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Eversheds Global Estate Management

Liechtenstein

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - ownership can be characterised as an unlimited right, in rem. Ownership grants the full and complete right over property, including the power to enjoy and dispose of things absolutely, limited by the general law. Owners have the right to dispose of their property and the right to protect it against unlawful intrusion by third parties. The right in rem could also be characterised as a comprehensive absolute right. Ownership entitles the owner to make use of the property itself and to benefit from the proceeds from the property. Besides sole ownership, there are other types of ownership, such as co-ownership and joint ownership. Owners may also rent their property to third parties, namely tenants.

Leasehold - according to Liechtenstein law, the relation between tenant and landlord (the owner of the property) is determined by the special provisions of landlord and tenant law (‘Mietrecht’). A priority notice can be entered in the Land Register in respect of a rental (lease) agreement, in which case the agreement is deemed to be a (limited) right in rem. In addition to the landlord, who is the owner and possessor of the immovable property, the tenant is also deemed to be ‘co-possessor’ of the rented property.

Common hold/Usufruct - not applicable.

Condominium ownership - is a particular type of co-ownership that includes a co-ownership share in the land and the building as a whole. Additionally, every condominium owner has a special right to make exclusive use of specific parts of the building, such as flats, business premises and garages. To create condominium ownership, there must be an action (e.g. purchase agreement) and an entry in the special ‘Stockwerkeigentum’ pages in the Land Register.

Utilisation right - not applicable.

Title to real estate - as a result of the principle of ‘title and modus’, the acquisition of real estate requires both title (contractual act, e.g. purchase contract) and modus (transfer of ownership). The transfer of ownership, or the constitution of a right in rem, depends on the existence of an effective, valid act of disposal (title). In real estate transactions, if the transaction is not registered in the Land Register the buyer has only a contractual claim for performance against the seller. To be valid, every contract regarding immovable property must be made in writing. The signatures of the contracting parties require public certification. Ownership is transferred when the entry is made in the Land Register. The right in rem comes into existence when entered in the Land Register.

Joint/Co-ownership - not applicable.

Registration - everyone must respect their rights in rem. To guarantee rights over the immovable property, it must be registered in the Land Register (according to the principle of public disclosure). The constitution of a right in rem requires a title and an entry in the Land Register. With some exceptions, the right in rem comes into existence when it is entered in the Land Register. If the right is not registered, it is deemed not to exist.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

Restrictions on foreign ownership - the Agreement on the European Economic Area (EEA) was extended to the Principality of Liechtenstein on 1 May 1995. Generally, under this agreement, every physical and legal person from an EEA country may acquire immovable property in Liechtenstein on the same conditions as Liechtenstein national and legal persons. Swiss citizens resident in Liechtenstein have also been treated in this way since 2003. Due to limited space, however, Liechtenstein has been granted an exemption that allows it to limit the acquisition of land.

 

Title to real estate

Title to real estate

Investigation of title - not applicable.

Transfer of title - the right in rem is passed from the buyer to the seller when the right is entered in the Land Register. Before registration, the buyer has only a contractual claim for performance against the seller. Once the right has been registered, the buyer has the full right of ownership of the immovable property.

Registration - everyone must respect their rights in rem. To guarantee rights over the immovable property, it must be registered in the Land Register (according to the principle of public disclosure). The constitution of a right in rem requires a title and an entry in the Land Register. With some exceptions, the right in rem comes into existence when it is entered in the Land Register. If the right is not registered, it is deemed not to exist.

As a result of the principle of ‘title and modus’, the acquisition of real estate requires both title (contractual act, eg purchase contract) and modus (transfer of ownership). The transfer of ownership, or the constitution of a right in rem, depends on the existence of an effective, valid act of disposal (title). In real estate transactions, if the transaction is not registered in the Land Register the buyer has only a contractual claim for performance against the seller. To be valid, every contract regarding immovable property must be made in writing. The signatures of the contracting parties require public certification. Ownership is transferred when the entry is made in the Land Register. The right in rem comes into existence when entered in the Land Register.

Information on the register - the Land Register is public and is conclusive evidence of Land Register entries. It is assumed that entries on the Land Register reflect the true legal relationships, under the principle of the ‘presumption of accuracy’ of the contents of the Land Register. The Land Register may be inspected by anyone who has a legitimate interest, and such a person may also obtain an excerpt from the register.

