Rental guide for owners of residential real estate
Renting a property often involves more work and financial outlay than selling a property. With a sale, the contractual relationship between buyer and seller usually ends when the purchase price is paid. It is not relevant whether the future owner will treat the building with care or not. Exactly the opposite is true for renting! Here you are entering into a longer contract – one that may often last for many years.
This makes it even more important that processes are in line with the Swiss Code of Obligations (OR) and the supplementary Ordinance on the Renting and Leasing of Residential and Business Premises (VMWG). Do not leave important matters to chance – let our experts help. After all, acquiring a property to rent it out can be an excellent investment with the right letting strategy in place.
Our guidebook will provide you with all the necessary information. Your local Engel & Völkers advisor will be happy to assist you or recommend experts.
*Since there are differences between cantons as well as municipalities in some cases, specific clarification may be necessary in individual cases.
Finding the right tenant usually turns out to be a difficult task. Whereas professional service providers can rely on a standardised process and prepared forms, private individuals often have no routines and lack specific expertise. In this section we explain some key aspects of successful letting in more detail.
Landlords should consider which target group they would like to rent their property. If a family is preferred, for example, it is useful to mention local schools or nurseries. The current composition of tenants and the wider neighbourhood is also an important factor. Personal interaction should not be underestimated, either, as a positive relationship between landlord and tenant can influence the nature and length of a tenancy.
The tenancy period may be indefinite or for a limited duration. Depending on the situation, alternative target groups and marketing channels may have to be chosen. The presentation of the property is an important aspect when it comes to photo shoots for marketing purposes as well as viewings. For this purpose, the property should be tidy with adequate lighting. The sequence in which rooms are shown also plays a role in viewings: the most beautiful and impressive room should always be the first and last space shown to potential tenants.
Tenant creditworthiness
In order to ensure that a tenant is able to pay, the general rule is that the rent paid for a residence should not exceed a third of net income. In addition to information on income, the debt collection register is a useful tool for ensuring a clean credit history. If a potential tenant names references in the registration form, the landlord is entitled to obtain reference information.
Self-disclosure by the tenant
Prospective tenants can apply for a rental property by completing a document known as the housing registration form. Templates can be found online or from the responsible associations. In principle, landlords are also free to create their own form. However, it is important to adhere to legal requirements and to avoid prohibited questions:
Permitted questions
Personal details (name, date of birth, address, occupation, employer, etc.)
Nationality: Swiss or foreign national
Type and duration of residence permit
Individuals who are not a contractual party of the tenancy agreement: children and adults, including details of the relationship
Existing or intended subletting arrangements
Annual income in increments of 10,000 francs
Number of cars
Pets
Any particular noisy activities
Debit collection register information (last two years)
Special considerations: Certain details (e.g. religious denomination, marital status, nationality, place of residence, employer’s contact details, reason for changing residence, criminal record, use of musical instruments) may only be requested in specific circumstances. This may be the case if the landlord has to pass on information to a public authority or to the municipality.
To some extent, the terms of tenancy agreements vary from canton to canton. Tenancy agreement templates for specific cantons can be downloaded from the Internet or ordered from the responsible associations. The latest templates should always be used to guarantee legal protection. The tenancy agreement may contain individual terms and conditions between the tenant and the landlord. However, changes should not be made to the template itself in order to ensure legal certainty. The relevant provisions are already set out in the Swiss Code of Obligations (OR) and the supplementary Ordinance on the Renting and Leasing of Residential and Business Premises (VMWG). Any deviating terms will not be valid, even if these are recorded in writing in the tenancy agreement.
For example, tenancy agreements must not violate the human right of freedom. This means that landlords may prohibit smoking in a tenancy agreement, but such a ban cannot be legally enforced because it violates the tenant’s right of freedom. If tenants smoke in a residential property, they must remedy any damage caused by smoking (e.g. yellow stains on walls) when moving out.
Rent deposit
The tenancy agreement also governs the rent deposit, which is sometimes known as a security deposit. This is a financial reserve to secure claims of the landlord against the tenant. In Switzerland, the rent deposit may be up to three months’ rent, payable by the tenant no later than at the beginning of the tenancy period. In any case, the keys should not be handed over until the rental deposit has been paid.
It is also possible to take out a rent guarantee insurance policy. This saves tenants from having to pay a rent deposit. Instead, they pay a small insurance premium to a rental deposit insurance provider, which undertakes to act as a guarantor. Such a solution provides tenants and landlords with the same security as a traditional security deposit held by a bank.
Conclusion of contract
A tenancy agreement does not necessarily have to be concluded in writing. It is also possible to rent out property in accordance with the law by shaking hands or even by implication alone. Anyone who receives keys from a landlord and pays rent is a tenant in the eyes of the law, with all the associated legal rights and obligations. These include in particular the formalities of terminating the agreement, which are set out in Article 266 of OR.
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3. Rental prices
The rent refers to the monthly payment paid by the tenant to the landlord for use of the rental property. This amount may be given either gross (including additional costs) or net (excluding additional costs). In practice, there are two ways of determining the net rent: the cost rent principle and the market rent principle. Whereas cost rent prices cover the actual expenses incurred, market rent prices are based on typical values for the area and neighbourhood. This is dictated by supply and demand in the respective region.
