Rents in Switzerland

The Swiss rental market is characterized by a meticulously developed legal framework designed to balance the interests of landlords and tenants. In a country where over 60% of the population are tenants, the question of rents represents a major social and economic issue. Tenancy law in Switzerland is governed primarily by the Swiss Code of Obligations (CO) and the Ordinance on Leases of Residential and Commercial Premises (OBLF). These texts define the precise rules governing the initial setting of rents, the conditions governing rent increases, and the procedures for contesting rents. The constant tension between protecting tenants and safeguarding landlords’ interests makes tenancy law one of the most dynamic and controversial areas of Swiss law.

Initial rent setting in Switzerland: principles and legal framework

Setting the initial rent is a fundamental stage in the contractual relationship between landlord and tenant. Swiss law provides a framework for this operation, with precise provisions designed to prevent abuse while preserving contractual freedom.

The basic principles of rent setting

In Switzerland, the principle of contractual freedom allows the parties to freely determine the initial rent. However, this freedom is tempered by a number of legal mechanisms designed to prevent excessive rents. The Swiss Code of Obligations (art. 269 et seq.) stipulates that rents must not provide the lessor with an excessive return or result from a manifestly exaggerated purchase price.

The permissible return is generally calculated on the basis of the purchase price of the property, plus any value-enhancing investments, plus a rate that exceeds the reference mortgage interest rate by 0.5%. In this way, the lessor can legitimately expect a higher return on equity than the mortgage rate.

Rent setting can be based on different methods:

• The absolute method (based on actual costs and eligible yield)
• The relative method (comparison with the usual rents in the district or locality)
• The gross yield method (particularly for older buildings)

Formal obligations when setting the initial rent

In cantons where there is a housing shortage, such as Geneva, Vaud, Zurich or Basel, the landlord must use an official form to communicate the initial rent to the new tenant. This form must indicate :

• The amount of rent paid by the previous tenant
• The new rent
• Justifying a possible increase
• Information on the possibility of contesting the initial rent

Failure to use this form, or incorrect use of it, may invalidate the rent setting. In this case, the tenant could pay the same rent as his predecessor until a valid rent fixing is made.

The landlord must give this form to the tenant either when the contract is signed, or before the tenant takes possession of the premises. The tenant then has a period of 30 days from receipt of the keys in which to contest the unfairness of the initial rent with the competent conciliation authority.

It should be noted that in cantons where the official form is not compulsory, the tenant can still contest the initial rent if he feels it is unfair, but the process is often more complex, as he will have to demonstrate that he was forced to enter into the lease out of personal or family necessity, or because of the situation on the local market.

Authorized rent increase mechanisms

Swiss law provides for a number of mechanisms enabling landlords to increase rent during the course of a lease. These increases are strictly regulated to ensure a balance between the interests of landlords and the protection of tenants.

Legitimate grounds for increase

According to article 269a of the Swiss Code of Obligations, several factors may justify a rent increase:

• Increase in the reference mortgage rate: a 0.25% increase in this rate theoretically allows for a 2.5% rent increase.
• Inflation: the lessor can pass on 40% of the increase in the Swiss consumer price index (CPI) since the rent was last set.
• Increases in maintenance costs: higher operating costs, maintenance charges or additional services provided by the lessor.
• Value-added work: investments that improve the comfort or energy value of the home, resulting in an increase in value proportional to the amount invested.

It’s important to understand that these factors work both ways. For example, a fall in the reference mortgage rate justifies a proportional reduction in rent, which the tenant can demand.

Formal requirements for a valid increase

For a rent increase to be valid, the lessor must comply with several strict formal conditions:

• Use the official form approved by the canton
• Notify the increase at least 10 days before the start of the notice period
• Respect the cancellation period stipulated in the contract (generally 3 months for housing)
• Give precise reasons for the increase, indicating the factors that justify it
• Inform the tenant of the possibility of contesting the increase

Failure to comply with these formal requirements renders the increase null and void. In this case, the tenant continues to pay the old rent until valid notification is received.

