Buying Property in Suisse
Initial agreement between the buyer and seller - Preliminary contract
1 - What form can this agreement take? Preliminary contract?
A seller and a buyer essentially have two options to proceed to the transfer of real estate:
- either sign an authentic act of direct sale (the price is paid on the day of the signature of the act and ownership is transferred concurrently);
- or sign an authentic act of deferred sale-purchase (the buyer and seller undertake to purchase and sell respectively at an established later date); acts of conditional deferred sale-purchase may include one more conditions precedent (e.g.: authorisation to sell a rented flat, building permit, ...). Ownership is transferred subsequently either by means of a private agreement or an authentic act.
2 - With whom must the parties (buyer/seller) formalise the initial agreement? Is a legal form imposed?
3 - What are the legal effects of this preliminary contract? Is a preliminary contract necessary?
As mentioned previously, in the case of deferred sale-purchase (with or without conditions), the act establishes that the buyer and seller undertake to purchase and sell respectively at an established later date. It is a sale contract providing for a later date of transfer of ownership. As specified above, any prior commitment of one or the other party that is not signed in the authentic form will be considered null.
The buyer usually makes a down payment amounting to 10 % of the sale price to the seller through the notary. This down payment is released directly by the notary to the seller in the absence of conditions. If, however, the act of deferred sale-purchase is conditional on the fulfilment of a condition precedent, then the notary keeps the down payment until the fulfilment of the condition.
Generally, a right of purchase will be entered in the Land registry following the signature of the act of deferred sale. The aim of this entry is to avoid a double sale (i.e. that the seller offers the same object to a third party), protect the rights of the buyer and avoid that the latter be subject to any further rights and charges when signing the act of deferred sale-purchase.
This act of deferred sale generally establishes that if the buyer or the seller fail to comply with the agreed deadline, the non-defaulting party may choose between:
- either the payment of a penalty clause amounting to 10 % of the sale price;
- or the performance of the sale, that is to say the transfer of ownership.
If the act of deferred sale-purchase is conditional on the fulfilment of one or more conditions, the foregoing choice will only be possible if the condition is fulfilled within the agreed term. If this is not the case, then the act is considered null and void.
4 - Are there amounts to be paid, and to whom? Can these amounts be repaid?
In the case of an act of deferred sale-purchase, if the parties have agreed on a down payment (as mentioned earlier, amounting to 10% generally), then this is what happens:
- if ownership is transferred on the day of the agreed term, the sum amounting to 10% constitutes the down payment and is acquired definitively by the seller;
- if the buyer defaults the day of the term, the seller may choose either to request the penalty clause (in this case, the down payment paid previously by the buyer serves as payment of the penalty clause) and then the two parties are released; or demand performance of the sale in court and the sum amounting to 10% will serve as a down payment on the sale price;
- if the seller defaults the day of the term, the buyer may choose either to request the penalty clause (in this case, the down payment paid previously by the buyer has to be paid back by the seller and the latter has to pay an additional 10% on the sale price by way of penalty clause) and then the two parties are released; or demand performance of the sale in court and the sum amounting to 10% will serve as a down payment on the sale price.
5 - Are there any consumer protection measures (cooling-off period, right of withdrawal)?
The signature of an act of direct sale or deferred sale-purchase (with or without conditions) is a binding commitment for both parties. There is no cooling-off period.
6 - How can I obtain financing? Directly from the banks? Through brokers?
The purchase of real estate is financed by mortgage loans granted by banks or insurance companies.
Buyers contact the foregoing institutions, either directly or through brokers specialised in the field of financing.
7 - What form does the financing agreement take?
Financing takes the form of a mortgage loan contract.
In the case of a direct sale, the mortgage loan is signed prior to the act of sale.
In the case of deferred sale-purchase (with or without conditions), the buyer has to obtain one or more agreements in principle prior to signing the act of deferred sale-purchase. Indeed, as mentioned earlier, the buyer signing an act of deferred sale-purchase makes a binding commitment.
8 - What do I need to do once I have obtained financing? Who draws up the loan agreement? To whom will the loan be paid?
The loan/mortgage credit contract is signed by the buyer and the bank or insurance company. This contract is signed as a private agreement.
The notary in charge of the sale will check availability of funds with the buyer’s bank or insurance company and value on the day of transfer of ownership.
9 - What are the usual types of guarantee requested to finance a residential real estate purchase?
The Swiss Civil Code (hereinafter: SCC) provides for two types of guarantees taking the form of pledges on immovable property (art. 793 SCC):
- the mortgage certificate, or
- the mortgage.
In principle, banking institutions request the issue of mortgage certificates to guarantee their loans.
A mortgage certificate is a promissory note that comes in two forms essentially:
- registry nominative certificate (i.e. electronic);
- nominative or bearer’s certificate.
The current trend in the Canton of Vaud is the registry certificate that has the great advantage that it cannot be lost and avoids custodial fees, as it is electronic.
10 -How do I constitute a mortgage/other type of security?
The mortgage certificate is constituted or amended only by means of an authentic act.
11 - What are the consequences of this mortgage for me?
