What is the right of first refusal in real estate in Switzerland?
The right of first refusal grants a person the privilege of entering into a sales contract during the sale of a property ahead of any third party. In practice, this means that a seller must offer the property to all rights holders before it may be sold to outsiders. Only when all rights holders have waived their rights can the property be sold to a third party.
The right of first refusal is relevant for both sellers and buyers: In the case of a sale, the seller must properly inform all rights holders; in turn, if a buyer is interested in a specific property and there is a third party with a right of first refusal, that person’s interests will have priority. As a potential buyer, it is thus advisable to inquire with the seller for details about any potential rights holders.
Alternatively, you may contact our team or your local Neho agent in case you have any questions about the right of first refusal.
Statutory right of first refusal in Switzerland
Swiss law distinguishes between two types of right of first refusal: statutory rights on the one hand and contractual rights on the other hand. A statutory right of first refusal always applies, even in absence of any contract. The following groups of people have a statutory right of first refusal:
- Co-owners: If a co-owner of a property wishes to sell their share, all other co-owners have a right of first refusal.
- Right to build: Holders of a right to build have a right of first refusal to the plot of land, and landowners have a right of first refusal to any building constructed on their plot.
- Agricultural land: In case of a sale of agricultural land — provided it falls under the Federal Law on agricultural land rights (BGBB/LDFR) — leaseholders and certain close relatives have a statutory right of first refusal.
Statutory rights of first refusal always apply, never expire and do not require a contractual agreement; however, they can be neither inherited nor transferred. They can be understood as a way of protecting the legitimate interest of certain individuals with a special connection to a property. It’s important to note that even as a long-standing tenant, you do not have a right of first refusal in Switzerland!
Contractual right of first refusal in Switzerland
Contractual rights of first refusal arise from a contractual agreement, by which an owner pledges to a third party — such as a long-standing tenant or a relative — to sell to them ahead of anyone else. This right is valid for the duration laid down in the contract, but never for more than 25 years.
Swiss law differentiates between limited and unlimited rights of first refusal:
- Limited right of first refusal: The price and any additional conditions of the purchase are specified in the contract. These apply to the holder of the right of first refusal regardless of the conditions under which the seller could have sold the property to third parties.
- Unlimited right of first refusal: The holder of the right of first refusal is authorised to purchase the property at the same price and under the same conditions that it would have been otherwise sold to third parties.
In both cases, the right of first refusal must be recorded in writing. If the price is predetermined, the agreement must be notarized. The right of first refusal may also be entered in the land register in order for the seller to be able to assert their right to a third party. Without entry into the land register, the right of first refusal is binding only between the parties who signed the contract.
Unlike statutory rights of first refusal, contractual rights of first refusal can be inherited if not otherwise specified in the agreement. In case of a conflict between several rights holders, statutory rights of first refusal take priority over contractual ones.
What is the legal basis for the right of first refusal in Switzerland?
Statutory rights of first refusal are regulated in article 681 ff. of the Swiss Civil Code. Contractual rights of first refusal are regulated in article 216 ff. of the Swiss Code of Obligations. In addition, for agricultural land, article 42 ff. of the Federal Law on Agricultural Land Rights (BGBB/LDFR) may apply.
How do I use the right of first refusal as an owner in Switzerland?
Granting a right of first refusal allows you to legally bind a sales intention to a selected person. This could be done for one of the following reasons:
- You want to make sure that a property remains in the family and therefore grant a right of first refusal to a relative interested in taking over.
- You are a landlord and want to give your long-term tenant the security of being able to remain in the property in the event of a sale. This also makes it more attractive for the tenant to continue renting from you.
- You have found a buyer for your property, but the timing of the sale is still uncertain.
However, a right of first refusal agreement brings some decisive disadvantages for owners that you should be aware of. For example, once it has been notarized, the contract is legally binding for up to 25 years depending on the specified duration. Your relationship with the rights holder may change radically during this time. Even in case of a falling out with the person, they will still retain a right of first refusal to your property. In addition, a property burdened with a right of first refusal usually loses value, as the rights holder can enter into the purchase contract at any time. This makes the property less attractive to potential buyers, which results in a lower price.
Procedure for a real estate sale with a right of first refusal in Switzerland
Let’s say you are an owner and are planning to sell your property burdened with a right of first refusal. You must plan and carry out the sale to a third party as normal, including the drafting and even the signing of the purchase contract. However, you are then legally obliged to inform — in writing — all rights holders of the conclusion and contents of the purchase contract, so that they can exercise their right and enter into the purchase contract. They have three months from the receipt of the notification to do so.
It is important to know that a sales intention or even advanced negotiations alone are not sufficient to trigger a right of first refusal; only when the purchase is actually made, that is, when the purchase contract has been drafted and signed, can the rights holders assert their right and enter into the purchase contract.
If you fail to inform the relevant parties, the rights holders can still assert and enforce their right to purchase even after the three-month deadline has expired. If the right of first refusal was recorded in the land register, the associated obligations pass to the new owner in the event of a sale, and the rights holders have the right to subsequently claim the property for themselves from the new owner. If, as in the case of statutory pre-emption rights, there is no entry in the land register, the right to subsequent acquisition lapses. However, the rights holders may sue you for compensation.
It is important for owners to know that the right of first refusal only applies in case of a sale or a transaction that is equivalent to a sale, that is, when the payment is fungible. The right of first refusal does not apply when the payment is non-fungible or if there is no payment (say, in case of a gift or inheritance).
What do I need to know about the right of first refusal as a buyer in Switzerland?
If you are interested in a property, there are several good reasons to thoroughly inform yourself about any right of first refusal on this property, since you probably want to avoid having an unknown third party snatch the property away from you at the last moment. Most importantly, you need to check the land register for any recorded rights of first refusal, as the associated obligations will transfer to you as the new owner in the event of a sale. This means that a rights holder can claim the property from you retrospectively — without reimbursement of the purchase price!
As mentioned above, the right of first refusal only applies in the case of a sale or a transaction equivalent to a sale. It does not apply in the case of a gift, transfer, inheritance, and the like.
What do I need to know about the right of first refusal in Switzerland as a rights holder?
If the owner didn’t offer the property to you for sale in the first place, you can expect a written notification when the purchase contract has been prepared and a buyer has signed it. From that point onward, you have three months to exercise your right and enter into the purchase contract in place of the third-party buyer. Your conditions and purchase price will either be the same as those of the third party buyer (unlimited right of first refusal), or they will be the ones stated in the right of first refusal agreement (limited right of first refusal).
You can obviously only exercise your right if you have the necessary financial means to acquire the property, which may not necessarily be the case, especially in the case of an unlimited right of first refusal, as the price negotiated between the seller and the third party will dictate what price you will have to pay as well.
Good to know: As a rights holder, you are never forced to buy and may waive your right at any point.
The right of first refusal in Switzerland: key points to know
- The right of first refusal in real estate in Switzerland grants a specific individual or entity the opportunity to purchase a property in place of other potential buyers.
- This right can be established through a contractual agreement (contractual right of first refusal) or by law (statutory right of first refusal).
- As a seller, you need to inform all parties with a right of first refusal as soon as the purchase contract has been signed.
- As a buyer, take extra care to check the land register for any right of first refusal, since the associated obligations will transfer to you in case of a sale.
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