Real Estate Comparative Guide – Real Estate and Construction
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1 Legal framework
1.1 What legislation governs real estate in your jurisdiction?
Swiss law is made at three different levels:
- the federal level (nationwide);
- the cantonal level (also called the ‘state level’), which is divided into 26 cantons or states); and
- the municipal level.
Real estate law can thus be found at each of these various levels. Usually, real estate law issues are dealt with at the federal, cantonal and municipal levels. However, certain issues may be governed by the laws at a specific level. Usually, the federal law sets out a framework, which the 26 cantons must then further develop by adopting implementing rules that take account of their specific characteristics. The cantons may then delegate the implementation or adoption of additional rules to the municipalities.
Real estate law is mainly governed by administrative law and private law. Finally, some criminal law provisions may apply to specific real estate law matters.
1.2 What special regimes apply to different types of real estate?
An important distinction must be drawn between:
- constructible areas, which fall under specific rules set by the local authorities; and
- non-constructible areas, which are mostly governed by federal law.
Special regimes apply to non-constructible areas in particular regarding the protection of the farming sector as well as the protection of forests and other natural assets.
Furthermore, special rules may apply where the real estate is owned by public actors (eg, the state, state-owned companies, municipalities).
2.1 What types of ownership rights exist in your jurisdiction?
The most common form of property right is ordinary ownership, whereby one owns a specific plot of land as well as any construction built on it. When several owners are involved, they may be:
- co-owners (ie, each having a specific share of the entire property); or
- common owners (ie, all owners holding the property in common hands, without defined shares).
It is also possible to create a condominium on a plot of land. In such case, the various apartments built on the plot may be sold separately, with each owner having exclusive property rights to his or her apartment and all owners having shared property rights on the remaining parts of the building (eg, facilities, common areas, outdoor space).
Finally, the owner of a plot of land may grant a building right which allows a third party to become the owner of a construction without being the owner of the plot of land. A building right may be granted for a maximum duration of 100 years. Building rights are often used for state-owned plots that must be developed for housing or commercial use. Building rights allow private investors to assume the construction of buildings on plots when the owners do not want to engage in construction, but wish to keep their ownership of the plots of land.
2.2 What ownership structures are commonly used in your jurisdiction?
Residential properties are often directly owned by individuals. However, owning real estate through a company also has its advantages. Indeed, companies often own luxury properties to protect the identities of their ultimate owners (the shareholders), since only the companies will be registered in the Land Register (however, the administrative and tax authorities will generally be aware of the identities of the shareholders). By purchasing the shares of a company that holds real estate, the new shareholder will indirectly become the new owner of the asset without triggering any change in the Land Register. Finally, a share purchase will not require any particular form (as no authentic form requirement is needed for a share deal), and will facilitate a very quick and discreet transfer of property.
Commercial properties are often owned by companies to facilitate their usual business, but also to benefit from more efficient tax regimes. While a company may own various properties, it is often preferred to create a specific structure for each property or for a limited number of them. Indeed, holding a limited amount of properties in a company will ease the sale of the properties (through a share deal rather than an asset deal) and segregate liability risks.
2.3 Are there any restrictions on real estate ownership in your jurisdiction?
The most important restriction is imposed by the Federal Law on the Acquisition of Real Estate by Persons Abroad, also called the Lex Koller.
This law prohibits persons who do not have their permanent primary residence in Switzerland from acquiring residential and other non-commercial real estate in Switzerland. The Lex Koller does not generally apply to the acquisition of commercial real estate, although it should always be clarified whether a given property should be treated as commercial real estate.
The Lex Koller applies to:
- the direct acquisition of real estate (ordinary asset deal); and
- the acquisition of shares of a company holding real estate (share deal).
In case of a violation of the Lex Koller, rigid sanctions may be imposed under:
- criminal law;
- administrative law (eg, withdrawal of granted authorisations); and
- civil law (eg, nullity of the underlying transaction, such as the purchase of the property).
