Building Rights: Contracts and More

Do you always need to own a piece of land to build a house? In Switzerland, the answer is no. It is possible to build on a piece of land without having to buy it, provided the landowner agrees. This right to build is called the building right and is regulated in Article 779 of the Swiss Civil Code (ZGB) and must be registered in the land register.

By registering it in the land register, the building right is converted into an easement, which has the character of an independent and permanent right (Article 779 of the ZGB). It is independent because it is not tied to a person and can therefore be inherited, sold, or transferred, and permanent because the building right lasts for at least 30 years. By registering it in the land register, the building right can be mortgaged.

When a building is constructed on land, the building and the land are legally considered a single entity. According to this principle, building a house on another person’s land would mean that one party grants the other the right to their property, unless a building right has been agreed upon between the parties. In this case, it becomes possible to build on another person’s land and simultaneously become the owner of the constructed building.

In return for this building right, the landowner (also known as the “superficiant”) receives interest from the person renting the land (known as the “superficiary”). Building right contracts are typically concluded for a term of 30 to 100 years, in which the parties agree on “the location, structure, volume, and purpose of the buildings, as well as the use of the undeveloped areas” (Article 779b).

When the contract expires, the property reverts to the landowner. With the so-called “reversion of the structures,” the structures become part of the real estate. The beneficiaries or their heirs must move out. In return, they receive appropriate compensation from the landowner, known as “reversion compensation” (Article 779d of the Swiss Civil Code). The rights can also be renegotiated, and the contract can become the subject of a new agreement.

If a person wishes to grant a building right, a long-term contractual relationship must be established between the two parties. It is advisable to consult a lawyer to draft a building right agreement, as this must be in writing. By granting a building right, the person with ownership of the property grants the other person the right to use their property for a specified period of time as if it were their own.

The building right agreement, also called a building lease agreement, must be notarized. The granted building right is then registered in the land register. The agreement must clearly specify the types of building rights being granted. These are usually rights granted in the form of a so-called independent and permanent easement. In this case, the building right can be transferred by the beneficiaries, either through inheritance, assignment, or sale.

There is also a so-called building right with encumbrance. This is then an ordinary easement, which is registered as such in the land register and refers only to a specific person. This right cannot therefore be transferred to third parties.

The granting of a building lease requires the drafting of a written contract. This contract must regulate all key points relating to the granted right, and its content therefore varies from case to case. It must always contain information about the contracting parties and specify the scope of the granted building lease. It must also mention the duration of the granted right, the interest on the lease, the location, structure, size, and purpose of the buildings, as well as the use of undeveloped land, and the compensation for reversion provided for in the event of breach of the contract. Compensation typically ranges between 70% and 80% of the future actual value.

In terms of duration, a servitude right is said to be permanent if the minimum duration of this right is 30 years. The maximum duration is set at 100 years. When the contract expires, it ends automatically unless the contract stipulates that it can be renewed. In this case, both parties must formulate a new agreement.

Finally, as for the interest, this is usually calculated proportionally to the value of the property. The interest rate can be fixed, meaning it remains the same throughout the term of the contract but is initially higher. If it is not fixed, the interest rate is referred to as variable: the interest rate is recalculated annually and depends on the value of the property. Since real estate prices in Switzerland rarely fall, variable rates typically increase from year to year and vary from canton to canton.

Granting a building lease has advantages and disadvantages for both parties. For the landowner, the primary interest in receiving a building lease is to receive interest. This secures a regular source of income over a long period of time while retaining ownership of the land. On the other hand, they cannot freely use their property for the entire term of the lease.

For the holder of the building lease, the primary interest is to be able to own a property (a house or building) without having to purchase land. Since land prices in Switzerland are often very high, this can facilitate access to homeownership. Furthermore, in some municipalities, land available for sale is scarce, making it very difficult to purchase for construction.

On the other hand, there is a risk that the land’s valuation may be difficult to determine. In this case, it may be difficult for the holder to obtain financing for their construction, as banks may be unwilling to support such a project. Furthermore, since the person doesn’t own the property, they can’t benefit from rising property prices. On the contrary, they could find themselves forced to pay excessive interest later on.