Rent adjustments for residential premises due to an increase in the reference interest rate - limits of what is permissible
The rent is based on the reference interest rate
Under Swiss tenancy law, the rent has been based on the mortgage reference interest rate since 2008. The reference interest rate, which is based on the average mortgage interest rate for Swiss franc-denominated domestic mortgages held by Swiss banks, is levied quarterly and replaces the previously applicable cantonal interest rate for variable mortgages. The basic idea behind basing rents on the reference interest rate was to harmonize rent levels across the country.
When the reference interest rate was introduced in 2008, it stood at 3.5%, and since then it has only known one direction, namely downward. Since March 2020, the reference interest rate has been 1.25%. However, it can be assumed that the reference interest rate will be raised for the first time from summer 2023. The current reference interest rate, but also its development, is published on the website of the Federal Office of Housing(link). If the reference interest rate is below 5% overall, the increase of the reference interest rate by 0.25% each time will justify a maximum increase of the rent by 3%. This means that if the reference rate increases from 1.25% to 1.5%, the rent could be increased by 3% and again if the reference rate increases from 1.5% to 1.75%.
From when does an increased rent apply?
The adjustment of a rent based on a reference interest rate increase is already possible on the next termination date after publication of the new reference interest rate. The applicable termination dates are based on the respective lease agreement. If no termination dates are specified in the lease agreement, the lease agreement for apartments can be terminated with the statutory notice period of three months to the next customary local termination date. The customary local termination dates depend on the respective place of residence and can be obtained from the arbitration authorities of the residential districts.
How does the rent increase take place?
If a landlord wishes to increase the rent or claim new or increased ancillary costs, he must notify the tenant of this on a form approved by the canton and give reasons. If the rent increase is not notified and justified on such an official form, or if the tenant is threatened with termination at the same time as the notification, the rent increase is void, i.e. it has no legal effect and is not legally binding.
It is also important to note that landlords can only increase the rent due to an increased reference interest rate if they have also allowed tenants to benefit from reference interest rate reductions in the past. In other words, if the current rent is not based on the current reference interest rate of 1.25%, the rent cannot be increased as a result of an initial increase in the reference interest rate. Accordingly, rent increases due to a possible increase in the reference interest rate will primarily affect tenants who have only recently moved into their rental apartments or who have requested rent reductions due to the decreasing reference interest rate.
Rentals are abusive in any case if they are used to obtain a translated return on the rental property. The return on the (inflation-related) equity may not exceed the reference interest rate by more than 2% if the latter is 2% or less. That is, after an increase in the reference interest rate from 1.25% to 1.5%, the return on equity should not exceed 3.5% (1.5% + 2%), and if the reference interest rate is 1.75%, the return on equity should not exceed 3.75% (1.75% + 2%).
Achievement of a translated income from a rental property
1. yield calculation
In order to check whether the yield from a rental property is translated, it must be calculated. The calculation of the yield from a leased property and the recognition of an abusive increase in the co-interest requires knowledge of the calculation method, the related case law and a great deal of information on the leased property. According to case law, the return on a rental property is measured by the net return on the equity invested by the landlord. The net return reflects the ratio between the income remaining after deduction of all costs (expenses) (net income) and the funds personally invested by the landlord (equity). To calculate the net return, proceed as follows:
a) Determination of invested equity
Determine the amount of equity originally invested in the leased property (i.e., investment cost less debt).
Adjustment of the originally invested equity capital by taking into account amortization on debt capital and adding back self-financed, value-enhancing investments. Inflation can also be added.
b) Calculation of the annual net proceeds
Calculation of the net income by deducting the annual property expenses from the annual target income of the net rental income. Interest on borrowed capital, operating costs, maintenance and administration costs are taken into account.
c) Calculation of the net return
Calculation of net return based on annual net revenue and invested equity according to the following formula:
Net return = annual net revenue x 100 ./. equity invested
2. yield calculation for old buildings
In the case of properties that were acquired or built more than 30 years ago and have been held by the same owner since then, the criterion of local and neighborhood custom takes precedence over that of income. The yield calculation is then replaced by the comparative rent defined according to the market principle.
Obtaining information for the calculation of the income from the leased property
Since only the landlord has the documents necessary for calculating the income from the leased property, the tenant must request them from the landlord. If the latter does not cooperate voluntarily, it is important for the tenant to know that the landlord must disclose them in court proceedings at the latest. It is in the landlord's own interest to collect as many documents as possible during the current court proceedings, because costs that are not documented will not be taken into account by the court in the calculation.
Contestation of a rent increase
Tenants have 30 days from delivery of the official rent increase form to contest a rent increase. The period begins to run on the day on which the registered notice of increase was picked up at the post office. If the postal item is not picked up, the tenant is deemed to have received it on the last day of the 7-day pick-up period.
If the tenant decides to contest the contract, this must be notified to the competent conciliation authority. The request for conciliation can either be submitted in writing to the conciliation authority or orally to the authority for the record.
To make it easier for tenants to assert their rights, no court fees are charged in conciliation proceedings for disputes arising from the rental and leasing of residential premises. In addition, no compensation is paid to the parties. Consequently, the tenant would only have to bear the costs of any lawyer he consults himself in the conciliation proceedings.
If the conciliation negotiations fail, the matter can be referred to the competent court. The court proceedings, known as "simplified proceedings," also provide some relief for persons who are inexperienced in litigation. For example, the lawsuit can be filed with the court without a statement of grounds, or it can be submitted orally to the court for the record. In addition, the court determines the facts of the case ex officio.
Conclusion
Tenants may be confronted with an increase in the rent for various reasons, namely due to a rising reference interest rate, but also due to inflation, increased maintenance and operating costs, conversions, renovations or increases in ancillary costs.
This makes it all the more important for tenants to carefully examine the rent increase in terms of both form and content and, if necessary, to seek legal advice. But landlords should also obtain comprehensive information about the procedure and what is legally permissible in the event of a planned rent increase.
If you have any questions about landlord-tenant law, please feel free to contact Vivien Keiser.