Specific exceptions are made for companies which are listed on the Swiss stock exchange or for certain holiday apartments that are subject to authorisation quotas.
A person living abroad should carefully clarify whether the Lex Koller applies before investing too much time, money and energy in a property in Switzerland.
2.4 Is ownership of land and buildings constructed thereon legally separable?
Yes, it is possible to create a ‘building right’ which allows for the ownership of the land to be separated from the ownership of the buildings constructed (or to be constructed) on it. A building right may be granted for a maximum duration of 100 years and must be registered in the Land Register in order to be valid.
2.5 What security interests can attach to real estate? How are they prioritised?
The most common security interest provided for by Swiss law is the mortgage certificate, which allows a debt to be secured by real estate. If the debt is not paid in accordance with the contractual relationship, the creditor (most often a bank) can take action to enforce the lien and thus cause the sale of the property by auction.
Mortgage rights are registered according to seniority, with the oldest rights taking precedence over the most recent ones through various ranks. A new mortgage right can be registered at a more favourable rank only if the beneficiaries of the previous mortgage rights agree to this.
3.1 What body administers the land register in your jurisdiction?
Each canton must operate a land register office. Depending on the size of the canton, the land register may be divided into different district offices. The land register offices are therefore administrative bodies operated by the cantons under federal oversight.
3.2 Is registration of real estate rights, transactions and encumbrances mandatory? What are the consequences of failure to register?
Registration in the land register usually has a so-called ‘constitutive’ effect, which implies that acts concluded between parties have no legal effect until registration in the land register. However, certain legal acts have immediate effect between the parties even where they have not yet been registered in the land register. In such cases, registration has only a declaratory effect. If no registration is made in the land register, the good faith of third parties must be protected.
3.3 What are the formal and documentary requirements for registration?
As most real estate deeds require the authentic form, it is usually the notaries who ensure compliance with the formal and documentary requirements for registration. Identification of the parties will always be necessary. Most cantons have a system of independent notaries (although state licensed and subject to state supervision); but some have replaced notaries with administrative offices.
Even where the deed can be executed in the written form (ie, where the authentic form is not required) – for example, in the case of the inheritance division – the signatures of the parties must be authenticated by a notary public or by the competent administrative body in order to do so.
3.4 What is the process for registration?
Once a real estate transaction has been executed before a notary public or before the competent administrative body, the notary public or the administrative body will file a request to the land register. The request will then be verified by the land register office and, if deemed complete, will be entered in the land register.
3.5 Is registered information publicly accessible?
The following information is freely accessible to everyone without having to justify any particular interest:
- the designation and description of the property;
- the name and identity of the owner;
- the form of ownership and the date of acquisition; and
- the easements and land charges as well as certain mentions.
Certain cantons offer a direct online access to part of this information (usually, the name of the owner). The remaining information may be disclosed upon request to the competent land register office if the applicant establishes a ‘sufficient interest’ in consulting the land register; although practices as to what constitutes a ‘sufficient interest’ may vary widely from one canton to another. Certain professionals (eg, notaries, lawyers, banks, pension funds, insurers) have extensive access to the online land register and can thus consult it without having to submit individual requests.
If a plot of land is owned by a company, only the company name will be publicly accessible. As the commercial register only discloses board members and not shareholders, the identity of the ultimate owner of the property will not be publicly accessible (as long as the shareholder is not a board member).
Finally, the cantons may require that all acquisitions of real estate be published (however, the price will not be disclosed). This has been implemented by some cantons through an online list of transactions.
4 Commercial leases
4.1 What types of commercial leases exist in your jurisdiction?
Swiss law differentiates only between residential and commercial leases, and makes no further distinctions.
As to the duration, a distinction is made between limited duration leases and unlimited leases.
4.2 Are the terms of a commercial lease regulated or freely negotiable? What do they typically cover (eg, duration; security deposit; rent; sub-letting; termination)?
