Posts tagged "Ownership in Real Estate"

Ownership in Real Estate in Switzerland – Main Types of Ownership

Different kinds of real estate ownership are authorized under Swiss law. The most common types of real estate ownership are single ownership, joint ownership, and co-ownership, which may be divided into two types:

(i) classical co-ownership and

(ii) condominium-principled co-ownership.

The latter is more often seen in apartments like multifamily dwellings.

In general, ownership of real property comprises ownership of the ground and all of its essential 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 on the land and the structure built on it.

Land Register

In Switzerland, all privately held land (including condominium units) must be registered with the land register. Under federal legislation, 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

Asset Deal

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.

Share Deal

If a legal entity owns Swiss real estate, such real estate may be purchased indirectly by acquiring shares in the appropriate 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 widely utilized in real estate transactions in Switzerland owing to their complexity and due diligence requirements.

Real Estate Due Diligence

Before purchasing real estate, most real estate investors perform due diligence. Because registration with the land register is conclusive legal, due diligence entails analyzing the land register extract and its accompanying papers, including 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 execution;
  • Environmental law concerns, given that the legal owner of a real estate has some responsibility risks as a result of such problems;
  • A possible violation of the Lex Koller, given that any violation may declare the transaction null and invalid;
  • Potential zoning laws and other public law restrictions
  • In addition to legal, due diligence, savvy purchasers do 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 correctness of rent rolls and due diligence information, as well as 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 regarding existing or possible contaminations of the soil or portions of the structure.

As a consequence 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 reporting of financial accounts, and title to shares. However, in share agreements, 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 reimburse the buyer for any resulting damage. In share transactions, a portion of the purchase money is sometimes kept in escrow for a certain time to safeguard the buyer.

Environmental Law Considerations

According to the Environmental Protection Act, the legal owner of real estate is accountable for such pollution, in addition to the person who produced it, even if it occurred previous to the acquisition. Furthermore, a landlord might be held liable for environmental damage caused by a tenant.

Lex Koller

The Act regulates the purchase of certain kinds of Swiss real estate by foreign investors on the Acquisition of Real Estate by Persons Abroad, the corresponding ordinance, and further cantonal and municipal laws (all these provisions are referred to as the so-called Lex Koller).

Definition of a Foreign Investor

The Lex Koller gives an extremely wide definition of “foreigner,” which encompasses, among other things, the following individuals and legal entities:

− Non-Swiss citizens domiciled outside of Switzerland;

− Non-Swiss citizens domiciled in Switzerland who are neither citizens of an EU/EFTA member state nor hold a valid permanent residency permit category C;

− Legal entities having their registered office outside of Switzerland (even if a Swiss citizen directly or indirectly owns them);

− Legal entities with a registered office in Switzerland but under foreign control, where foreign control is inferred if a foreign person owns more than one-third of the firm capital or voting rights, or if any foreign person offers a huge loan.

Acquisition of Commercial Properties

The Lex Koller does not, in general, limit the purchase of commercial assets. As a result, foreign investors may purchase commercial properties for personal use or just for investment reasons. Manufacturing facilities, warehousing facilities, offices, shopping centers, retail establishments, hotels, restaurants, and medical practices are examples of commercial properties.

Commercially exploited properties with more than one-third of undeveloped land are exempt from the authorization requirement unless such undeveloped property is developed within one year after the purchase date. In general, it should be emphasized that sections of a property include a building regarded developed, but so are other areas that feature access roads or parking spaces.

Acquisition of Residential and other Non-Commercial Properties

Foreign investors’ residential and other non-commercial real estate purchase is subject to the Lex Koller authorization requirement. Authorizations are seldom given because the requirements for obtaining them are so strict.

There are very few exceptions for (i) foreigners who are legitimately and really residing in Switzerland and want to buy a main residence in Switzerland and (ii) foreigners who want to buy a vacation home or apartment in Switzerland (maximum net habitable surface: 200 sqm).

Acquisition of Mixed-Use Properties

If a property is used for both commercial and residential purposes (mixed-use property), a foreign investor may acquire it without authorization only if (i) the residential space is required for the business (apartment for technician or housekeeper), (ii) the residential space cannot practicably be separated from the commercial premises (e.g., minor residential areas in a multi-story building with commercial premises), or (iii) zoning law requires it.

Acquisition of Shares in a Company Holding Real Estate

The purchase of shares in a corporation is subject to authorization if the major factual purpose of the firm is the acquisition, holding, or sale of real estate, which foreign investors may only acquire with an authorization (i.e., residential and certain types of mixed-use properties as set out above). Due to the lack of clear legal precedents, it is argued under what conditions a firm is considered to have such a primary purpose, and cantonal policies vary.

Purchase in Breach of the Lex Koller

Purchases made in violation of the Lex Koller are null and void. Furthermore, evasion of authorization requirements may result in administrative penalties as well as criminal prosecution in cases of intentional or negligent misbehavior.

Lex Koller Ruling

Given the serious implications of a breach of the Lex Koller, it is prudent to acquire in advance a judgment from the appropriate cantonal Lex Koller authority verifying that a proposed transaction does not infringe the Lex Koller.