The international community values Switzerland as a vacation destination not only for its natural beauty, but also for its economic and political stability, its education system and its low crime rate. For these reasons, Switzerland has topped the list of the most popular places for foreigners to buy vacation homes every year for several decades.
On January 1, 1985, the Federal Act of December 16, 1983 on the Acquisition of Real Estate by Persons Abroad (LFAIE) came into force, with the aim of limiting foreign ownership of Swiss real estate. The LFAIE imposes strict limitations on the acquisition of real estate in Switzerland by foreigners, particularly with regard to vacation homes.
The LFAIE was first amended in 1997 (Lex Koller), to facilitate foreign investment in commercial real estate, and then a second time in 2004, to allow foreigners to acquire shares in listed real estate companies without authorization.
In 2007, the Federal Council planned to repeal the LFAIE, but ultimately abandoned the idea on the grounds that investment in the Swiss real estate market had become less attractive in the wake of the 2008 financial crisis.
By accepting the initiative on second homes in 2012, the Swiss population voted in favor of limiting the construction of second homes. The Federal Law on Second Homes (LRS), which came into force on January 1, 2016, implements the constitutional article on second homes (Art. 75b Cst.). It requires all municipalities in Switzerland to draw up an inventory of housing once a year, and in particular lays down the rule that no new second homes may be permitted in municipalities with a proportion of second homes in excess of 20%. In other words, in principle, it is no longer possible to build a vacation home (which by definition is a second home) in these communities. The adoption of this law results in a second limitation on the acquisition of vacation homes, since the construction of second homes is restricted.
Recently, a partial revision of the LRS was put out to consultation until February 17, 2023. Under this revision, owners of dwellings already built or authorized before the adoption of the LRS in 2012 could benefit from new options when enlarging the main floor area and dividing into several dwellings.In communes where the proportion of second homes exceeds 20%, this amendment would allow buildings erected under the old law to be enlarged without restrictions on use, and subdivided into several dwellings.In this way, additional second homes could be put on the market without the land take being excessive within the meaning of the law.
It should be noted that additional restrictions on housing construction also derive from the Federal Law on Spatial Planning (LAT). Already in 1979, the first version of this law required that land be used sparingly. However, as many municipalities have defined oversized building zones, there has been a sharp increase in the amount of built-up land. With a view to reversing this trend and limiting land wastage (sprawl), the LAT was revised for the first time in 2014. This involves downgrading building zones, typically to agricultural zones. The second part of the LAT revision, concerning construction outside building zones, is still under discussion in Parliament.
2 The acquisition of vacation accommodation by foreign nationals from outside the EU and EFTA without a C permit (settlement permit)
Am I subject to the LFAIE?
The general principle of the LFAIE is that the acquisition of real estate (houses, owner-occupied apartments and building land intended for such construction) by a person abroad is subject to authorization.To determine whether or not the proposed acquisition is subject to authorization, it is important to define the conditions under which authorization is required.
Individuals living abroad are defined as :
- Foreigners domiciled abroad;
- Foreign nationals domiciled in Switzerland, but who are not nationals of a member state of the European Union (EU), the European Free Trade Association (EFTA), or the United Kingdom of Great Britain and Northern Ireland, and who do not hold a valid settlement permit (C permit).
The registration of land ownership in the land register is subject to authorization, as is any legal act conferring on a person abroad a right of disposal over real estate subject to authorization. The following are thus considered equivalent to the acquisition of real estate:
- The acquisition of a right of ownership (joint ownership or co-ownership, including condominium ownership), surface right, residential right or usufruct over a property;
- The acquisition of shares in a legal entity whose actual purpose is the acquisition of residential property, unless these shares are listed on a stock exchange in Switzerland;
- The acquisition of a share in a real estate investment trust whose shares are not traded on a regular market;
- The creation and subsequent exercise of a right of emption, pre-emption or repurchase on a property;
- The acquisition of other rights, which may give the holder a position similar to that of the owner of a property. Examples include excessively long lease contracts or arrangements involving the financing of a property by a person domiciled in Switzerland under conditions that do not correspond to market conditions. The authorities could then qualify such unorthodox arrangements as an abuse of rights designed to circumvent the law.
Following the Brexit, Switzerland and the United Kingdom concluded the Agreement of February 25, 2019 between the Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland on citizens' rights following the withdrawal of the United Kingdom from the European Union. On this occasion, the LFAIE was amended to grant UK nationals the same rights as those of EU and EFTA countries.
Exception for vacation homes: can I buy a vacation home?
Art. 9 para. 2 of the LFAIE provides that the cantons may, by law, create a ground for authorization for an individual who acquires a property as a vacation home or apartment in an aparthotel, subject to certain conditions.
It is therefore possible for foreigners domiciled abroad to acquire vacation accommodation in a designated tourist zone, subject to strict conditions that depend not only on the federal law and ordinance, but also on the relevant cantonal legislation.
Under federal law, a foreigner subject to authorization may be allowed to acquire a vacation home or an apartment in an aparthotel under the following conditions:
- Direct ownership: vacation homes and apartments in aparthotels can only be acquired by natural persons directly in their own name. Indirect acquisition through a company is prohibited.