In general, Swiss tenancy law seeks to protect tenants, including commercial tenants (although in a slightly attenuated way). Several provisions of the law are mandatory and cannot be waived by the parties.
Mandatory provisions mostly relate to:
- the admissible rent (which must not provide an excessive gain to the landlord);
- the duration of the lease; and
- the minimum termination notice periods.
Security deposits are limited by law for residential leases, but not for commercial leases. Sub-letting is allowed by law subject to the landlord’s consent, which may be refused only on specific grounds stated in the law.
4.3 What are the formal and documentary requirements for conclusion of a commercial lease?
The conclusion of a commercial lease is not subject to the written form requirement. A commercial lease may therefore be concluded orally or by conclusive acts. A landlord should thus be particularly careful not to enter into a lease agreement tacitly – for example, by making a certain space available in return for some kind of compensation (even if it is limited to the coverage of the costs) – as the other party could then claim to be in a lease agreement and benefit from the minimum protections provided by the law.
In practice, however, the vast majority of commercial leases are concluded in writing.
4.4 What is the process for concluding a commercial lease?
The conclusion of a commercial lease follows the same principles as any other agreement: once negotiated, the lease agreement is signed by the parties, each of which in principle keeps an original copy.
Unlike residential leases (for which initial rent notification forms may be mandatory in some cantons), commercial leases are not subject to specific rent notification requirements.
4.5 What are the respective obligations and liabilities of landlord and tenant under a commercial lease, and what are the consequences of any breach?
The landlord’s main duties are:
- to deliver the leased premises in good condition at the beginning of the lease; and
- to maintain such good condition throughout the lease.
Should the landlord fail to do so despite formal notice from the tenant, the latter may claim for:
- the restoration of the premises;
- a proportional rent reduction; and/or
Furthermore, the tenant may terminate the lease agreement with immediate effect if the defect excludes or substantially impedes the use for which the premises have been leased.
On the other hand, the tenant’s main obligation is to pay the rent. If it fails to do so, the landlord may set a final deadline for payment and, if no payment is made within such deadline, may terminate the lease agreement with a reduced notice period. The tenant must also use the rented premises with care and respect to the neighbourhood; here too, the lease agreement may be terminated with a reduced notice period if the tenant breaches this duty despite the landlord’s formal notice.
4.6 How are rent variations typically effected throughout the term of the lease?
Most commercial leases provide for rent which is linked to the Swiss Consumer Price Index. However, this is possible only where the lease has a duration of at least five years.
Periodical rent increases are also possible if:
- the lease is concluded for a minimum period of three years; and
- the rent is not increased more than once a year.
Apart from indexation, rent increases are admissible only in specific cases and must be made on a specific form, which is prescribed by law. Failure to do so renders the rent increase null and void.
4.7 What taxes are levied on rental income?
Rental income has no special status and the landlord is therefore taxable at the national, cantonal and municipal levels.
Most cantons provide for a system whereby the landlord may deduct either effective costs or a lump sum for maintenance expenses without further justification. Finally, mortgage interest can be deducted, although this regulation is currently being debated in Parliament and may disappear in the next few years.
4.8 Can a commercial lease be triple net?
As Swiss law contains several mandatory provisions stating that the landlord must cover taxes and maintenance costs, it is disputed whether double or triple net leases would be valid. Certain authors are confident that proper compensation through reduced rent should be admissible. Others argue that the various compensation mechanisms would not sufficiently protect tenants and thus should be inadmissible.
As there is no case law on the matter (at least at the federal level), one cannot be sure that a triple-net lease would be enforced. If a double or triple lease is not admitted by the courts, the tenant will be entitled to have the landlord cover the costs while still benefiting from a reduced rent. Caution is therefore advised when considering double or triple net leases, at least from the landlord’s perspective.
