Real estate finance law in Switzerland

Yes. Security over interests in real estate can be granted to foreign lenders.

Generally a foreign lender in favour of whom a security interest is granted does not require any authorisation under the laws on the acquisition of real estate by foreign persons (Lex Koller).

However, a foreign lender may in particular require an authorisation regarding the security interest, if it participates in an “excessively” highly leveraged financing of restricted real estate (i.e. granting a loan in excess of the usual maximum limit applied by Swiss banks). In the case of any doubt as to whether any authorisation is required under the “excessive leverage test” a ruling of the competent authority confirming that there is none should be obtained.

2.1 Is there a distinction between mortgages on land and buildings on the land?

A lender can take a security interest over real estate. Such security interest can be granted in the form of a mortgage certificate (Schuldbrief) or an actual mortgage (Grundpfandverschreibung; whether as regular actual mortgage or as actual mortgage with issued bearer deed). Mortgage certificates are most commonly used in the real estate finance context. As of 1 January 2012, mortgage certificates no longer have to be physically issued in paper form, it is now also possible to have a mortgage solely registered in the Real Estate Register (Registerschuldbrief).

Subject to the exception referred to at 1 above, the taking of a security interest is not subject to an authorisation requirement under Lex Koller.

Pursuant to the principle of accession (Akzessionsprinzip) the buildings on land share the legal fate of the land itself. Therefore, any security interest over the land normally also encumbers the buildings erected on it. Only if the buildings are subject to an independent and permanent building right registered with the Real Estate Register can land and buildings legally be separated from each other. This being the case the two distinct property interests in the land and the buildings can also be separately encumbered with differing security interests.

2.2 Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?

The creation of a mortgage certificate establishes a personal claim against the debtor in the amount of the mortgage certificate value, which is secured by a property lien. The mortgage certificate is thus issued for a certain value. Further, the mortgage certificate constitutes a negotiable security, which can be pledged or transferred for security purposes.As to the costs, see 3.2.

2.3 Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?

Yes, a second ranking security may be taken. The rank of the security may be agreed between the parties when the security is granted. However, the parties cannot agree on a ranking which would affect the security of a third party whose rights are already entered in the register, unless the third party gives its consent. To be effective, any agreed new ranking must be entered in the Real Estate Register. If there is no such agreement as to the ranking between the parties, the order of priority is determined pursuant to the date of registration with the Real Estate Register.

2.4 Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?

If real estate which is subject to a mortgage is transferred to a third party, the security interest and the obligation of the borrower generally do not change unless otherwise agreed. If the new owner has assumed the debt, however, the previous borrower is discharged unless the lender, within one year, declares to him in writing that he intends to retain his rights against him as borrower.

2.5 Are there any preferred creditors (other than prior ranking mortgage holders)?

There are statutory security interests which do not require registration with the Real Estate Register for perfection (in particular regarding real estate related taxes). These are (i) “invisible” and (ii) take priority even over first ranked mortgage certificates of the lenders.

Unlike these statutory security interests, other preferred interests are only perfected upon registration (in particular the craftsmen’s and contractor’s lien).

2.6 Can “all monies” mortgages be taken?

No. “All monies” mortgages cannot be taken in Switzerland. Under Swiss law, a real estate security interest may only be established for a specific amount in Swiss currency.

If this amount cannot be determined in advance, the parties still have to fix a maximum amount up to which the real estate shall be liable for all claims of the lender. An “all monies” mortgage would violate the personal rights of the borrower.

2.7 Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?

Yes. Under the title of assignment of security (Sicherungsabtretung), a landlord may assign future rent to a lender by way of security.

An assignment of security is created by a collateral agreement (Sicherungsabrede) and a written contract to assign the security. There is no requirement to notify the tenants but this is recommended.

2.8 It is customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?

Yes. It is possible for a lender to take security over a bank account of the borrower. However, the Swiss banks’ business terms usually provide that the bank has a first ranking security interest over its client’s account. Therefore, a third party is usually only granted a second ranking security interest over a Swiss bank account. The bank must be given notice to create and perfect the second ranking security interest.

The right to withdraw funds is not usually restricted as long as no event of default has occurred.

