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Eversheds Global Estate Management

Switzerland

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - freehold is unlimited by time and gives the owner absolute ownership rights. He/she may choose to occupy the building, grant a building lease on the property or lease the property as a whole or in part to a tenant.

Leasehold - not applicable.

Common hold/Usufruct - not applicable.

Condominium ownership - common property is the partial ownership of a building (mostly used for apartments or offices). The ownership only relates to part of the building with the right to use it exclusively as a freehold ownership. The common parts of the building (staircase, central heating room, etc) and the building shell are owned and maintained collectively by the common property owners of the respective building. Common property was intended to facilitate private ownership and partial ownership of real estate. About 10% of apartments in Switzerland are condominium apartments, and this percentage is rising.

Utilisation right - not applicable.

Joint/Co-ownership - not applicable.

Registration - registration at the Land Registry is compulsory for every form of ownership (freehold, building lease, common property).

 

Restrictions on foreign ownership

Restrictions on foreign ownership

Switzerland has a federal law regulating and restricting foreign ownership (but not the leasing) of real estate. Restrictions apply for non-Swiss citizens with residence outside Switzerland and foreigners with residence in Switzerland, if they are not citizens from an EU or EFTA country nor have a permanent residence permission (permission C). The same restrictions also apply for legal entities domiciled outside Switzerland and for Swiss companies if they are legally or economically dominated by a foreign owner.

The acquisition of a restricted property by a foreign person/company requires authorisation from the local authorities as long as it is not barred by the law itself. No restrictions apply to property that is commercially used (factory buildings, hotels, offices, etc).

Currently, the liberalisation or even the abolition of foreign ownership restrictions is being discussed. In relation to agreements between Switzerland and the European Union, the easing of restrictions for EU citizens can be expected.

 

Title to real estate

Title to real estate

Investigation of title - the buyer's/tenant's lawyer or notary investigates title, carries out searches of the Land Register, raises enquiries and reviews/negotiates the contracts.

Transfer of title - legal title passes upon registration (journalisation) of the transaction at the competent Land Registry, except in case of inheritance, statutory merger, transfer of assets and liabilities pursuant to Swiss merger law and court decision).

Registration - registration at the Land Registry is compulsory for every form of ownership (freehold, building lease, common property).

Information on register - the Land Registry contains the following information: (yet easements and mortgages etc are only available to the owner and, in general, not to the public)

  1. (a) the property (size, location, property number)
  2. (b) the owner
  3. (c) the kind of ownership (eg joint ownership, freehold ownership, common ownership, etc)
  4. (d) the date of acquisition
  5. (e) easements (servitudes)
  6. (f) mortgages (encumbrances) pre-emption rights, etc.

Commercial leases - commercial lease contracts are either open-ended or fixed term (usually five to ten years with an option to extend for one or two further fixed term(s) or five years).

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - negotiations are either carried out directly by the parties or by their agents/lawyers. The use of a local real estate specialist is recommended and common. The agreed economic terms are provided to the party's lawyers.

Heads of terms – not applicable.

Investigation of title - the buyer's/tenant's lawyer or notary investigates title, carries out searches of the Land Register, raises enquiries and reviews/negotiates the contracts.

Contracts - lease contracts are valid in written form and are mostly standardised. Transfer of ownership (freehold, building lease, common property) requires a notarial deed. In this case, the public notary or an independent escrow agent may monitor the completion of the contract (eg payment of purchase price and settlement of taxes and duties).

Completion/closing - lease contracts are valid in written form and are mostly standardised. Transfer of ownership (freehold, building lease, common property) requires a notarial deed. In this case, the public notary or an independent escrow agent may monitor the completion of the contract (eg payment of purchase price and settlement of taxes and duties).

Post completion - after completion any stamp duty and land taxes must be paid. Normally the public notary or an independent escrow agent will deal with this.