4.9 How are landlord and tenant disputes typically resolved?
Most cantons have established special courts to resolve lease disputes. The proceedings begin with a conciliation request, which leads to a conciliation hearing. This hearing is often held by a local court comprised of representatives of both landlords and tenants.
Should no agreement be reached at the conciliation hearing, the conciliation authority may in some cases render a judgment which can then be disputed before the ordinary courts. Should no judgment be rendered by the conciliation authority, the applicant must proceed before the ordinary courts. The proceedings then follow the usual civil procedure, so that the first instance ruling may be appealed before an appeal court and, subsequently, before the Swiss Supreme Court.
4.10 What types of guarantees are market practice and required by landlords to secure the tenant’s obligations
Landlords may require a deposit of up to three months’ rent in the case of residential leases. However, commercial leases are not subject to such limitation and can therefore provide for higher deposits. In practice, most landlords require a deposit of six months’ rent for commercial leases.
5 Real estate transactions
5.1 What form do real estate transactions typically take in your jurisdiction?
As in many jurisdictions, a general distinction is made between:
- an asset deal (where the property is transferred directly between the parties); and
- a share deal (where the shares of a company holding the property are transferred).
Asset deals are the most common and are typically used to transfer private residences or flats. The warranties in respect of defects in a building provided by law apply directly to the building and thus guarantee stronger protection for the buyer. However, asset deals are valid only if they are executed in the authentic form (ie, before a notary public or before the competent administrative body).
Share deals are less common and are preferred, for example, for transferring portfolios containing several properties (which is often the case for commercial properties) or for transferring luxury properties.
5.2 Which players are typically involved in a real estate transaction in your jurisdiction?
As asset deals require the purchase agreement to be made in the authentic form, the notary public (or the competent administrative body) is often the main player involved in addition to the parties.
In contrast to small transactions, which do not involve many players, larger transactions usually also involve:
- a broker;
- an intermediary bank;
- technical advisers (eg, architects, engineers); and
- a lawyer (who will ensure proper legal due diligence and lead the negotiations on the terms of the purchase agreement and the drafting of the final documentation).
5.3 Is the seller bound by a duty to disclose? What representations and warranties will it typically make?
The seller has no general duty to disclose; but a fact which is not disclosed to the buyer will in principle not be validly excluded from the warranty, even if there is a general exclusion of any warranty. The seller must therefore disclose important facts and potential risks if it wishes to avoid warranty claims by the buyer.
In any case, asset deals (necessarily concluded in the authentic form) are reviewed by the notary public (or the competent administrative body), who has a duty to inform the parties and clarify the most common issues in the purchase agreement. Share deals are usually concluded with the assistance of lawyers (on both sides), to ensure proper disclosure.
The usual warranties relate to:
- the state of the property, particularly with regard to construction permits;
- the absence of litigation; and
- the absence of potential soil contamination.
New or recent buildings are usually sold with an assignment to the buyer of the seller’s warranty rights against the construction contractors. Older buildings are often sold with either a total or partial exclusion of warranty, as the seller cannot usually commit to the current state of the building or assign any warranty rights. Leased properties are often sold with specific warranties with respect to the rents.
5.4 What due diligence is typically conducted in a real estate transaction?
As the land register benefits from a legal presumption that it is complete and accurate, a full extract from the land register (with historical data and supporting documents) is the starting point for real estate due diligence. Further enquiries into eventual liens, easements or annotations of obligations relating to the property may be required. Depending on the situation, further investigations regarding possible public law obligations (eg, unpaid taxes) may be necessary, as unregistered legal liens may exist.
If the property includes buildings, it is essential to ensure that building permits and special approvals have been obtained and complied with; the support of specialists, including architects and engineers, may be useful in this regard. It is also important to ensure that the current and future land use planning (where a change in the planning is foreseeable) meets the purchaser’s intentions and plans. If the property includes buildings under construction or built within the last five or 10 years, the buyer should:
- check the contractor and engineering agreements entered into for the construction; and
- ensure the transfer of any remaining legal or contractual warranties to it.