The mortgage certificate offers the bank or insurance company the opportunity, after having sent a formal notice to the debtor, to request that the mortgaged immovable property be auctioned, in order to receive priority repayment of the sale price.
12 - What types of information/documents are required for a real estate sale? Concerning the parties? Concerning the property sold?
Concerning the parties:
The following documents are required essentially:
- ID card or passport, civil status document (family record certificate/book, individual civil status certificate, ...), a marriage contract, if applicable, a permit of stay or establishment (if one of the parties is a foreigner) of each of the parties;
if one of the parties is subject to a child or adult protection measure, the relevant decision of the competent authority;
if one of the parties is a legal entity, the extract of the Business Register (if the company is foreign , then the extract of the register where the company was incorporated and the persons having the capacity to validly commit the company; this extract must include an apostille).
Concerning the sold property:
The following documents/information are required essentially:
Land registry extract regarding the immovable property to be sold, and, if necessary, the extract of the basic parcel (that is to say the plot of land where the property is situated within a condominium) or the extract of the common parcel (that is to say property owned jointly with other immovable property);
supporting documents regarding any particulars, records, easements or charges on the property;
knowing whether the mortgage certificate concerning the sold property has been issued by a mortgage creditor;
consultation of the cantonal cartographical website, by selecting the menu “polluted sites”;
determination of the amount of radon found in the commune where the property to be sold lies;
verification of the zone (building zone or outside a building zone, tourist zone) where the parcel is found;
- condominium regulation, minutes of the (ordinary and extraordinary) general meetings of co-owners of the past three years, the condominium’s accounts of the past three years;
an asbestos inspection (if envisaged);
an OIBT report (Federal Regulations on Low Voltage Electrical Wiring) of less than 5 years;
which part of the seller’s assets (private or commercial) does the property belong to?
This has an important impact on the capital gains tax.
13 -Who collects the information/documents?
14 - How long does it take to obtain this information?
Signature of the act
1 - Is there a compulsory form for the sale agreement (e.g. notarised)?
In accordance with art. 216 of the Code of Obligations (hereinafter: CO), acts concerning the sale of immovable property (direct sale or deferred sale-purchase (with or without conditions) must be in the authentic form.
It is important to point out that if a deferred sale-purchase (with or without conditions) act is signed, the transfer of the immovable property can be performed by means of a private agreement.
2 - If several forms are possible, are some more secure or more risky than others?
3 - What is involved in the signature of the act?
The notary draws up the draft act of direct sale or deferred sale-purchase (with or without conditions). He sends it, together with an explanatory letter, suggesting the date of signature.
Furthermore, if it is a direct sale or the performance of a deferred sale-purchase (with or without conditions), the notary sends details of the sums to the seller (amount to be received) and the buyer (sum(s) to be paid) respectively.
The notary reads out the act of direct sale or deferred sale-purchase (with or without conditions) to the parties from A to Z. The notary explains the act to the parties informing them of the economic, legal and tax-related consequences of the act. On this occasion, the parties may ask all the necessary questions.
The original act of direct sale or deferred sale-purchase (with or without conditions) is signed by the two parties and the notary.
The original document is kept by the drafting notary throughout his/her years in practice.
It is important to point out that the successor of a notary has to deposit all the original acts of his/her predecessor at the cantonal archives within 20 years after having taken up his/her post.
The notary also stores his original acts electronically.
Lastly, the notary is required to deposit a certified copy of his original act at the Land registry within 14 days from the signature of the act of sale or deferred sale-purchase (with or without conditions). A system makes it possible to forward this certified copy electronically to the foregoing Register.
4 - What are the resulting rights and obligations?
The signature of the act of sale or deferred sale-purchase (with or without conditions) implies the following rights and duties:
For the seller:
the duty to transfer the sold immovable property under the terms of sale (e.g. free from any lease or occupants) with all the rights and charges set out in the act (particulars, records, easements, pledges and charges)
the release from any commitment resulting from any pledge(s) on the immovable property sold following repayment of any mortgage loan;
the duty to communicate any flaws that the seller is aware of;
the right to receive the balance of the sale price subject to the payment/various deposits made through the notary (repayment of the mortgage loan, deposit amounting to 5% of the sale price to assure the seller the correct payment of the sale price).
For the buyer:
- the right to the guarantees resulting from the aforementioned duties of the seller;
- the duty to pay the price according to the terms established in the act, including payment of transfer rights and the fees of the Land registry and the notary.
Performance of the contract
Implementation of a certain number of public rights applicable to the sale
1 - What rights must generally be implemented for a real estate sale? Right of first refusal? Preferential right? Compulsory administrative document or authorisation? etc..
Right of first refusal:
Essentially, there are several types of rights of first refusal. Here are the most frequent cases:
Some real estate having significant historical value is subject to a right of first refusal in favour of the Canton. This property is subject to a specific notice to be sent to the Land registry.
Certain rural property is subject to the right of first refusal of farmers, relatives or co-owners.
Moreover, co-owners, i.e. persons either holding or granting surface rights, also have the right of first refusal.
Authorisations: the sale of rented flats is subject to authorisation. The same applies to some rural real property too.