3.1 Consequences of failure to register?

Failure to register the interest will neither transfer an ownership interest nor perfect a security interest. The registration is thus legally essential to transfer an ownership interest or to perfect a security interest.

3.2 Formalities for execution of security and costs?

Transfer/creation of an ownership/security interest requires:

(a) a valid agreement regarding the sale and transfer of ownership in the real estate respectively regarding the mortgage to encumber it. Such agreement has to be in the form of a public deed issued by the competent notary public; and

(b) registration of the interest with the Real Estate Register. The ownership interest will transfer and the security interest perfect upon registration of the respective transaction in the Real Estate Register. The registration of such interests with the Real Estate Register requires a prior written declaration by the owner of the real estate requesting the Real Estate Register Officer to register the transfer and/or encumbrance (Grundbuchanmeldung).

The issuance of the deed (mortgage certificates) by the Real Estate Register is, however, not a perfection requirement. Such issuance can, in practice (in some parts of the country), take quite a long time (up to a year). As of 1 January 2012, the parties can waive the issue of a physical mortgage certificate, i.e, they can establish a so called registered mortgage (Registerschuldbrief). Apart from the lack of a “paper certificate”, the registered mortgage has largely the same effects as a traditional mortgage certificate.

The entries in the Real Estate Register are legally presumed to be true and correct. Therefore, the reliance by a party acting in good faith on an incorrect entry is fully protected by law.

The costs for registering and perfecting security interests are regulated by cantonal law and vary across the 26 Swiss Cantons. In the Canton of Zurich the following costs arise:

(a) notary fees are set at 0.1% of the amounts secured; and

(b) registry fees are set at 0.15% of the amounts secured.

Each time at least a minimum amount of CHF 100.00 is due.

Under Swiss law there are no trusts. Thus the purpose of this structure has (so far as possible) to be achieved by similar means available under Swiss law. Customarily this is done by having the “Security Trustee” act as direct representative of the finance parties. Under certain circumstances such structure may, however, lead to difficulties in case of syndication.

4.1 What happens if the lenders change later on e.g. on a transfer? Does new security have to be signed?

If a lender assigns any of its rights under a (syndicated) loan agreement to a third party (new lender), accessory security rights – such as mortgages – will automatically extend to such new lender. Accordingly, no new security has to be signed.

In all other cases, in particular (i) if the lenders’ structure changes based on novation, or (ii) if non-accessory securities – such as mortgage certificates transferred by way of security – are involved, securities do not automatically – i.e. ex lege – extend to a new lender. In these cases, in order to prevent the new lender from having to sign new security documents (disadvantages being further costs, and, in the case of real estate securities, the risk of not obtaining equal ranking), the finance documents (in particular the syndicated loan agreement, the syndicate agreement and the respective security agreements) will have to include provisions that ensure that the securities will extend to a new lender. Please note that in case a mortgage is created in the form of a registered mortgage (Registerschuldbrief), the new creditor has to be registered with the Real Estate Register.

Yes, in principle, the landlord has control over changes in tenants but this is subject to the rules governing subleasing and assigning, and:

(a) although a tenant is required to obtain the landlord’s consent to an intended sub-lease, such consent may not be withheld except under certain restrictive conditions. Upon completion of a sub-lease the original tenant will still be bound by the original lease agreement;

(b) although the tenant may assign a lease over business premises in whole with the landlord’s consent, such consent may only be withheld for valid reasons. Upon completion of the transfer the original tenant is no longer bound by the original lease agreement. However, he will be jointly and severally liable with the third party until the lease ends or is terminated (either by law or agreement), in any event no longer than for a maximum period of two years.

6.1 Can a foreign jurisdiction (either a court or arbitral tribunal) be chosen to settle disputes and under what circumstances may such a choice not be recognised?

In general, in an international context, the parties to an agreement may agree upon a foreign jurisdiction to settle their disputes. In practice, however, it is usual to choose a local court. Whether the choice of court is recognised by the foreign jurisdiction is up to international private law of the jurisdiction which was chosen by the parties.

