Overview of retail lease agreements in Switzerland

The matter is regulated by the Swiss Code of Obligations (the CO) and the Ordinance on the Leasing and Usufructuary Leasing of Residential and Business Premises (the OLRB).

There is no minimum or maximum duration.

The lease may be concluded for an indefinite or a definite term.

Lease agreements that cannot be terminated by either party for a period of more than 25 to 30 years might be deemed by the court to be excessive and therefore reduced to a duration that the court does not deem excessive.

Retail leases are usually for a period of at least 10 years.

The landlord may terminate a lease with an indefinite term by giving six months’ notice, expiring on a date fixed by local custom, or, in the absence of such a custom, expiring at the end of a three-month period of the lease. The landlord may terminate any lease if (i) the tenant is in arrears with payments, (ii) fails to comply with its duty of care and consideration, (iii) is declared bankrupt or (iv) in other cases where performance of the contract becomes unreasonable.

The tenant may terminate a lease with an indefinite term by giving six months’ notice, expiring on a date fixed by local custom, or, in the absence of such a custom, expiring at the end of a three-month period of the lease.

The tenant may terminate any lease (i) in the event of a defect that renders the premises unfit or significantly less fit for their designated use, that is not attributable to the tenant and that it is not obliged to remedy at its own expense or (ii) in other cases where performance of the contract becomes unreasonable.

There is neither any right of renewal nor an eviction indemnity payable by the landlord.

However, in practice, the tenant can seek extension of the lease of up to six years if termination would cause a degree of hardship for the tenant that cannot be justified by the interests of the landlord. Such extension of the lease is not possible if the lease is terminated (i) because the tenant is in arrears with payments, (ii) fails to comply with its duty of care and consideration or (iii) is declared bankrupt.

The landlord may increase the rent at any time with effect from the next contractual termination date. The rent review is restricted by the criteria listed in the CO (no excessive income, within the range of rent amounts customary in the vicinity; increase in costs or additional services by the landlord not exceeding the pre-tax yield required to cover costs in the case of recently constructed buildings; balancing out certain previous rent decreases, balancing out inflation, not exceeding the levels recommended by landlord’s/tenant’s associations).

In leases with a term of 5 years and more, the parties can agree on an annual adjustment of the rent in line with the development of the Swiss Consumer Price Index.

The tenant may not renovate or alter the premises without the landlord’s written consent. In practice, lease agreements contain further provisions regarding some form of security to be furnished by the tenant as well as the tenant’s obligation to fight any builder’s lien (Bauhandwerkerpfandrecht) requested in connection with its fitting-out works.

If the landlord has consented to alterations by the tenant, the landlord may request restoration to the original condition on expiry of the lease, but only if this restoration was agreed in writing. At the end of the lease, the tenant may demand compensation for the then depreciated value of the improvements, unless this compensation was excluded by express agreement.

The tenant must hand back the premises in their original condition, allowing for ordinary wear and tear. It is up to the landlord to examine the condition of the premises and notify the tenant of defects for which the tenant is responsible. Landlords who fail to do so forfeit their claims, except in the case of defects that are not recognisable as such in an examination according to customary practice.

Subleasing and transferring the lease require the landlord’s consent.

The landlord may, however, only refuse consent to a sublease if (i) the tenant refuses to inform the landlord of the terms of the sublease, (ii) the terms and conditions of the sublease are unfair compared to those of the principal lease or (iii) the subleasing gives rise to major disadvantages for the landlord.

The landlord’s consent for the transfer of the lease must be in writing and may only be withheld for good cause.

In the case of a change of ownership of the premises, the lease is automatically transferred to the new owner. The new owner may terminate the lease as of the next legally permissible termination date if he claims an urgent need of such premises for itself, close relatives or in-laws. The parties to the lease agreement may, however, agree to have the lease entered in the land register under priority notice. If such an entry has been obtained, the new owner may not terminate the lease.

The tenant has no pre-emption right in the case of the sale of the premises unless otherwise agreed in the lease agreement.

In the context of retail leases, it is common for the payment of the rent to be secured by a bank guarantee. Alternatively, the landlord may require the tenant to furnish an advance cash security to be deposited with a bank.

The amount deposited usually consists of six to twelve months’ rent. Where the tenant furnishes security in the form of cash or negotiable securities, the landlord must deposit an amount in a bank savings or deposit account in the tenant’s name.

The landlord has an obligation to maintain the premises in a suitable condition and to procure necessary repairs on the outside and inside. Failure to execute necessary repairs entitles the tenant to rental reductions and/or damages.

The tenant must remedy defects that can be dealt with by minor cleaning or repairs as part of regular maintenance and, depending on local custom, must do so at its own expense. The amount up to which a repair is considered to be “minor” is usually agreed upon in lease agreements.

On learning of defects that it is not obliged to remedy, the tenant must inform the landlord. Please note that the parties usually explicitly define the scope of each party’s maintenance and repair obligations, often in the form of an annexed interface paper.

The rent and service charges are not subject to VAT. The landlord may opt to charge the applicable VAT rate (currently 7.7%) if the premises are not solely used for private purposes.

There are no other important legal provisions or practices.