent.

  • It is not greater than the amount recommended by landlord and tenant associations, or organisations safeguarding similar interests, in their general terms and conditions.

The leasing of real estate is generally exempt from VAT without credit of input tax. However, this exemption specifically excludes:

  • Providing accommodation in the hotel sector (a reduced rate of 3.8% applies).

  • The renting of:

    • premises and sites for parking vehicles;

    • permanently installed equipment and machinery;

    • safes.

In addition, the landlord can opt for VAT to apply, provided the tenant is a taxable person established in Switzerland. In this case, the standard rate of 8% applies.

The current standard rate of 8% is for a temporary period of seven years until 31 December 2018.

The landlord usually requires a rent security deposit. Where the tenant of residential or commercial premises provides security in the form of cash or negotiable securities, the landlord must deposit it in a bank savings or deposit account in the tenant's name. In residential leases, the landlord is not entitled to ask for more than three months' rent by way of security. The bank may release such security only with the consent of both parties or in compliance with a final payment order or final court decision. On expiry of one year following the end of the lease, the tenant or lessee can request that the security be returned to him by the bank if no claim has been brought against him by the landlord or lessor. Alternatively, bank guarantees are provided as rent security.

 

Length of term and security of occupation

33. Is there a typical length of lease term and are there restrictions on it? Do tenants of business premises have security of occupation or rights to renew the lease at the end of the contractual lease term?

The length of lease term depends on the market situation and the interests of the parties involved. The parties generally choose long-term lease agreements (five to 12 years, or in some cases, up to 20 years). This particularly applies if the tenant wants to develop the property for its specific needs, since there is no mandatory reimbursement claim for investment by the landlord.

In addition, if the landlord wants to achieve strong leverage to finance its real estate, banks financing these purchases generally require leases that do not end until after repayment of the loan.

Tenants wishing to secure their position at the end of the lease often agree options with the landlord which allow them to extend the lease on expiry of the original lease term.

 

Disposal

34. What restrictions typically apply to the disposal of the lease by the tenant? Can tenants usually share their business premises with companies in the same corporate group? What is the effect of a legal reorganisation or transfer/sale of the tenant on the lease and on a guarantee of the lease?

If the landlord sells the rental premises, the tenancy passes to the new landlord and continues on the same terms, unless the landlord requires the premises for his own purposes.

Leases can usually be assigned or sublet in whole or part by a tenant, provided the landlord does not object for valid reasons.

The parties can agree terms allowing several parties to use the leased premises. In this case, the landlord commonly insists that all parties using the leased premises enter into the lease, to make them jointly liable for all obligations arising from the lease. However, this type of tenancy sharing is rare.

 
35. Does a landlord or tenant retain any liability under the lease after the lease is assigned?

The old tenant is generally released from his obligations. However, he remains jointly liable with the new tenant until the lease elapses, either according to law or the terms of the lease, but in any event no longer than two years following the assignment of the lease. The landlord's obligations remain the same.

 

Repair and insurance

36. Who is usually responsible for keeping the leased premises in good repair and for insuring the leased premises? Are there provisions for the ownership of lease improvements?

According to conventional practice:

  • The tenant is responsible for ordinary (smaller) maintenance expenses.

  • The landlord is responsible for extraordinary (larger) maintenance expenses relating to the premises.

However, in relation to large commercial leases over whole buildings, triple-net leases are sometimes granted (that is, leases that shift the entire maintenance and repair duties to the tenant). These leases are enforceable, if structured properly, but no case law exists on the subject.

The landlord must insure the building. For example, the landlord must pay for a suitable fire insurance policy. However, in triple-net leases, this obligation shifts to the tenant. Additionally, it is in the tenant's interest to have liability insurance (Haftpflichtversicherung).

 

Landlord's remedies and termination

37. What remedies are available to a landlord for a breach of the lease by the tenant? On what grounds can the landlord usually terminate the lease and what restrictions and procedures apply? What is the effect of the tenant's insolvency under general contract terms and insolvency legislation?