6.2 Does the local law allow for the enforcement of arbitral awards or foreign judgements without review?

Switzerland is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (“New York Convention”). Accordingly, recognition and enforcement of arbitral awards is subject to a certain degree of review.

Enforcement of a foreign judgment in a Swiss court depends on the country in which the judgment was handed down. These countries can be split into two categories:

(a) countries which are signatories to the EC EFTA Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters of 16 September 1988 (“Lugano Convention”): if the judgment has been given in a country which is a signatory to the Lugano Convention, the enforcement of the judgment is governed by the principles set in that convention. This also means that the merits of the judgment are not reassessed in the course of the enforcement.

(b) Countries with which Switzerland has no conventions or treaties: if the judgment was handed down by a country with which Switzerland has no treaty or convention, the recognition and enforcement of the foreign judgment is governed by the provisions of the Swiss Private International Law Act of 18 December 1987. Court decisions from these countries are thus subject to a limited review.

6.3 How can that security be enforced? Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

As a general rule, official debt enforcement proceedings must be initiated, in the course of which the debt enforcement officer will ultimately auction off the real estate and distribute the net proceeds to the creditors secured by it. Within such official enforcement proceedings, the debt enforcement officer may also carry out a private sale (Freihandverkauf) provided that (i) all parties concerned so agree and (ii) at least the amount of the valuation is offered. The proceeds of realization of the security are applied to satisfy the secured lenders claims; only if such realization results in an amount exceeding the secured lenders claim, may such amount be returned to the security grantor or applied in favour of other enforcing creditors, respectively.

Upon the opening of bankruptcy proceedings, generally, all debt enforcement proceedings are stopped, and the bankruptcy trustee will realise the security interest and distribute the proceeds substantially in the same manner as the debt enforcement officer in an out of bankruptcy enforcement.

If provided for in the security agreement, a lender can enforce its security interest by private sale, i.e. outside of the official enforcement proceedings, or even acquire the security interest for its own account. Upon opening of bankruptcy proceedings such private enforcement option can no longer be exercised.

6.4 Is the lender responsible for maintenance and insurance of the real estate after default until sale?

No, during a debt enforcement proceeding, the lender is not responsible for maintenance and insurance of the real estate. The debt enforcement officer will take care of the necessary tasks.

6.5 Is there any method of foreclosure (lender obtaining good title to the real estate in satisfaction of all or part of its debt)? If so, does this require a court order and is it only automatically used when the real estate is not sold at public auction?

No, under Swiss law, it is not possible for a lender to obtain good title to the real estate in satisfaction of all/part of its debt, except if it obtains the real estate at the public auction or in the context of a private sale (Freihandverkauf). However, such private sale is subject to several requirements.

Inter alia, the following other issues are of interest for a foreign lender:

7.1 Lex Koller

As mentioned above, Lex Koller can, under limited circumstances, restrict the taking of security over Swiss real estate by foreign lenders. However, this law only applies to residential real estate and not to real estate used or reserved exclusively for commercial purposes.

If real estate is used for residential purposes, a case-by-case analysis is required. The lender can generally either:

(a) seek a decree confirming that a transaction is exempted from the application of the Act (Nichtunterstellungsverfügung); or

(b) structure the transaction to ensure compliance with the Act without obtaining such a decree.

7.2 Certain tax issues

Interest payable to foreign creditors on loans secured by Swiss real estate is subject to federal and cantonal withholding taxes in the aggregate amount of approx. 13% to 33%, depending on the Swiss Canton where the property is located. There are various countries, including the U.K., which have concluded double taxation treaties with Switzerland under which such withholding tax has been reduced or entirely eliminated. To avoid (or at least minimise) the withholding tax for real estate secured loans, it is crucial to ensure that the lenders are domiciled in countries that have concluded the appropriate double taxation treaties with Switzerland.

Loans to Swiss entities, whether or not secured by Swiss real estate, may be subject to the federal withholding tax of 35%. This can be avoided under certain criteria to be regulated in the loan agreement.

Under the federal withholding tax law, it is questionable whether gross-up clauses are valid. This risk can be reduced by using specific Swiss tax wording.

