Rental guide for owners of residential real estate

Selecting the right tenant

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:

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.

The tenancy agreement and its conditions

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.

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.

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.

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.

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.

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).

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.