Ideally, the market rent would be higher than the cost rent so that both principles can be put into practice. In such cases, the rent price is based on market rates, covering property costs while generating a return on the invested capital. Depending on the property and the market, however, this is not always possible. Take new construction projects, for example: a rate that covers costs is unrealistic because the market rent cannot usually equal property costs (including construction costs) when the property is first rented out. Still, in order to find a tenant for the property within a realistic time frame, it is worth using the market rent for guidance.
What are typical rental prices?
According to Article 11.1 of VMWG, typical rental prices for a specific area or neighbourhood are based on the rental prices for other residential or business premises that are comparable to the rental property in question in terms of location, size, equipment, condition and date of construction. Due to a lack of comparable properties, however, it is not usually possible to access typical rents for specific areas and neighbourhoods outside of urban areas.
When rent prices are unfair
On the one hand, unfair rent prices describe a situation in which the landlord generates excessive income from a rental property. On the other hand, a rent price may be calculated using a clearly inflated purchase price. Here, the term “clearly inflated” refers to a purchase price that significantly exceeds the yield value of a property based on typical rent prices for similar properties in the area and neighbourhood – see Article 10 of VMWG. Luxury apartments and detached houses with six or more reception rooms are exempt from the provisions concerning unfair rent prices. On request, the landlord must disclose to the new tenant the rent paid by the previous tenant. The tenant is able to submit a challenge against the initial rent within the first 30 days of the tenancy by contacting the responsible dispute resolution authority. Once this deadline has passed, the contractually agreed rent shall be deemed accepted and a rent reduction cannot be enforced by the tenant unless the reference interest rate is lowered.
Additionally, it should be noted that a challenge may be submitted on other grounds: if the tenant has been forced into signing an agreement (due to a personal emergency or housing shortage), for instance, or if the rental price has been increased by more than 10% compared to the previous tenant, even though no renovation work was carried out. Unfair rent prices are another reason for tenants to submit a challenge.
Reasons and entitlement to increase rent
Rent increases require an
official form and must communicated to the tenant at least ten days before the ordinary notice period. It is important to note that the landlord is not able to raise the rent before the next termination deadline. If the tenant does not agree with a rent increase, this may be challenged
within 30 days from receipt of the form by contacting the local dispute resolution authority. The letter of challenge must be signed by all individuals named in the tenancy agreement.
Many landlords mistakenly believe that a change of tenant automatically means they have permission to increase the rent. Although landlords are entitled to adjust the rent as a rule, there must be a demonstrable reason for doing so. Examples of relevant reasons include
rising inflation, an
increase in the reference interest rate or a
general increase in maintenance and operating costs. Another argument in favour of a rent increase would be an
increase in property value following renovation work or redecoration.
Building owners are allowed to renovate the premises if the renovation work is reasonable and the tenancy has not been terminated. Indeed, tenants are required to make the necessary preparations, provided the landlord informs them of the scope and timeline of the project before building work commences. Before and during a renovation project, the landlord must minimise the inconvenience caused to the tenant. If there is any disturbance during the building work, tenants may request a reasonable rent reduction in writing. Any such reduction depends on the extent of the renovation and the type of disturbance caused. If the work represents an investment to enhance property value, the landlord may add the appropriate amount to the rent at the next termination deadline. By contrast, investments to preserve value do not entitle the landlord to increase the rental price. The terms “value-preserving investment” and “value-adding investment” are defined in Article 14.1 of VMWG. In the case of comprehensive renovation work, the general rule is that between 50% and 70% of the costs enhance value.
4. Additional costs
Additional costs are charged for services relating to use of the rental property. Charges may be applied to cover the costs of heating, cold and hot water, a caretaker, electricity and the lift, for instance. Other examples include subscription fees for cable TV and radio, wastewater charges, rubbish collection and an administration fee of around 3%.
By contrast, any maintenance, procurement and repair expenses are not considered additional costs, even if they are listed as such in the tenancy agreement. The same is true for taxes, insurance premiums, cable network connection fees and sewage charges. If the landlord charges maintenance costs of this nature as additional costs, the tenant does not have to pay them. There must be an explicit list of additional costs in the main form of the tenancy agreement – not only in the general terms of contract. If such a list is missing in the agreement, the tenant may assume that additional costs are already included in the rental price, with the exception of heating costs.
Costs for boiler service work and chimney sweep visits do not need to be listed separately: it is sufficient if heating costs are mentioned as additional costs in the contract. If the actual additional costs are much higher than specified in the tenancy agreement, the tenant may request access to the original documents. If it transpires that the landlord has a legitimate claim to costs that are much higher than stated in the tenancy agreement, the tenant must still pay. This is true even if the landlord knew that the additional costs in the agreement were too low, as confirmed by a ruling by the Federal Supreme Court of Switzerland in 2005.
An overview of all permissible and impermissible additional costs can be found as a checklist at the Schweizerischen Mietverband.