Leases - Building lease (Baurecht) - a building lease allows the owner of property to construct a building by maintaining the legal ownership of the land. The building lease allows full use of the property for a limited period of time (max. 100 years). The holder has to pay a fee to the land owner, and this is usually paid annually. The building lease is registered in the Land Register and can be sold, inherited and rented out independently. At the end of the fixed term of the building lease the ownership of the building is transferred to the owner of the land with compensation to the holder of the building lease.

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 - usually permitted with the consent of the landlord with no consent being required for installation or works to internal demountable partitioning.

Assignment and sub/under letting - not applicable.

Destruction/reinstatement - alterations on leased property need to be reinstated at the end of the term only if the alterations were carried out without the landlord's consent. Essential improvements are compensated for if the landlord has agreed to the works.

Duration of lease - term of commercial lease. Commercial lease contracts are either open-ended or fixed term, (usually five to ten years with an option to extend for one or two further fixed term(s) of five years).

Forfeiture/irritancy - not applicable.

Insurance - the landlord bears the insurance costs for the building.

Rent review - usually business rent is linked to the consumer price index and adjusted annually (if the duration is more than five years).

Repair/decoration/furnishing - the tenant is responsible for daily repairs and decoration and maintenance of the interior. Structural repairs are carried out by the landlord.

Service charges - normally, the tenant has to pay an advance on the expected costs (electricity, heating, gas etc). A charging review takes place annually. Charges for the ancillary costs can be calculated as a fixed amount or based on usage.

Tenant’s duties - not applicable.

Termination/break clauses - ordinary termination can be given with due prior notice (the landlord must give notice on a form approved by the Canton). Extraordinary termination can be given at any time i) by the tenant if the tenant returns the object without observing the notice period or termination date and proposes to the landlord a new tenant who is solvent and willing to enter into the rental agreement on identical terms and cannot reasonably be refused or ii) by the landlord for valid reasons rendering the performance of the contract intolerable (eg if the tenant becomes bankrupt or fails to pay the rent on time or continuously violates the premises).

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - not applicable.

Surety - sureties are also not very common.

Warranty - not applicable.

Rent deposit/bank guarantee - rent deposits are normally required. The deposit is usually equal to three months’ rent (for residential apartments; but can be more for commercial ones) and is paid into a special deposit account at a bank. The account is in the name of the tenant but can be drawn upon only by approval of both the landlord and the tenant.

Bank guarantee - are less common for residential apartments, but more for commercial ones.

 

Security of tenure

Security of tenure

Usually at the end of a fixed term the lease continues as an open-ended contract. Fixed term lease contracts often include an option to extend the fixed term for another five or ten years. To protect the tenant’s position, the lease contract can include a right for the tenant to have the contract noted in the Land Registry.

 

Taxes

Taxes

On sale/acquisition of real estate - taxes on profit from real estate are payable in addition to property transfer taxes. Rates vary in each canton. The tax is payable by the seller on the sales price minus acquisition price and minus investments and acquisition costs. Since the tax authority can put a statutory lien on the land in case of failure by the seller to pay the tax, the purchaser must ask for appropriate security. If the property is owned and sold by an estate agent or by a company the sales profit is subject to normal income taxes.

Immovable property tax - not applicable.

Income tax - income and property taxes are payable by the owner of real estate. Local rates are payable. The taxable value of the property is usually calculated on the rental income and determined by the tax authorities on a recurring basis and change of ownership/reconstruction. Income tax is payable on rental income minus expenses, interest paid and allowances.

Land tax - not applicable.

Lease tax - not applicable.

Local tax - not applicable.

Mortgage - not applicable.

Other taxes - no taxes are payable on completion of a lease contract.

Property lease tax - property transfer tax is a one off payment related to the purchase price. In certain cantons, it is common to split the tax between buyer and seller. As this is a local duty the tax rate is different in each canton.

Value added tax - no value added tax (VAT) is payable on the acquisition or sale of property. The landlord can however opt for VAT on the lease.