The Federal Court in Lausanne has ruled on how much landlords can raise rents by following renovations. Here’s what the ruling means for those who rent a house or apartment in Switzerland.
Currently, landlords in Switzerland are only allowed to raise rents on those with pre-existing rental contracts in a limited number of circumstances. The most common reasons are if the reference interest rate for Swiss mortgages rises, as it did in June and December last year, or if substantive renovations or upgrades are done to the home.
However, while rent rises connected to interest rates are strictly defined, increases related to renovations used to be a legal grey area. Often, it was up to individual Swiss cantons and their courts to decide how much landlords could raise rents by following a renovation.
Thanks to the ruling by the federal court, this grey area is now resolved.
The case being overseen by the court concerned a five-room apartment in Geneva, which the landlord renovated in 2015 and 2016. Following the renovations, the owner raised the rent on their tenants from 905 to 1.420 francs a month. However, the tenants appealed, and soon the district court in the city reduced the new rent to 1.117 francs a month, and the cantonal court reduced it back down to 985 francs, just 80 francs more a month than the original rate.
The landlord then took the case to federal court, which on September 10 handed down its decision. In the case, the court struck down the prior rulings in Geneva and finally defined how much landlords across Switzerland can raise rents by after significant upgrades and renovations to their properties.
The court ruled that in Switzerland, any upgrades or innovations that lead to an increase in the value of the property can be remunerated at the same rate through rental contracts. In practice, this means that following the work, landlords are allowed to raise the rent by a maximum of 2 percent above the reference interest rate for Swiss mortgages - so long as the rate is below 2 percent.
Currently, the reference interest rate stands at 1,75 percent. This means that rents post-renovation can be increased by a maximum of 3,75 percent. In the case of the flat in Geneva, this means the rent could be increased from 905 to 1.117 francs a month - which despite being higher, is an extremely cheap price for a five-room home in the city.
Following the ruling, the Swiss Homeowners’ Association praised the court’s decision. In a statement, they argued that the policy will help “support investments in value-enhancing measures and energy improvements.”
For their part, the Swiss Tenants’ Association opposed the decision, arguing that it passes on the cost of all landlord-desired renovations to tenants. “The Federal Court is favouring the landlords and their property returns instead of the purchasing power of the tenants,” they wrote in a statement.