A special feature of Swiss law is the possibility of contractually staggering rent increases. In a staggered-rent contract, the parties agree in advance on successive rent increases, which must be expressed in francs rather than percentages. These increases may only occur once a year, and the contract must be concluded for a minimum of three years.

Alternatively, the parties can opt for an indexed rent, whereby the rent is automatically adjusted to the Swiss consumer price index. This type of contract must be concluded for a minimum term of five years, and the lessor may not invoke any other grounds for increase (except for capital works).

Contesting rent: procedures and deadlines

When faced with an initial rent deemed excessive or a disputable increase, tenants have specific means of redress. The dispute procedure is precisely regulated in Swiss law, with strict deadlines and mandatory stages.

Contesting the initial rent

The tenant may contest the initial rent if he believes it to be unreasonable within the meaning of article 269 of the Swiss Code of Obligations. To be admissible, the dispute must satisfy several conditions:

• To be deposited within 30 days of receiving the keys
• Be addressed to thecompetent conciliation authority in the place where the property is located
• Demonstrate that the tenant was forced to enter into the lease by personal or family necessity, or because of a difficult situation on the local housing market (this condition is not required in cantons where use of the official form is mandatory).

In his application, the tenant must demonstrate that the rent is unreasonable, for example on the basis of :

• Comparison with the previous tenant’s rent
• Official statistics on local rents
• Excessive yield assessment based on building acquisition and maintenance costs

Contesting a rent increase

To contest a rent increase, the tenant must :

• Refer the matter to the conciliation authority within 30 days of receipt of the notice of increase
• Demonstrate that the increase is not justified by the legal criteria (variation in mortgage rate, inflation, capital works)
• Continue to pay the old rent until the final decision is made

If the lessor has not complied with the formal requirements, the lessee can invoke the nullity of the increase at any time, without being bound by the 30-day time limit.

The procedure

There are several stages in the dispute procedure:

1. Conciliation phase: compulsory and free of charge, this phase aims to reach an amicable agreement between the parties. The conciliation authority summons the parties to a hearing, where it attempts to bring them to a compromise.

2. Proposal of judgment: if no agreement is reached, the conciliation authority may formulate a proposal of judgment, which the parties are free to accept or refuse within 20 days.

3. Authorization to proceed: if the proposed judgment is refused, the authority issues an authorization to proceed, enabling the tenant to take the matter to court within 30 days.

4. Judicial procedure: the court examines the evidence and arguments of the parties before handing down its decision, which can be contested before the higher courts (cantonal court, then Federal Court).

During the entire procedure, the lessor may not terminate the lease because of the dispute. This protection against retaliatory termination is guaranteed by article 271a of the Swiss Code of Obligations, and extends for the duration of the proceedings and the following three years.

Regional and cantonal rental peculiarities

Although tenancy law is primarily governed by federal law, there are significant disparities between Swiss cantons, reflecting the specific features of local real estate markets and regional political orientations.

Cantons with compulsory formula

The main distinction concerns the obligation to use an official form to communicate the initial rent. This obligation has been introduced in cantons with a housing shortage, in accordance with article 270 paragraph 2 of the Swiss Code of Obligations.

At present, this obligation applies in the following cantons:

• Geneva: the entire canton is subject to the official form requirement
• Vaud: mandatory throughout the canton
• Zurich: only for certain municipalities
• Fribourg: in certain communes designated by the Council of State
• Neuchâtel: throughout the canton
• Nidwalden: for the whole canton
• Zug: throughout the canton

In these cantons, it is easier to contest the initial rent, since the tenant does not have to prove that he was forced to enter into the lease by personal necessity or market conditions.

Differences of practice in the application of the law

Beyond the formal obligation, there are other significant differences:

• Official statistics: some cantons, such as Geneva and Zurich, have detailed statistics on rents charged, which are used as a reference in dispute procedures.
• Joint commissions: in several French-speaking cantons, conciliation authorities are made up of equal numbers of landlord and tenant representatives, chaired by a judge.
• Cantonal case law: cantonal courts sometimes develop specific interpretations of federal law, creating regional nuances.