Under general contract law, a party that has entered into an agreement (including a lease) based on wilful deception by the other party is not bound by it. The same applies in case of material error, particularly if the error related to certain facts that the party suffering from the error, according to the rules of good faith in business, considered to be a necessary basis of the contract.

Extraordinary termination of the lease by the landlord is possible if the tenant either:

  • Does not pay the rent.

  • Becomes insolvent and the landlord does not acquire security for future rent payments.

If the tenant becomes insolvent, the landlord can request security for payment of future rents. If no security is granted following a grace period, the landlord can give notice to immediately terminate the lease.

The court determines the financial consequences of early termination, taking due account of all the circumstances.

 
38. Can the tenant withhold rent payments in certain circumstances, for example for serious damage to the leased premises? Can the tenant terminate the lease in certain circumstances?

The tenant can deposit the rent if defects appear during the term of lease, provided the formal procedures are followed before that (that is, previous written notification to the landlord is required).

The tenant can terminate the lease if the landlord either:

  • Does not transfer the leased premises at the agreed time.

  • Transfers the leased premises with defects that exclude or significantly impair its suitability for the predetermined use.

In addition, the tenant can give notice of termination with immediate effect during the lease if both:

  • The landlord is aware of a defect and does not remedy it within an adequate period of time.

  • The defect prevents or significantly impairs the agreed use of the premises.

The tenant can terminate the lease at any time if both:

  • It provides the landlord with a suitable new tenant.

  • The leased premises remain subject to the same terms and conditions.

The landlord and tenant can also terminate the lease for valid reasons that make performing the lease impossible.

 

Planning and development controls

39. In what circumstances can local or state authorities purchase business premises compulsorily? Is the purchase price market value?

Local authorities

The right of local authorities to compulsorily purchase premises is subject to cantonal law (there are 26 cantons and therefore different regulations). Expropriation requires an overriding public interest, such as the:

  • Development of infrastructure.

  • Widening of roads.

  • Construction of highways.

Indemnification must reflect the land's market value.

Federal authorities

The federal authorities can only compulsorily purchase premises for projects in the interest of the entire state or a major part of it. The purchase price must be equivalent to the property's market value. The property owner can challenge expropriation through legal proceedings, and has the right for an independent court to decide on the:

  • Suitability of the expropriation.

  • Compensation offered.

 
40. What authorities regulate planning control and which legislation applies? Is there specific protection for special categories of buildings such as historic buildings?

Swiss authorities at federal, cantonal and communal level have various regulatory responsibilities relating to zoning and building law.

The Federal Zoning Act defines the respective responsibilities at federal, cantonal and communal level, and sets out certain key principles, such as the:

  • Conservative use of land.

  • Limits on expansion of housing development.

Building law at federal level only focuses on selected matters. Generally, zoning and building regulations are enacted by the cantons and implemented by communal building authorities. Consequently, Switzerland has 26 different cantonal zoning regimes.

Communal building laws are also important. Municipalities enact these under their right of communal autonomy.

There are also restrictions applying to historical buildings classified as protected monuments and listed in the land register (see Question 41).

 
41. What planning consents are required for building works and the use of a building?

Planning permission is required:

  • For a new building or any change to an existing building or construction.

  • To change the function of an existing building (for example, from commercial to residential premises).

There are also restrictions applying to historical buildings classified as protected monuments and listed in the land register. Changes cannot be made to these buildings without the authorities' approval (although internal changes can be made in some circumstances). The relevant authority should be consulted before changes are made to a historical building.

 
42. What are the main authorisation and consultation procedures in relation to planning consents?

Initial consents

Planning applications should be made to the relevant communal authority. The time between the application to an initial decision depends on the project and the workload of the authority in charge. For minor projects, the initial decision can be obtained in two months. For major projects that may require a special zoning plan and an environmental assessment, it can take up to two years.

Third party rights and appeals

Generally, only neighbours to the project can object. In major construction projects, certain associations can submit a group objection.

All parties can claim a public inquiry (and an independent court's judgment), because their civil rights are involved.