Assuming real estate is held in a locally incorporated single purpose vehicle to provide an alternative to enforcement of the mortgage over real estate:

Yes, in respect of security over shares, there are generally no limitations on granting such security to a foreign lender, save where pursuant to the articles of association of the company, the company must have a majority of Swiss shareholders.

Further, a foreign lender may require authorisation under Lex Koller (see 7.1 above).

As a rule, the ranking of a security over shares is determined by the chronological order in which the security was granted. Consequently security granted earlier in time generally ranks higher than security granted over the same asset later. The parties, however, are free to agree upon a different ranking. Nevertheless, a higher-ranking security of a third party can only be lowered in its ranking if the holder of that higher-ranking security agrees to the new ranking.

It is possible to rank several securities over the same asset equally. In such case, the amount realised in the enforcement of the security is applied proportionally to these secured claims.

A registration of security over shares is not required. There is no respective register. With respect to nominal shares, the pledge may be registered in the share register. This, however, is not a requirement for the pledge to become effective.

3.1 Consequences of failure to register?

There are no special registration requirements for security over shares. However, please see 3.2 in relation to formalities.

3.2 Formalities for execution of security and costs?

In order to take security over certificated shares, the security provider and the security holder must conclude a valid agreement and the secured party must obtain physical possession of the relevant shares. Indeed, the security holder does not have a security interest over the collateral as long as the security provider retains possession and control over it. Further, with regard to nominal shares, it is advisable that the owner endorses the shares in blank in order to facilitate the enforcement.

Under the new Federal Intermediated Securities Act of October 3, 2008 (FISA), a securities interest in uncertificated shares held through an intermediary may be created in two ways: either by a transfer of the intermediated securities to the account of the secured party (security interest by transfer) or by an irrevocable agreement between the provider of security and the intermediary holding the shares that the intermediary will follow the directions of the secured party (security interest by control agreement).

(a) For the creation of a security interest by transfer, it is required that the security provider instructs the intermediary to transfer the intermediated securities to the secured party’s account and that the intermediated securities are credited to the securities of the secured party.

(b) The creation of security interest by control agreement requires an irrevocable agreement between the security provider and the intermediary holding the intermediated securities stating that the intermediary will follow the secured party’s instructions without the need for any prior approval by, or consent of, the security provider.

The costs of creating a security interest in shares are not regulated and thus depend on the parties involved.

See 3.2 above.

5.1 Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

In case of a security over certificated shares, there are two main forms of enforcement:

(a) Private enforcement is only permitted where the parties have agreed to it in advance in the security agreement. In relation to shares, the value of which can be objectively determined (e.g. listed securities), the pledgee itself generally purchases the pledged assets, and applies the proceeds to satisfy its claims (Selbsteintritt).

If security is privately enforced, the pledgee must protect the interests of the pledgor and must obtain the best price possible in the sale of the pledged assets, fully document the enforcement and provide documentation to the pledgor and return any surplus remaining after the application of the proceeds to the secured debt to the pledgor.

(b) Enforcement pursuant to the rules of the Act on Debt Enforcement and Bankruptcy. If there is bankruptcy and the parties have not agreed to private enforcement, the usual form of enforcement pursuant to this Act is the sale of the pledged assets in a public auction. Shares may, however, also be sold without public auction (freihändige Verwertung) by the debt enforcement officials, if the shares have a market price (e.g. if they are traded on a stock exchange).

The enforcement of security over uncertificated shares held through an intermediary is governed by FISA. Pursuant to article 31 FISA, the secured party may privately enforce its security under the terms of the security agreement by (i) selling the shares and settle the claim with the proceeds or (ii) obtaining the shares and settle the claim with their value. The right and modalities of the private enforcement is subject to the security agreement and different variations may be agreed upon.

Both as regards certificated and uncertificated shares, however, a foreign lender who intends to acquire the pledged shares always needs to ensure that such acquisition does not need an authorization under Lex Koller (see 7.1. above).

If the shares are transferred by way of security, enforcement in a strict sense is not required, as the ownership has already been transferred to the secured party. In this context, enforcement means that the obligation to return the transferred assets under the security agreement expires. Again, the secured party is obliged to fairly value the transferred assets, document the valuation, apply the proceeds to the secured claims and return any surplus remaining after the application of the proceeds of the secured debt to the party that granted the security.