In Geneva, for example, the system is particularly protective of tenants, with strict rent controls and rigorous enforcement of rules on vacancy notices. Conversely, some cantons in Central and Eastern Switzerland take a more liberal approach, favoring freedom of contract.

Cantonal housing initiatives

Several cantons have introduced specific measures to regulate the rental market:

• Housing subsidies: some cantons, such as Geneva and Basel-Stadt, offer subsidized housing with capped rents.
• Control of demolitions and conversions: in areas where demand is high, administrative authorizations are required for the conversion of rental housing.
• Right of pre-emption: some cantons (Geneva, Vaud) grant public authorities a right of pre-emption on property sales to encourage the construction of low-cost housing.

These cantonal peculiarities create a complex legal landscape where the rights and obligations of tenants and landlords can vary significantly from one canton to another. This situation underlines the importance of a thorough knowledge of the local legal framework for all players in the Swiss real estate market.

Differences between cantons often reflect political tensions between social protection and economic liberalism, as well as the contrasting realities of local real estate markets, ranging from rural areas with abundant supply to urban centers with chronic shortages.

Practical aspects and strategies for tenants and landlords

Beyond the legal framework, the day-to-day management of rental relationships involves practical and strategic considerations for tenants and landlords alike. Understanding these aspects can help you optimize your position and prevent potential conflicts.

Strategies for tenants

Tenants have several levers at their disposal to defend their rights and optimize their situation:

• Monitoring the mortgage rate: when the reference mortgage rate falls, you can request a rent reduction. A written request must be sent to the lessor for the next notice period.
• Build up a solid file: keeping all documents relating to your accommodation (contract, notice of rent increases or increases, correspondence, payment receipts) can prove decisive in the event of a dispute.
• Checking expense statements: carefully examine annual statements and request supporting documents for large or unusual items.
• Membership of a tenants’ association: these organizations offer legal advice and support in administrative or legal proceedings, often for a small membership fee.

To effectively contest a rent, the tenant must gather evidence such as :

• Official statistics on local rents
• Rent paid by previous tenant
• Examples of rents for comparable properties
• Historical changes in the mortgage rate since the last rent was set

Recommended approaches for lessors

On the lessor’s side, a number of practices can help secure the rental relationship:

• Prudent initial rent setting: setting an initial rent that can be justified according to legal criteria reduces the risk of disputes. A prior comparative analysis of rents in the area is a useful precaution.
• Rigorous documentation: keep a complete file for each rental, including a detailed inventory of fixtures and fittings, formal communications and proof of work carried out.
• Anticipation of increases: plan increases according to objective criteria (mortgage rate, inflation, work) and communicate them in strict compliance with legal deadlines.
• Transparent communication: clearly explaining the reasons for an increase to the tenant can prevent a dispute.

The lessor must carefully distinguish between :

• Ordinary maintenance work (which does not justify an increase)
• Simple renovation work (with partial impact on rent)
• Value-enhancing improvements (allowing a proportional increase)

Legal expertise

In a field as technical as leasing law, the services of a specialist can prove useful in a number of situations:

• Drafting complex contracts, such as graduated rent leases, index-linked leases or contracts with special clauses
• Calculation of eligible yield: this complex operation requires specific financial and legal knowledge
• Preparing for legal proceedings: the assistance of a specialist lawyer significantly increases the chances of success
• Negotiating a dispute: legal advice can help you find an acceptable compromise

A law firm specializing in tenancy law can offer invaluable expertise, both in the preventive advisory phase and in the management of disputes. In-depth knowledge of cantonal and federal case law enables us to anticipate potential pitfalls and optimize legal strategies.

The complexity of Swiss tenancy law, with its many cantonal specificities and constantly evolving jurisprudence, fully justifies the use of legal professionals to secure rental relationships and effectively defend your interests, whether you’re a lessor or a lessee.