There are three ways in which ancillary costs can be charged on:
Advance payment
Payment on account is most frequently used option in practice. The tenant pays a fixed monthly amount in advance. Each year, the landlord complies a detailed statement of the actual costs. If these are higher than the payments on account, the tenant has to pay the difference. In the opposite case, tenants can reclaim the surplus amount. On request, the landlord must also provide the tenant with all the supporting documents.
Flat rate
In the case of a flat-rate payment, the tenant pays a set amount for each year and does not receive a separate statement at the end of the year. All additional costs are covered by the flat-rate payment, even if the actual costs are higher or lower. When calculating this amount, it is customary to take the average value of additional costs over the previous three years. In contrast to the advance payment method, the landlors is not required to issue a statement. However, the tenand is still entitled to request full access to the relevant documents.
Direct payment
Direct payment is often agreed when tenants rent out a single-family home. In this case, the tenant pays all additional costs directly to a third party (e.g. a water company). This option reduces the administrative workload for the landlord while giving tenants direct cost control.
5. Handover when moving in and out
Whenever a rental property changes hands, it is recommended that contractual parties put together an inventory. This creates a record of any existing damage or faults together with photographic evidence, if possible. The purpose of an inventory is to prove what damage already existed when the tenant moved in and what was caused by the tenant, which can be useful when the tenant later vacates the property, for instance. Normal wear and tear should be covered by the landlord, whereas any excessive damage should be charged to the tenant. There are always conflicts between landlords and tenants in this area.
An inventory with detailed information is recommended in order to avoid disagreements. A similar inventory should also be drawn up when a tenant moves out so that it is possible to compare the condition at the start and end of the tenancy.
The handover - an overview:
6. Terminating a tenancy agreement
For the landlord to terminate the lease, certain formal requirements must be met. For example, notice of termination must always be made in writing. Furthermore, it is necessary to use the official form and to adhere to the statutory notice period. For two parties in a family home or for couples in a civil partnership, a separate form is required. If the tenant is in arrears with payment, the landlord may set a payment deadline in writing and announce that the tenancy will be terminated once this deadline has passed. For residential and business premises, the period of notice must be at least 30 days. Additional permitted and unfair reasons for termination can be found in Article 271 of OR. At the end of this period, notice of termination should be sent by recorded delivery in order to obtain proof.
The tenant may provide regular notice of termination in compliance with the specific notice period in writing only. With respect to deadlines, the decisive date is the day on which this letter is received by the landlord. In order to withdraw from the agreement early and to provide notice of extraordinary termination, the tenant is required to find a solvent and reasonable tenant (for early handover to the landlord, see also Article 264 of OR). If no such replacement tenant can be found, the tenant is required to pay the rent up to the date on which the tenancy ends according to the agreement unless this can be legally terminated. Exceptions such as health-related matters should be discussed on an individual basis.
The statutory termination deadlines for landlords and tenants vary from canton to canton. While some cantons define only two to four notice dates each year, termination is possible at the end of every month in some other cantons.
Extending the tenancy
If termination of the tenancy agreement constitutes a hardship for the tenant, he or she may submit a claim to the dispute resolution authority within 30 days of notice of termination with a view to extending the tenancy. Reasons for and against such an extension can be found in the Ordinance on the Renting and Leasing of Residential and Business Premises (VMWG).
7. Rights and obligations of the contractual parties
The rights and obligations of tenants and landlords are set out in the Swiss Code of Obligations (OR) and the supplementary Ordinance on the Renting and Leasing of Residential and Business Premises (VMWG). These provisions govern the contractual relationship between landlord and tenant. The key rights and obligations can be summarised as follows.
Rights Landlord
Rent increases
Issuing invoices
Forbidding misuse
Entering the property with the tenant’s consent
Termination
Minor repairs that can be carried out by the tenant without a specialist fall under the category of basic maintenance; the costs for these (up to 190 francs) must be paid by the tenant
Rights Tenant
Use in line with the contractual agreement
Work to remedy defects by the landlord if these are not the responsibility of the tenant of if they call for more than a minor repair that can only be carried out by a specialist
Obligations Landlord
Handover of the property together with all the relevant keys
Preservation of a suitable building condition
Tolerance of family members as long as there is no overcrowding
Allowing subletting for the same use (e.g. residential)
Obligations Tenant
Payment of rent
Tolerance of work to remedy defects or prevent damage
Duty of care
Duty to report major defects
Remedy of “minor” defects (rule of thumb: up to 190 francs)
Handover of the property to the landlord in a condition that reflects contractual use
Cleaning the property and carrying out necessary repair work (to remedy defects)
8. Glossary
1. Additional costs
Costs associated with direct use of the rental property.
2. Cost rent price
A rent price that covers all ongoing expenses, taking actual financing costs into account – including public construction loans for the property.
3. Extension of tenancy
Extension of the tenancy period after termination by the landlord.
4. Market rent price
A rent price that is based on the current market situation in terms of supply and demand.
5. Rent deposit
A financial reserve to secure claims of the landlord against the tenant.
6. Rental price
A monthly payment made by the tenant to the landlord for use of the rental property.
7. Subletting
Rental of the property by the tenant to a subtenant for the contractually agreed purpose.
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