According to a new Swiss Federal Supreme Court judgment, a rental object is considered an old building in connection with the challenge of the initial rent if at least 30 years have elapsed since the date of construction of the property or since the date of the last acquisition of the property until the beginning of the rent.

For decades, Swiss tenancy law has been substantiated by a very rich case law of the Swiss Federal Supreme Court (SFSC) on the current 79 articles of the Swiss Code of Obligations (SCO) and the 30 articles of the Federal Council Ordinance (VMWG), which form the core of Swiss tenancy law.

On 13 September 2018, the SFSC issued a landmark ruling clarifying a previously open question in the area of challenging the initial rent (BGer 4A_400/2017).

Challenging The Initial Rent

According to Art. 270 SCO, the tenant of residential or business premises may within 30 days of taking possession of the rental object challenge the initial rent as unfair (abusive) within the meaning of Art. 269 and 269a SCO before the conciliation authority and request its reduction, provided certain conditions are met. The latter is the case if either the landlord has significantly increased the initial rent compared to the previous rent or if the tenant felt compelled to conclude a rental agreement due to personal or family hardship or by reason of the conditions prevailing on the local market for such rental object. If one of these two conditions is met, then, in a second step, it must be checked whether the rent is abusive (unfair).

Criteria for Fairness Review

Applying the so-called absolute method in order to check if a rent is unfair, a rent is deemed to be abusive if it provides the landlord with an excessive profit from the leased property, so-called criterion of net yield (Art. 269 SCO), or if the rent exceeds the range of rents customary in the locality or district, so-called criterion of local and district custom (Art. 269a lit. a OR). In its previous case law, the SFSC has established a priority order between these two criteria. In principle, the criterion of net yield has priority (BGE 124 III 310 E. 2). However, the SFSC already stated some time ago that in the case of so-called "older buildings" ("les immeubles anciens"), this order of priority is reversed. There, the criterion of local and district custom has priority over the criterion of net yield (BGE 139 III 13 E.3.1.2; so also BGE 124 III 310 E. 2b in fine).

As a reason for this, the SFSC states that for older buildings the accounting documents required to calculate the net return on equity no longer exist or show amounts that no longer correspond to current economic reality. The legislator did not want to disadvantage owners who acquired buildings already before longer time in relation to such who acquired them only recently.

Previous Case Law on “Old Building”

Since the applicable criteria for examining the question of the possible abusiveness of a rent differ fundamentally from one another, depending on whether the building is old or not, it is necessary to clarify the age at which a building is to be classified as old. The SFSC did not do this until the decision discussed, at least not with sufficient precision. In earlier decisions, for example, the SFSC sometimes stated that a building was old for the purposes of such review if it had been built "several decades ago" or, on the contrary, it did not violate federal law if a cantonal court did not qualify buildings at the age of 26 and 27 years as old properties (BGE 140 III 433 E. 3.1.1 and 3.1.2).

In a decision of 12 September 2016, it then narrowed down the question from the other side by stating that, in that case in question, it was not clear from the files when the buildings in question had been constructed or sold for the last time. But at least it was clear that this was more than 32 years ago when the rental agreement was signed. Therefore, the application of the rules applicable to old buildings gave no cause for criticism by the SFSC (BGer 4A_147/2016, E. 2.3).

Private or Professional Landlord: No Criterion for Definition

In the decision now issued, the SFSC rejected the view of the lower court, which wanted to make a distinction in this respect as to whether the landlord was a "private" or a "professional" landlord. This decision is to be welcomed in principle, as such a differentiation would only create new problems of demarcation, which in turn would result in a new need for judicial clarification.

Definition of “Old Building” According to The Latest Supreme Court Ruling

The SFSC then finally managed to establish the exact age limit: 30 years. If a building is 30 years old at the beginning of its lease ("au moment du début du bail"), whether from the date of construction ("soit à la date de la construction de l'immeuble") or from the date of the last acquisition of the property ("soit à celle de sa dernière acquisition"), then, according to this federal court ruling, the building is now considered to be old, with the result that the check for abusiveness is to be carried out primarily on the basis of the criterion of local and district custom.

Has Everything Been Clarified Now?

It is doubtful whether at least in this area everything has been definitively clarified, as the reasoning for the decision again opens up room for interpretation. For example, what is exactly meant by the "date of construction"? The date of the ground-breaking? The laying of the foundation stone? The completion of the shell of the building? The readiness to move in? And is the "date of the last acquisition of the property" about the conclusion of the sales contract or the entry in the land register? If necessary, the SFSC will have to deal with such questions at a later date. In any case, it is positive that the SFSC has now established a rule which at least greatly reduces uncertainty.