Depending on the specificities of the property, special checks may be required – in particular with regard to:
- lease and insurance agreements (which are or may be transferred to the purchaser by law);
- possible breaches of the Lex Koller;
- archaeological findings; and/or
- risks of soil contamination or pollution.
Finally, share deals require specific company due diligence.
5.5 What are the formal and documentary requirements for conclusion of a real estate transaction?
In the case of asset deals, the notary public or the competent administrative body must generally check the identity of the parties (by requiring identity documents and, where the Lex Koller applies, proof of principal residence in Switzerland). The notary public or the competent administrative body must also ascertain the object of the purchase agreement, usually by directly accessing the land register.
Where there are existing liens (which is most often the case), the consent of the mortgage beneficiary to the sale is also required and is usually obtained by the notary public.
If special authorisations are required (eg, in the case of an acquisition which is subject to the Lex Koller or the protection of agricultural areas), the notary public will generally require final and enforceable (ie, no longer subject to appeal) authorisations. The consent of the administrative authorities may also be required where the land is known to be polluted or in the case of historical buildings. Finally, there may be some cantonal requirements such as the remittance of a certificate on the energy efficiency of the building.
5.6 What is the process for concluding a real estate transaction? How long does this take? What costs are incurred?
In asset deals, the notary public is generally chosen by the buyer, because it is common practice for the latter to pay the notarial fees (although the parties may agree otherwise). The duration of such transactions varies from a few days (if the notary is very responsive and the parties have all necessary documents) to several weeks (especially where documents are obtained late). Once the deed has been concluded, it must still be approved by the land register before being registered. The transfer of ownership therefore usually happens upon registration of the transaction in the land register, several weeks or months after the conclusion of the deed. However, the transfer of risks and profits is generally retroactive to the date of arrival of the requisition at the land register or another fixed date.
In the case of high-value properties or large portfolios, negotiations and due diligence usually start after a non-disclosure agreement has been entered into. The duration of such transactions depends on the due diligence and negotiation process, which often takes several weeks.
In addition to the applicable taxes, the costs are generally those of the notary public or of the competent administrative body. The notarial fees are generally set by the cantons, depending on the transaction; but additional fees for advice and drafting services may be invoiced. If the parties choose to be assisted by lawyers, each party bears its own costs.
5.7 What are the respective obligations and liabilities of buyer and seller, and what are the consequences of any breach?
In the case of an asset deal, only the provisions of and the amendments to the deed of sale concluded in the authentic form are binding on the parties. Any other agreements or understandings (eg, pre-contractual documents) which are not in the authentic form may serve only to interpret the contractual terms, and cannot modify them or provide for new ones.
In the case of a share deal, the share purchase agreement executed by the parties usually sets out their rights and obligations.
As the transfer of the property and the payment of its price are the main obligations of the parties in a sale agreement, the price is often placed in a blocked bank account between conclusion of the sale agreement and registration of the buyer in the land register (for asset deals) or the transfer of the shares to the purchaser (for share deals).
If any obligation or warranty is breached, the buyer may generally claim for damages and/or, if provided for by the agreement, for lump-sum indemnities.
5.8 What taxes are payable on a real estate transaction?
As the taxes on real estate transactions are implemented at a cantonal level, they may vary from one canton to another. In general, however, three different types of taxes are payable:
- transfer duties;
- real estate gain tax; and
- administrative fees.
Transfer duties are generally due if there is a change in the land register, so share deals are often excluded from this tax (share deals may therefore prove more efficient from a tax perspective); however, some cantons provide that transfer duties also apply to share deals.
The real estate gain tax is levied on the profit made by the seller after the deduction of the initial purchase price of, and investments made in, the property. Its rate is generally degressive, depending on the duration of ownership of the sold property.