Commercial leases - according to Liechtenstein law, the legal terms of tenancy ('Miete') and lease ('Pacht') must be distinguished. Tenancy is the handing over of an object for its use. Lease is the handing over of an object for its use and collection of the fruits and benefits. Matters such as the right of retention, duration and service charges differ for tenancies and leases.

The following comments refer only to tenancy provisions, and do not cover leases.

With regard to private autonomy and freedom of contract, the contracting parties are free to establish their contractual relationship within the legal framework. There are however, some legal provisions in place to protect the tenant, and the parties must comply with these provisions.

Standard form contracts are often used for rental agreements. In most cases, the parties determine all relevant terms in the rental agreement themselves. In the absence of a contractual agreement, the parties will be subject to legal provisions.

The Liechtenstein Act on Real Estate applies to rental agreements sine die or those with a term of more than ten years.

The Liechtenstein Princely Court is the competent authority dealing with cases involving tenancy disputes (such as notice to quit, time limits, hand-over of the rented property and extension of the tenancy).

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - the principle of private autonomy grants the parties the freedom to establish a contractual relationship at their discretion. The freedom of contract is limited by what is allowed under the law. Furthermore, the performance of the contract must be objectively possible and the contract terms of contract may not be contrary to public policy. In most cases of real estate acquisition, lawyers represent the seller and the buyer.

Heads of terms – not applicable.

Investigation of title - not applicable.

Purchase deed - not applicable.

Contracts - primarily, every buyer should check the seller’s capacity and entitlement to act. A contract concluded with a person who lacks entitlement or who lacks the capacity to act or conclude contracts may be ineffective or contestable. The seller’s entitlement must be verified by reference to the Land Register. The seller must be entered in the Land Register as owner and must be authorised to dispose of the immovable property. Any encumbrances on the immovable property, such as real servitudes, personal servitudes, pledge of real property, pledges of real property by implication of law, mortgages, option and pre-emption rights, should be checked by reference to the Land Register before acquisition. The buyer should check any existing third party claims regarding encumbrances, which could affect the value and resale of the property. The principle of good faith grants that any person relying in good faith on information contained in the Land Register is protected. Generally, the title of property may only be acquired by the predecessor of the title. To be valid, every contract regarding immovable property must be made in writing. The contracting parties’ signatures for the Land Register entry require public certification.

In certain cases, the acquisition of real estate requires approval from the Land Register Authority. In such cases, real estate acquisitions may not be entered in the Land Register until the authority’s approval has been given.

A contract subject to immovable property may contain details of the contracting parties, an exact description of the real estate, the exact purchase price and the warranties. The transfer of any tax and Land Register charges that may be due and the transfer of the rights and encumbrances limiting the rights in rem over the immovable property should also be agreed in the contract. The seller is obliged to deliver the property; the buyer is obliged to pay the agreed purchase price.

The contract must be concluded before it can be entered in the Land Register.

Completion/closing- as a rule, ownership is transferred to the buyer only when the entry is made in the Land Register. The Land Register entry requires a valid title (e.g. purchase contract). Confirmation is also required from the Liechtenstein Tax Administration that capital gains tax for the real estate sale has been paid. Unless otherwise agreed in the contract, the seller is responsible for paying the tax.

To effect a legally valid and effective transfer of ownership of the immovable property to the buyer, the seller must be the registered owner of the property and authorised to dispose of it. The seller must also agree to the new owner being entered in the Land Register.

Generally, the seller must apply in writing for entry in the Land Register. Several documents (e.g. purchase contract) regarding transfer of the right in rem, confirmation from the competent Land Transfer Authority and confirmation (of the tax payment) from the Liechtenstein Tax Administration must be attached to the application.

Every application for entry is registered in the ‘book of original entries’ (‘Tagebuch’). The filing date of the entry in the book is relevant for the Land Register, as this is the date by which each registration for one immovable property is ranked.

The right in rem, the extensive right of ownership of the acquired immovable property, comes into existence when entered in the Land Register, as entry in the register has constitutive effect. Ownership is transferred by registration.

Post completion - charges become due once a matter has been entered in the Land Register.

Leases - not applicable.

Transfer of ownership of leased property (alienation) - not applicable.

Language requirement – not applicable.