5.2 Are loans from shareholders subordinated? If so, how is this done? Is it customary for such loans to be waived or written off contractually as part of an enforcement of a share pledge should a default occur?

A shareholder loan is usually not subordinated. However, the lenders in general (and not only the shareholder) may subordinate their claims to those of all other company obligees to the extent of insufficient coverage of the claims of the company’s obligees and may also waive or write off such loans as part of an enforcement of a share pledge should a default occur. Thus, subordination does not occur by law but may be agreed upon.

Legal issues that would be likely to impact upon the valuation and the security of income from an investment perspective.

1.1 Typical lease length?

Generally, the parties are free to determine the lease length according to their economic needs. Typically, commercial leases are entered into for a five-year term (such term being the prerequisite for an indexed rent). Further, commercial lease agreements often provide for options in favour of the tenant for another term of five years.

1.2 Maximum/minimum lease length if any?

Leases may be entered into for a definite or an indefinite period of time.

In respect of leases entered into for a definite period, i.e. leases not granting ordinary termination rights and ending after the lapse of the stipulated term, there are no express statutory provisions prescribing a minimum or maximum lease length. However, the maximum lease length is limited under general principles of Swiss law. In absence of clear precedents expressly addressing the maximum length it is fair to say that terms of 20 or even 30 years are still admissible (a 20-year term can also be combined with two options for additional five-year terms). Such terms also correspond with the longest terms market participants agree upon. Contract provisions linking the term of the lease to the existence of a business or company (e.g. lease terminable only upon winding up of a certain company etc.) are, according to court rulings, after the lapse of the admissible period of time (around 30 years), subject to ordinary termination.

Leases entered into for an indefinite period, i.e. leases not stipulating any term, are, as a rule, terminable with a five months notice to certain dates (31.3. or 30.6. or 30.9. of each calendar year) or, alternatively, to the end of a three month lease duration.

Leases expressly excluding termination rights of any party (so called “eternal leases”) are inadmissible. However Swiss courts will, generally, not hold such leases as null and void, but only reduce the “eternal term” to an admissible lease length.

1.3 Statutory controls and obligations re renewal/termination of leases (does tenant have automatic right to renewal or can they apply to the courts for a new lease); also does some form of notice have to be served to terminate a lease to avoid renewal?

Fixed term leases end after the lapse of the respective term. If the parties continue the lease after the lapse of such term, the lease is transformed into a lease for an indefinite period.

Leases entered into for an indefinite term, i.e. lease agreements not providing for a term, may be terminated on 6 months notice to expire on certain dates (31.3. or 30.6. or 30.9. of each calendar year) or, alternatively, to the end of a 3 month lease duration.

Commercial leases entered into for an indefinite term or a fixed term may, generally, be extended by the competent court for a maximum period of 6 years. To obtain an extension by the court a tenant would be required to prove that the termination of the lease would result in hardship for the tenant which is not justifiable by the interests of the landlord. In weighing the interests, the competent authority takes into account the following criteria:

(a) the circumstances of entering into the lease agreement and its terms;

(b) the duration of the lease relationship;

(c) the economic condition of the parties and their behaviour;

(d) a need for personal use by the landlord and the urgency of such need;

(e) the local market conditions for business premises.

The tenant may only twice apply to the court for an extension. The two extensions may in the aggregate not exceed 6 years. In practice, courts seldom grant extensions reaching the maximum period, because often, reasonable replacement premises for the tenant are available within a shorter timeframe. 
Further, a termination by the landlord may be subject to challenge by the tenant, if it is given in violation of principles of good faith. This is in particular deemed to be the case, if the termination is given:

(a) because the tenant has in good faith asserted contractual claims;

(b) to impose unilateral changes detrimental to the tenant or to adjust the rent;

(c) during a conciliation or court proceeding in relation to the lease relationship (save where the tenant abusively initiated such proceedings);

(d) prior to the expiration of three-year “barring-period” after a conciliation or court proceeding regarding the lease relationship in which the landlord:

• lost to a substantial degree;
• has withdrawn or substantially reduced his claim or action;
• has waived his right to appeal to the judge;
• has concluded a settlement or otherwise reached an agreement with the tenant.