Finally, the administrations involved in a transaction (in particular the land register, but also other authorities that may have to authorise the transfer) levy administrative fees. Such fees must be assessed on a case-by-case basis.
6 Real estate finance
6.1 Who are the most common providers of real estate finance in your jurisdiction? Do any restrictions apply in this regard?
The most common real estate financers are banks and insurers, which are the go-to companies for mortgages. Mainly due to regulatory requirements, banks require:
- 20% equity (of which at least 10% must come from available equity, not from pension plans) for the acquisition of a property for own use; and
- 25% for the acquisition of a property that will be rented to third parties.
The mortgage debt must then be reduced to two-thirds of the value of the property within the first 10 to 15 years. Obviously, the providers of real estate finance will assess the buyer’s financial situation in order to provide it with a specific offer taking into consideration the different variables.
6.2 What forms of real estate finance are available in your jurisdiction?
The most usual form of real estate finance is a loan granted by a bank or an insurer, and secured by a mortgage. The borrower’s pension fund may be used partly for the purpose of purchasing a real estate property.
6.3 What formal, documentary and other requirements do lenders typically require of borrowers?
Lenders usually require detailed documentation of the borrower’s employment and financial situation (eg, salary statements, tax returns, bank statements).
Specific information regarding the property to be purchased (eg, photographs, questionnaires, valuation) is also required. Sometimes the lender will organise a site visit, possibly with the assistance of technical specialists – for example, where the value of the property depends on particular features.
If the property is to be built, the lender will generally check the contractor agreements and ensure that advance payments are made only to the extent of the works carried out.
6.4 What type of security interests are typically required by lenders?
Thanks to low interest rates, the mortgage market rates are currently around between 1% and 1.5% for a 10-year fixed rate. The main limitations for buyers are:
- the equity requirements in order to be granted a mortgage (see question 6.1); and
- the valuation of the property, as banks sometimes value the property below the market value and/or the agreed price.
6.5 What is the process for obtaining real estate finance? What costs are payable?
It is common to put different financing providers in competition with each other. On large transactions, it is usual to work with a broker.
Once a financing provider has been chosen, it will usually check that the property’s sales price is within the market value. If the financing provider considers that part of the sales price exceeds the market value, it will require that part of it to be covered exclusively by equity without mortgage financing.
Most financing institutions do not charge a fee to set up a loan and finance themselves through the mortgage interest. If a loan is terminated before its contractual term, a penalty is usually due to the financing provider. Notarial fees, taxes and land register costs relating to the creation of the mortgage are borne by the borrower.
6.6 How is security enforced in case of any breach?
If the required amortisations and/or mortgage interests are not paid in time, the lender may first pursue the borrower through the usual debt collection proceedings, allowing for the seizure of other assets and/or part of the borrower’s salary. In practice, such measures are usually insufficient and the lender must therefore enforce the mortgage so as to obtain the sale of the property – generally by public auction.
7 Real estate investment
7.1 Who are the most common investors in real estate in your jurisdiction? Do any restrictions apply in this regard?
The largest investors are pension funds, which have historically owned a large proportion of the real estate portfolio in Switzerland. Insurers and real estate investment funds also play an important role. Finally, many individuals invest in real estate, either as individuals or through crowd-investing.
The most important limitation on investors is the Lex Koller, which essentially prohibits persons who do not have their main residence in Switzerland from acquiring residential property.
7.2 What investment vehicles are typically used in your jurisdiction? What are the benefits and drawbacks of each?
A distinction must be made between private equity investors and collective investments.
Private equity investors usually use real estate companies, which are ordinary companies limited by shares whose purposes are investment in real estate and/or the operation of real estate properties. Swiss law does not recognise the concept of real estate investment trusts (REITs), but contractual real estate funds may be compared to REITs in many respects.
Collective investments are often made through contractual investment funds (which are regulated by law) or through investment companies with variable capital (SICAVs).