There is a right of appeal to a superior administrative authority or an independent court. For example, any neighbouring landowner negatively affected by an approved building permit can appeal to a higher cantonal court against the building permit.

 

Reform

43. Are there proposals to reform real estate law and are they likely to come into force and, if so, when?

Parliament is currently discussing:

  • Modification of the spatial planning law for hotels outside the building zone.

  • Launching subsidies for energy efficient building restorations.

  • Modification of the tenancy law of the Code of Obligations.

  • Modification of the land registry ordinance.

Further, the Swiss parliament has decided to change the land registry ordinance, so that the owner of the ground can see who has been making requests about their land through the electronic land register.

There will also be some public votes which could have an impact on Switzerland's real estate landscape.

 

Online resources

Federal Authorities of the Swiss Confederation

W www.admin.ch/ch/e/rs/rs.html

Description. Classified compilation of Federal legislation. English is not an official language in Switzerland and therefore not binding. Important statutes have been translated but they are potentially out of date.



Contributor profiles

Francis Nordmann

Walder Wyss Ltd

T +41 58 658 55 96
F +41 58 658 59 59
E francis.nordmann@walderwyss.com
W www.walderwyss.com

Professional qualifications. Switzerland, 1998; MRICS

Areas of practice. Real estate; corporate finance and capital markets; private client; insolvency and restructuring; commercial and company law.

Recent transactions

  • Advising Fordgate in the sale of a large life science campus in Basel to the community of Basel.
  • Representing the buyer of a large holiday resort in the Interlaken area.
  • Representing Gold Tree regarding the acquisition of an office complex in the Greater Zurich area.
  • Advising a newly launched Swiss real estate investment fund regarding several acquisitions.
  • Advising a large insurance provider regarding the sale of one of its data centres.
  • Advising Reliva Patientenhotel regarding various projects in close proximity to university hospitals in Switzerland.
  • Advising Crowdhouse regarding several real estate transactions.

Johannes A Bürgi

Walder Wyss Ltd

T +41 58 658 55 96
F +41 58 658 59 59
E johannes.buergi@walderwyss.com
W www.walderwyss.com

Professional qualifications. Switzerland, 1998

Areas of practice. Real estate; financial services; corporate finance and capital markets; financial products; insolvency and restructuring; commercial and company law.

Recent transactions

  • Advising the owner in relation to the development of the landmark property Mall of Switzerland.
  • Advising on the restructuring of a large real estate financing in Switzerland.
  • Advising Deutsche Bank on a large development financing of hotel residences in Switzerland.
  • Advising a large UK based bank on the restructuring of property financing in Switzerland.
  • Assisting Blackstone Group with respect to the Swiss part of the acquisition of assets of GE Capital Real Estate.
  • Assisting a Middle-Eastern sovereign wealth fund on its acquisition of a porfolio of hotel properties in Switzerland.
  • Assisting a Middle-Eastern sovereign wealth fund on a large real estate development project in Geneva.
  • Assisting Norges Bank Investment Management (NBIM) in relation to the acquisition of the landmark real estate property Uetlihof in Zurich from Credit Suisse AG, in a sale and leaseback transaction valued at CHF1 billion.

Thomas Müller-Tschumi

Walder Wyss Ltd

T +41 58 6588 55 04
F +41 58 658 59 59
E thomas.mueller-tschumi@walderwyss.com
W www.walderwyss.com

Professional qualifications. Switzerland, 1993

Areas of practice. Public infrastructure; public procurement; construction; real estate; real estate financing; project financing; healthcare.

Recent transactions

  • Advising the owner in relation to the development of the landmark Mall of Switzerland.
  • Advising a large insurance provider in the course of various real estate transactions.
  • Advising an industrial company in the course of a sale and leaseback transaction.
  • Advice regarding a new leasehold and new operational setting for the Intercontinental Davos Hotel.
  • Assisting Norges Bank Investment Management (NBIM) in relation to the acquisition of the landmark real estate property Uetlihof in Zurich from Credit Suisse AG, in a sale and leaseback transaction valued at CHF1 billion.

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