Land of the Alps

01 May 2013 Jacqueline Burckhardt Bertossa

Land of the Alps

Jacqueline Burckhardt Bertossa explains some peculiarities of Swiss law for non-Swiss nationals wishing to purchase real estate in Switzerland.

In a small country, real estate is a restricted commodity. Swiss law therefore restricts the purchase of real estate by foreign nationals (Federal Law on the Acquisition of Real Estate Property in Switzerland – ‘Lex Koller’).

In December 2012, the Swiss Parliament unanimously voted against abolishing the Lex Koller. In addition, in a recent referendum, the Swiss population voted for a limit on holiday homes: no more than 20 per cent of all residences in each commune can be holiday homes. Once this quota has been reached, there is a ban on purchases for the purpose of using a property as a holiday home.

Lex Koller

The Lex Koller limits the sale of land to certain foreigners in order to safeguard Switzerland from an alienation of its land.

For the purposes of the Lex Koller, foreigners are (i) individuals who do not hold a Swiss or EU passport, (ii) individuals holding an EU passport who are not legally and actually domiciled in Switzerland, (iii) individuals without a permanent residence permit (C permit) and with no diplomatic status, and (iv) foreign (controlled) individuals. Foreigners acquiring real estate for use as their primary residence are exempt from the Lex Koller. In addition, certain types of real estate are also exempt, e.g. commercial units.

A US citizen is, for example, allowed to buy an apartment for use as their primary residence without obtaining a special permit, but cannot buy an apartment house in Switzerland and use one apartment for their own purposes while renting out the others to third parties – not even to Swiss citizens. On the other hand, a French citizen is allowed to do this if they are legally and de facto domiciled in Switzerland. A French citizen can also buy a holiday home in the Swiss Alps without restrictions and is not forced to sell it should they move out of Switzerland at a later stage.

A French citizen domiciled in Paris, however, is not allowed to buy any real estate in Switzerland without a – difficult to obtain – special permit.

The Lex Koller restrictions also apply when real estate is purchased indirectly by foreigners. It is therefore necessary to analyse the legal situation for the sale of shares in companies that are not listed.

If the company whose shares are sold holds non-industrial real estate and the purchasers are foreigners or companies controlled by foreigners, the transaction might be declared void retrospectively.

The purchase agreement

The purchase agreement is valid only if concluded in Switzerland in the form of a public deed in the presence of a Swiss notary competent to notarise in the canton or region in which the real estate property is located. The notary is usually chosen by the purchaser, but by law neutrally represents the interests of both parties. The same requirements apply to pre-sales and reservation agreements that are not binding if they are merely concluded in writing. It is customary for sellers in Switzerland not to grant any guarantees, or accept any liability, for potential damage arising from older buildings. Buyers must carry out their own due diligence. A prudent buyer will always consult a specialist in local, cantonal and Swiss law familiar with the area. Many aspects of real estate law are governed by cantonal law, including construction laws and taxes regarding the transfer of ownership. A professional in Geneva might therefore not know the details in St Gallen, and vice versa.

An extract from the land register is a prerequisite for the legal due diligence since it shows title, liens and collaterals, and benefits from increased authenticity. Many sellers request a down payment of approximately 10 per cent when signing the agreement. Down payments are usually made to the notary’s client account or an escrow account.

Transfer of title

The ownership of real estate is transferred at the moment when the purchaser is registered as the new owner in the land register. The remainder of the purchase price often becomes due upon registration in the registry. Notaries therefore often register the transfer of title of ownership with the land registry only after receiving payment of the purchase price or confirmation from a bank that the payment to the seller will be made as soon as the notary confirms the registration in the land registrar’s journal.

Summary

Before entering a purchase contract for Swiss real estate, it is important to clarify whether the purchase is possible under the restrictions of the Lex Koller. Real estate purchase agreements are valid only when notarised by a competent Swiss notary, and the transfer of ownership takes place only upon registration in the land register. In any case it is recommended to seek advice from a local professional before entering a purchase agreement.

Authors

Jacqueline Burckhardt Bertossa

CPD Reflective Learning