7.3 How are these vehicles established and administered in your jurisdiction?
The creation of a real estate company follows the same rules as apply to any company limited by shares in Switzerland. Once incorporated, the company is managed by its board of directors.
Contractual investments funds are not legal entities, but are established on the basis of a collective investment agreement (fund contract), which must be approved by the Swiss Financial Market Supervisory Authority (FINMA). Once the fund has been set up, the fund management company is in charge of the management of the fund’s assets in accordance with the provisions of the fund contract.
The formation of a SICAV is generally similar to the formation of a company limited by shares, but SICAVs must also be approved by FINMA.
8 Planning and zoning
8.1 How is land use regulated in your jurisdiction?
Land use is regulated at the federal, cantonal and municipal levels. In a nutshell, federal law sets out the applicable principles, such as the crucial distinction between constructible and non-constructible areas. The cantons then determine the different constructible areas (eg, zone for villas; central zone; commercial or industrial zones; recreational or infrastructure zones), as well as the requirements applicable to each. In most cantons, it is up to the municipalities to determine which plots of land can be built on, and which types of buildings can be built on them.
A distinction is also made between:
- land use planning (eg, which areas may be built on and for what purpose); and
- building regulations (eg, which detailed rules apply to buildings, such as the distance to the boundary of the plot and the height of the building).
8.2 What is the process for obtaining planning permission? How long does this take? What costs are incurred?
First, the land owner must file a construction permit application with the competent administrative authority. The plans subject to authorisation are then publicly published for at least 30 days, during which any affected person can file an objection to the project. The competent authority must then rule on the construction permit application and on the filed objections and notify its decision to all parties.
It generally takes between two and six months from submission of a complete construction permit application to the decision of the competent authority; although this duration varies greatly from one place to another and will depend on factors such as:
- the complexity of the construction project;
- the different authorities involved; and
- the authorities’ practices and/or workload.
Authorities usually charge a fee based on the anticipated value of the construction or a flat fee.
8.3 Can a planning decision be appealed?
Decisions on construction permit applications may be appealed before the cantonal courts, but only by persons with sufficient legal standing (ie, that have filed an objection and will be significantly affected by the construction project). The rulings of the cantonal courts may then be appealed before the Swiss Federal Court. The Federal Court will not review compliance with cantonal law, but will limit itself to verifying whether federal law and fundamental rights have been respected. As a result, construction permits are rarely reviewed by the Federal Court.
8.4 What are the consequences of failure to obtain planning permission or to comply with a planning condition?
An unauthorised construction may be subject to a reinstatement order, which means that the construction must be destroyed at the owner’s expense. The owner may also be fined.
Failure to comply with a planning condition also exposes the owner to a decision requiring compliance with that condition. In some cases, the owner may face other consequences such as revocation of planning permission. Where the planning condition can be carried out by the authority, it may be performed by a third party (eg, a construction company) at the owner’s expense.
8.5 Is expropriation of land possible in your jurisdiction?
Yes, but only in cases provided for by law, where a public interest cannot be secured otherwise than by the removal of the relevant property right. In practice, the most common cases involve:
- the creation or expansion of public infrastructure (eg, roads and highways, railways, airports, public buildings that cannot be built elsewhere); or
- protection against natural risks.
Whether an expropriation is admissible can be verified by a court. If the expropriation is confirmed, the owner must be fully compensated (in principle, at market value; although this is always subject to dispute).
8.6 Is confiscation of land possible in your jurisdiction?
In addition to debt collection situations, confiscation of land is possible in specific cases relating to criminal law, such as where the property was acquired with criminal funds.
9.1 What main environmental legal provisions apply to the development, use and occupation of real estate?
Environmental protection rules exist at the federal, cantonal and municipal levels, and cover various issues such as water, air, noise and radiation protection. There are also specific laws on the protection of agricultural lands, forests and marshlands. These rules affect:
- land use planning;
- admissible constructions; and
- the way in which future or existing constructions may be built and/or used.
