Ownership in Real Estate
Main Types of Ownership
Different kinds of real estate ownership are permitted under Swiss law. The most prevalent types of real estate ownership are single ownership, joint ownership, and co-ownership, which may be divided into (i) classical co-ownership and (ii) condominium-principled co-ownership. The latter is more often seen in apartments in multifamily dwellings.
In general, ownership of real property comprises ownership of the ground and all of its integral parts, including any structures placed on it. The owner of a property, on the other hand, has the power to give a construction right to a third party, resulting in a split of ownership in the soil and the structure built on it.
In Switzerland, all privately held land (including condominium units) must be registered with the land register. Under federal law, land registries are required to give some minimal information about each real estate property, such as title information, easements, and mortgages.
Because there is a legal presumption that federal land registry entries are truthful and correct, anybody who relies on such information in good faith is completely protected by the law.
Transfer of Ownership
To transfer legal title to real property, the buyer and seller must engage in an asset sale and purchase agreement in the form of a public deed in the presence of a notary public. Following that, the public deed must be submitted to the property registrar, which will record the title transfer in the land register. With the registration in the so-called journal, the transfer becomes effective.
If a legal entity owns Swiss real estate, such real estate can be acquired indirectly by purchasing shares in the relevant legal entity. In this circumstance, the buyer and seller will engage in a share sale and purchase agreement, which does not need to be notarized. Furthermore, no registration with the land registry is necessary since the immediate owner of the property stays the same. Share deals are not commonly used in real estate transactions in Switzerland due to their complexity and due diligence requirements.
Real Estate Due Diligence
Prior to purchasing real estate, most real estate investors conduct due diligence. Because registration with the land register is conclusive legal, due diligence entails analyzing the land register extract and its accompanying papers, which include all important property information.
Furthermore, in legal, due diligence for a real estate transaction, the following areas are often reviewed:
- All current lease agreements provided that they are transferred to the buyer by operation of law following the sale’s completion;
- Environmental law concerns, given that the legal owner of property investment has some responsibility risks as a result of such problems (see section 3 below);
- A possible violation of the Lex Koller, given that any violation may constitute the transaction null and invalid (see section 4 below);
- Potential zoning laws and other public law limitations
- In addition to legal, due diligence, prudent bidders perform tax, technical, and financial due diligence.
Typical Representations and Warranties
In asset transactions, representations and warranties are often provided on a limited basis. First and foremost, a seller often does not make any assurance as to the structure’s content, i.e., any seller warranty in that regard is usually excluded to the greatest degree authorized by law.
However, it is common practice for sellers to make statements about the accuracy of rent rolls and due diligence information and data that the buyer cannot independently verify (i.e., pending or threatened litigation, tax payments, etc.). In certain situations, representations, warranties, and/or indemnities may be provided about current or possible contaminations of the soil or parts of the building.
As a result of the transaction structure, extra guarantees are often provided in share transactions. A share sale and purchase agreement will often include corporate warranties about the company’s proper orientation and legal existence, accurate and correct presentation of financial statements, and title to shares. However, in share purchases, most of the seller’s guarantees are often set at an agreed-upon value; normally, this restriction does not apply to the seller’s title warranty.
In the case of a misrepresentation, the seller is obligated to compensate the buyer for any resulting damage. In shareholdings, a portion of the purchase money is sometimes kept in escrow for a certain time to protect the buyer.