Furthermore, the purchase of a holiday house by a foreigner not domiciled in Switzerland requires a special authorisation under the Federal law on the purchase of immovable property by foreigners.
Who fulfils the formalities for the implementation of these rights?
It is the notary in charge of the sale who contacts the beneficiaries of the right of first refusal or who takes the necessary steps to obtain the necessary authorisations.
2 - How and at what point does the buyer become the owner of the property?
How and at what point does the buyer become the owner of the property?
Under Swiss law, transfer of ownership takes place only after entry of the real estate transfer request in the record book of the Land registry. Entry of the real estate transfer request is made when the following documents are deposited at the Land registry through the notary:
certified copy of the act of direct sale;
-a document entitled “transfer request” acknowledging essentially the payment of the sale price and the transfer of ownership when a deferred sale-purchase (with or without conditions) has been signed previously. In other words, in addition to a valid title (that is to say the signature of an act of direct sale or of deferred sale-purchase (with or without conditions) followed by a transfer request), a valid mode (entry in the Land registry) to transfer ownership is necessary. However, in general, acts of sale or deferred sale-purchase lay down that profits, risks and enjoyment are passed on to the buyer as of the day of signature of the act of direct sale or of the document entitled “real estate transfer request” which follows a deferred sale-purchase (with or without conditions), and not when transfer is registered at the Land registry
3 - At what point is the payment made? By the buyer? To the seller?
The price is paid to the notary on the day of the signature of the act of direct sale or the performance of the deferred sale-purchase (with or without conditions).
On the day of the signature, the notary organises the deposit of the sum of any mortgage loan and the buyer’s own funds, to cover the full sale price and transfer rights. On the same day or later, the buyer pays the notary’s fees and the Land registry and stamp duties (i.e. tax collected when mortgage certificates are issued or increased) directly to the notary.
On the day of the signature of the act of direct sale or the performance of the deferred sale-purchase (with or without conditions), the notary acknowledges the payment of the sale price on a special account not subject to clearing in case of bankruptcy of the notary. The notary withholds the following from the sale price to be paid to the seller:
5% of the sale price to guarantee the payment of any capital gains tax due by the seller;
the balance of the mortgage loan in order to assure its repayment;
any brokerage fees;
the sum that the seller withdrew previously from his occupational retirement fund to guarantee his banking institution repayment or, on the contrary, assure its reinvestment in a new immovable property used as his/her main domicile.
4 - How must I make the payment?
5 - How can I guarantee that the mortgage taken on the property against the seller will disappear?
6 - What taxes are usually payable on a real estate sale? Are the rates available on an official website?
Fees/taxes chargeable to the seller
The buyer pays the transfer duties. This is a formal tax amounting to 3.3% of the sale price.
Furthermore, the Land registry charges a commission. The notary too is entitled to an act-related fee, to which he adds his/her fees for preliminary and ancillary services concerning the signature of the act.
Regarding transfer dues, the notary’s fee and the Land registry duties, these can be estimated on the website of the Association of Notaries of Vaud, using a calculator. http://www.notaries.ch/associations/vaud/combien.html
Taxes chargeable to the seller
The seller pays the capital gains tax.
If the immovable property is part of the seller’s private assets, then the real estate gains tax is applicable. The rate is a decreasing one, depending on the number of years of ownership and occupation (the maximum rate is 30%, while the minimum rate is 7 %) by the seller. If the immovable property is part of commercial assets, then the capital gains will be added to the seller’s income and the tax rate depends on the seller’s overall yearly income.
If the immovable property is owned by a business, then the capital gains tax will be applied by way of profit tax.
7 - How and by whom are the taxes calculated? When and where is the tax payment due?
The transfer duties are calculated and deposited by the notary on the day of the transfer of the property.
The real estate gains tax involves filing a return that can be filled in by the seller or the notary or by a trustee. The return has to be filed within 30 days following the transfer of the property. As mentioned earlier, on the day of the transfer of the property, the notary deposits 5% of the sale price to guarantee the settlement of the real estate gains tax due by the seller.
8 - At what point can the new owner take possession of the property (handing over of keys)?
9 - What is the procedure for publication of the sale agreement?
The Land registry proceeds to register and publish the transfer of immovable property.
In case of sale of property situated in a condominium, the notary generally informs the manager of the condominium so that the latter may fix the sums of the condominium charges pro rata temporis.
10 - Who conducts the formalities of publication of the new ownership?
The notary sends a copy of the sale agreement to the Land registry.
Until today, the copies of sale agreements were sent by mail or courier to the Land registry. As of the past few months, copies can be sent electronically too. This electronic forwarding system also makes it possible to inform the Tax Administration of any transfer of ownership, so that it may tax it by levying transfer duties.
11 - What are the consequences of this?
Based on the copies of the sale agreements forwarded by notaries, the Land registry updates its entries.
Notaries, owners and, to a limited extent, third parties making a request (especially brokers and banks) may consult the Land registry online.
It is important to underline that under Swiss law and in accordance with the Swiss Civil Code, entry in the Land registry transfers ownership.
Furthermore, what the Land registry records, is considered proof. Therefore, entry in the Land registry by the buyer assures that he/she is the rightful owner.