A successful challenge makes the termination invalid. Further, it triggers the “barring period”, which factually precludes the landlord from giving termination for the next three years.

1.4 Any overriding statutes concerning the ability of the tenant to break a fixed term lease (whether or not included as a term of the lease)?

A tenant may terminate fixed term leases with immediate effect, only if:

(a) the landlord does not either transfer the premises at the agreed time or transfers it in time but with defects excluding or significantly impairing its suitability for the predetermined use and, in addition, he fails to transfer the premises or cure the defects within a reasonable period of time (generally 5 to 15 business days);

(b) after the transfer of the premises, the landlord is aware of a defect preventing or significantly impairing the predetermined use of the premises and does nevertheless not remedy such defect within a reasonable period of time.

Defects which affect the use of the premises less significantly lead only to damages claims and other remedies (reduction of rent, deposit of rent, remedy of defects by third party).

Further, a tenant may terminate a fixed term lease by extraordinary termination, if he can avail himself of valid reasons rendering the further performance of the lease intolerable. Courts construe such reasons very narrowly. Generally, only circumstances not foreseeable at the time of entering into the lease agreement may be taken into account. In case the tenant can avail himself of valid reasons he may terminate the lease at any point in time respecting the statutory notice of six months.

1.5 Any other security of tenure provisions available to a tenant that would frustrate possession or prevent receipt of market rents?

No.

2.1 Rental income receivable quarterly/monthly in-advance/in-arrear?

The parties may freely agree on the dates of payment of the rent and the relevant costs connected with the use of the premises (e.g. monthly/quarterly in-advance or in-arrears). The statutory default provision stipulates that, if no other time is in accordance with local custom, the payment date shall be at the end of each month (i.e. payment monthly in arrears), in any event at the latest at the end of the lease period. Typically, commercial lease agreements provide for monthly or quarterly rental payments in advance.

2.2 Periodicity of reviews?

Commercial leases are usually entered into for a fixed term of five years. Such term allows for an indexation of the rent linked to the Federal Index of Consumer Prices. And indexed rent entitles the landlord to rent increases in accordance with such index. Moreover, the parties can provide for staggered rents, which enable the landlord to increase the rent yearly by the amount the parties have agreed upon. Further, parties may agree to a variable rent tied to the turnover of the tenant’s business. Indexed, staggered and turnover rents may not be combined. In addition to these special increase mechanisms a landlord may also increase the rent on a restricted number of general grounds, in particular in case of renovation and additional benefits granted to the tenant.

If the lease agreement does not provide for one of these mechanisms the landlord may increase the rent pursuant to the general grounds justifying a rent increase, in particular in case of an increase of the interest rate for mortgage loans or an increase of inflation.

2.3 Basis of review (upwards-only or variable, indexation or market rent)?

The parties can agree on:

(a) variable rents (e.g. turnover rents, normally upwards, with a “floor”, i.e. minimum rent);

(b) staggered rents (generally, only upwards; however, also a “mixed down and upward staggering” qualifies as staggered rent and has to meet the pertinent requirements);

(c) indexed rents.

If the parties do not agree on these mechanisms, the basis of review is determined on the general grounds justifying an increase (see in further detail under 2.2).

2.4 Are rents/reviews subject to statutory control in regard to quantum or increase (i.e. rent control)?

The law protects tenants against abusive initial rents and abusive rent increases by allowing a tenant to challenge the rent. Generally a rent qualifies as abusive, if it results in excessive returns (such term being interpreted narrowly) or if it is based upon an obviously excessive purchase price. As a rule, however, rents are deemed not abusive, in particular, if the rent:

(a) falls within the range of rents customary in the neighbourhood;

(b) is based upon increased costs or additional benefits granted to the lender;

(c) with regard to relatively new buildings lies in the range of a cost covering gross return;

(d) only serves to compensate for a previously granted lower rent based on deferred market conformed financing costs, and if it is set out in a payment plan disclosed to the tenant in advance;

(e) merely compensates a cost increase with regard to the risk carrying capital; or

(f) does not go beyond the extent recommended by landlord and tenant associations or organizations safeguarding similar interests in their general agreements.