Governance of lease signature/administration – not applicable.

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - not applicable.

Alterations/modifications - the tenant has the right to use the rented property according to the contractual agreements. Alterations are permitted with the landlord’s consent or as provided in the contract.

Assignment and sub/under letting - not applicable.

Destruction/reinstatement - at the termination of the agreement, the tenant must reinstate the rented property to the same condition as at the beginning of the tenancy, taking into account fair wear and tear due to reasonable use.

Duration of lease - not applicable.

Forfeiture/irritancy - not applicable.

Insurance - landlords usually insure the building, while tenants usually take out comprehensive household insurance.

Rent review - generally, where the contract ties the rent and its review to an index (such as the Swiss consumer price index ('Schweizerische Landesindex der Konsumentenpreise'), rent payments may be adjusted accordingly.

Repair/decoration/furnishing - generally, the landlord is obliged to provide the rented property in good order and in a serviceable condition, and is responsible for maintaining it in such a condition.

Service charge - generally, all charges and taxes have to be paid by the landlord. The tenant pays the actual costs of utilities, such as public charges, heating, water and so on.

Tenant’s duties - not applicable

Termination/break clauses - there is a distinction between rental agreements that are limited and unlimited in time. Tenancies either expire by lapse of time or are brought to an end by notice to quit. A notice to quit can be served out of court, but it must be filed with the court if the landlord wishes to execute it. In some circumstances determined by law (for example, where the rented property is unusable, there are arrears of rent or the property is damaged), the rental agreement may be terminated early by service of an ‘instant’ (or ‘extraordinary’) notice to quit. The competences of the Princely Court must be taken into account in certain cases regarding break clauses.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - not applicable.

Surety - sureties for rental agreements are unusual.

Warranty - at the end of the lease term the tenant must hand over the rented property to the landlord at the end of the tenancy, according to the contractual agreement or any applicable legal provisions.

Rent deposit/bank guarantee - usually, as a security against non-payment of rent, a deposit is paid, equal to one month’s or three months’ rent, into a designated account. The funds may only be disposed of with the landlord’s agreement. Instead of a rent deposit, it is also common practice when a rental contract is agreed, to provide a bank guarantee in favour of the landlord as a security for future rent payments.

 

Security of tenure

Security of tenure

Where notice to quit is to be served, the tenant is entitled to seek an extension to the tenancy if expiration of the tenancy would cause hardship. In such cases, the tenancy could be extended for a fixed period, taking into account the interests of the parties involved. An extension will not be granted in certain cases, for example where the tenant has breached a contractual agreement. The competences of the Princely Court have to be taken into consideration with regard to the extension of a tenancy. At the end of the lease term, the tenant must hand over the rented property to the landlord at the end of the tenancy, according to the contractual agreement or any applicable legal provisions.

 

Taxes

Taxes

On sale/acquisition of real estate - according to the Liechtenstein Tax Act, and unless otherwise agreed by contract, the sellers of property located in Liechtenstein are generally liable to pay tax on the capital gains from the sale. The gains from the sale less the estimated tax value (or less purchase price if higher than the estimated tax value) and less all other value increasing expenditures are taxed. The rate of tax depends on the gains from the sale.

Income - property income (e.g. from rent) of physical persons domiciled in Liechtenstein is not subject to gains tax. A legal person who is liable for profits tax will be taxed on rental income indirectly through the income and loss statement. Profit tax is payable on the annual net profit.

Immovable property tax - physical persons who are taxable in Liechtenstein must pay property tax on immovable assets in Liechtenstein. Plots of land owned abroad may be deducted. Physical persons who are not taxable in Liechtenstein must pay property tax on real estate located in Liechtenstein.

Land tax - not applicable.

Lease tax - not applicable.

Local tax - not applicable.

Mortgage - not applicable.

Other taxes - apart from the special company taxes for private asset structures (‘Privatvermögensstrukturen’), legal persons domiciled and involved in commercial activities within Liechtenstein are subject to profits tax. The existing capital tax has been abolished by the new Liechtenstein Tax Law, which entered into force on the 1st of January 2011. Real estate owned by a legal person has to be included in the annual financial statement according to the relevant accounting standards. However, legal persons do not have to pay tax on the real estate they own.

Property lease tax - not applicable.

Value added tax - not applicable.