Furthermore, cantonal and/or municipal rules on heat production and requirements for photovoltaic panels are becoming increasingly common.
9.2 Who can be held liable for environmental contamination and how are clean-ups effected?
The law differentiates between:
- sites that must be cleaned up independently of any construction project; and
- sites that must be decontaminated only if a construction is planned.
Where a site must be cleaned up independently of any construction project, the costs must be shared between:
- the operator of the site that caused the pollution (which is replaced by the canton if it cannot be identified or is insolvent); and
- the owner, which in principle must only bear a reduced part of the costs.
If the site is not subject to a decontamination obligation, the decontamination costs caused by a construction project are in principle to be borne by the current owner of the property, subject to contractual agreements to the contrary with the previous owner.
9.3 What environmental provisions and considerations should be factored into real estate transactions?
The most important aspect is the risk of soil contamination, because the buyer may be forced to undertake very high costs to clean up the land (in particular if excavations are needed for the development of the property), without any guarantee of being able to recover damages from the previous owners or the persons responsible for the pollution. To mitigate this risk, consulting the register of polluted sites is an important step in the due diligence process. Depending on the particularities of the site and the issues at stake, specific investigations (eg, through drill holes) may be useful to rule out the risk of soil pollution.
9.4 What initiatives are in place to promote green buildings and energy efficiency in your jurisdiction?
In general, measures to encourage energy saving and renewable energy production are implemented by the cantons and/or municipalities. It is impossible to summarise these measures, which vary considerably from one region to another (some cantons or municipalities have significant support programmes, while others have none at all).
Furthermore, cantonal and/or municipal rules on heat production and requirements for photovoltaic panels are becoming increasingly common.
9.5 What types of environmental certifications apply in your jurisdiction?
The most common certifications relate to the energy efficiency of buildings – in particular, the Minergie labels.
10 Trends and predictions
10.1 How would you describe the current real estate market and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The historically low interest rates observed in recent years have led (among other cyclical factors) to an increase in prices, in particular for residential real estate. The COVID-19 crisis has not affected the attractiveness of residential real estate, and has even strengthened it for many private investors wishing to acquire a second residence in Switzerland rather than abroad. Commercial properties have been more immediately affected by lockdown measures (leading to unpaid rents or rent reductions), but are now benefiting from a generally stronger than expected recovery.
Some market observers, including the Swiss National Bank, fear that a real estate bubble could lead to a sudden drop in prices. In view of the high price trend, there is an increasing tendency for institutional investors to favour the development of existing properties (eg, the destruction and replacement of old buildings; renovation or extension works; energy efficiency improvements) over the acquisition of new properties. This trend is also in line with the government’s increasing focus on densification of built-up areas (rather than new constructions on agricultural areas).
Various legislative proposals are being processed at the federal level – the most significant being:
- the repeal of rental value taxation (a tax on owners based on a fictional income); and
- restrictions on the exclusion of warranties for sales to private consumers.
At the cantonal and municipal level, several regions must reduce their surplus constructible areas, so some areas will no longer be constructible in the coming years.
11 Tips and traps
11.1 What are your top tips for the smooth conclusion of a real estate transaction and what potential sticking points would you highlight?
It is crucial to plan carefully and allow sufficient time to process the real estate transaction is key. Due diligence usually takes longer than expected, as further documentation and enquiries to authorities are often necessary to avoid significant risks. The urgency of concluding the transaction should therefore not lead to the necessary checks being cut short, unless contractual warranties are obtained in return.
Institutional or private investors intending to develop the property to be acquired should also consider the risk that a building permit may be refused or may be obtained only after many years of administrative proceedings. It is therefore important to:
- seek specific information on existing regulations (as well as any foreseeable changes thereto); and
- stipulate that a final and enforceable building permit is a condition for execution of the sale.
Co-Authored by Nicolas F. Krauer and Aurélie Cornamusaz
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