3.1 Internal maintenance, decoration and repair?

The landlord is under a general duty to keep the leased premises in a condition suitable for the predetermined use and to maintain it in such condition throughout the period of the lease. Thus, the duty of internal and external maintenance and repair is, as a rule, an exclusive duty of the landlord. With respect to (internal) maintenance and repair tenants have only very limited duties; only very small outlays for cleaning and small repairs (rule of thumb: CHF 100 – 200) are to be borne by tenants. The tenant may renovate or modify the premises only with the written consent of the landlord. If the parties agree upon a core & shell lease, the maintenance, decoration and repair obligations are contractually transferred to the tenant.

3.2 External maintenance, decoration and repair?

See 3.1.

3.3 Structural repairs?

The landlord has responsibility for structural repairs. Moreover, the landlord has to bear all maintenance costs that do not qualify as small outlays (see 3.1).

3.4 Insurance?

The premises are subject to mandatory insurances. Premiums have to be paid by the landlord and cannot be passed on to the tenant.

3.5 VAT?

Rental income is generally exempt from VAT. In respect of business leases, however, the landlord may under certain conditions opt to become subject to VAT. After “opting in” the landlord may charge the applicable rate of 8% (as of January 1, 2011) to the tenant; further it entitles the landlord to the input tax deduction (Vorsteuerabzug) in particular on any building costs or maintenance and repair costs.

3.6 Rates?

As to the VAT-Rate, see 3.5., as to public levies, see 3.7.

3.7 Other typical outgoings?

(a) Interest on mortgage loans.

(b) Actual expenditures connected with the use of the premises (Nebenkosten), such as heating, hot water and other similar operating costs (e.g. cost for cleaning the staircase) and public levies.

3.8 The ability to recoup any landlord outgoings (including management costs) by way of service charges?

4.1 Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

Like in other civil law systems Swiss landlord and tenant law, generally, consists of a set of default rules that will govern the lease in the absence of a contrary agreement of the parties. In addition to these rules landlord and tenant law provides for several mandatory provisions, which cannot be altered by the parties (in particular provisions with a protective aim, e.g. rules against abusive rents and terminations, extension of lease, etc.).

The primary source of law, thus, is the agreement of the parties, which, however, must respect the mandatory provisions of the landlord and tenant statute. The agreement will only be supplemented by the default rules if it does not contain provisions deviating from such rules.

Like in other civil law systems the Swiss judiciary is, therefore, generally, restricted to the task of interpreting the relevant statutes. However, because neither statutes nor lease agreements tend to be complete, the judiciary also has the task of filling in gaps either of the statute or the agreement.

Given the foregoing, courts must recognise any lease term that does not contravene mandatory provisions of landlord and tenant law.

5.1 To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is an RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

Parties are free to support allegations made in court by valuations prepared by any kind of real estate appraiser (it being understood that the better the standing of the appraiser the more the court may be convinced by the valuation). To be admitted as formal evidence (expert opinion; Gutachten), however, a valuation must be prepared by an appraiser appointed by the court.

5.2 Is it possible/customary to obtain environmental reports from a local government agency or a qualified, insured environmental professional?

Yes. Local government agencies as well as insured environmental professionals may – on request – issue environmental reports in respect to a certain property.

Furthermore most of the 26 Swiss Cantons have official online cadastres wherein polluted areas are marked.

5.3 Is it possible for liability in respect of past or present breaches of environmental laws to attach to a lender by it holding or enforcing a mortgage over real estate?

In Swiss environmental law, the ‘polluter pays principle’ (Verursacherprinzip) provides that a party breaching environmental law is liable for the damage incurred. Accordingly, the lender only holding a mortgage over real estate is generally not liable for damages resulting from breaches of environmental law by the property owner or any other person.

However, if a property is contaminated because of a breach of environmental law, its value decreases and thus may indirectly affect the lender as well.