- Cantonal tourist zone: the property must be located in a tourist area designated by the canton. The following cantons have introduced the requirement to acquire a vacation home or apartment in an aparthotel: Appenzell Ausserrhoden, Bern, Fribourg, Glarus, Grisons, Jura, Lucerne, Neuchâtel, Nidwalden, Obwalden, St. Gallen, Schaffhausen (only for apartments in aparthotels), Schwyz, Ticino, Uri, Valais and Vaud. It should be noted that the Canton of Geneva has not adopted an authorization system for the acquisition of vacation homes.
- Quotas: each authorization must be deducted from the annual quota that the Confederation allocates to the canton for vacation homes and apartments in aparthotels, except where the seller has already obtained an authorization for the acquisition of this home or apartment.
- Limited surface area: as a general rule, the net floor area of living space (comprising all living areas, including kitchen, entrance hall, bathroom, toilet, enclosed swimming pool, sauna and games room, but excluding balcony, staircase, cellar and attic) must not exceed 200 m2 and the plot area 1'000 m2. However, according to established practice, in the event of duly proven additional need, up to 250 m2 of net floor area and 1,500 m2 of plot area may be authorized without further ado, as well as, in very exceptional cases, larger overruns. The Federal Court recently reiterated that additional requirements relate to the extended circle of relatives, i.e. children, parents, grandparents and close friends, who habitually occupy the home on vacation (Federal Court ruling 2C_947/2018 of August 10, 2020). However, the requirements for proving these needs are high.
In addition, the acquisition is subject to the following limitations:
- Only one vacation home per family: the purchaser, his or her spouse or registered partner, or a child under 18 years of age, may only acquire another vacation home or second home on condition that the first is disposed of.
- Rental restrictions: vacation homes may not be rented out on a year-round basis, but may be rented out on a temporary basis. The purchaser must at all times be able to use the property for the purpose for which it was intended. Apartments in an aparthotel must be made available to the hotelier with a view to their operation as hotels, especially during the high season.
The above conditions and limitations are governed by federal law. In addition, a case-by-case analysis must be made of the conditions imposed by cantonal implementing legislation, which may further restrict the purchase of vacation homes (see below).
Since cantonal laws governing the application of the LFAIE may differ from one another, it is advisable to consult a notary, a specialist lawyer or the cantonal authority of the location of the vacation home being considered for purchase.Procedure for requesting authorization
In principle, the notary responsible for arranging the sale of the vacation home will draw up the deed of sale, have it signed by the parties, draw up the necessary mortgage documents (if applicable) and request payment of a percentage of the price. Following this, he will request authorization from the relevant authority. If authorization is granted, he will proceed with the final stages of the real estate transaction, i.e. collecting the balance of the purchase price and completing the formalities for transferring ownership to the land registry. It should be noted, however, that practice in this area may differ from canton to canton.
The duration of a purchase authorization procedure can range from a few weeks to several months. During the entire procedure, there is nothing to prevent the future buyer from renting out the vacation home to the seller.
A few details, canton by canton
The cantonal authorities have designated 108 communes as tourist areas where the acquisition of vacation homes is considered necessary for the development of tourism. By 2023, the number of quota units for vacation homes will have risen to 330.
In addition to the federal restrictions, it should be noted that the cantonal implementing law imposes a five-year possession period before the vacation home can be resold to a foreigner (no period for resale to a Swiss buyer). Some communes have adopted more restrictive measures.
The cantonal authorities have drawn up a list of 29 communes or parts of communes in whose territory the acquisition of a vacation home may be authorized. The 2023 quota for vacation home permits is 175 units.
The authorities in this canton have designated 54 communes as tourist areas where it is possible to buy vacation homes. Some of these communes have taken restrictive measures, such as temporarily blocking permits or limiting the number of properties that can be sold in a calendar year. In particular, the municipality of Kandergrund has blocked the granting of permits until further notice. The municipality of Lütschental (near Grindelwald) is allowing only one property per year to be sold to persons requiring a permit. The canton's quota for 2023 is 140 units.
The cantonal authorities have drawn up a list of 20 communes where foreigners can buy vacation homes. Communal restrictions may also apply. The 2023 quota amounts to 50 units.
The cantonal authorities have drawn up a list of 18 locations where the purchase of vacation homes is possible. Communal restrictions may apply in addition. The 2023 quota amounts to 20 units.
28 tourist-oriented communes have been selected by the cantonal authorities. The 2023 quota is 35 units.
The Canton of Uri is of interest because of the development of the Andermatt Swiss Alps project: this project benefits from an exemption from the LFAIE which was granted by the Federal Council in December 2007, in the best interests of the Confederation. No restrictions apply to the acquisition of vacation homes in this specific location. In addition, the cantonal authorities have drawn up a list of 19 communes in which the acquisition of vacation homes can be authorized. The 2023 quota amounts to 20 units. Cantonal law imposes a limit of 50% of the surface area in a PPE or aparthotel that a person abroad can acquire. Communes may also impose additional restrictions.
Graubünden is an important canton for the acquisition of vacation homes, not least because of its tourist hotspots such as St. Moritz and Davos. It's no coincidence that many of the Federal Supreme Court's rulings come from this canton. The cantonal authorities have selected around a hundred communes where foreigners can buy vacation homes. The quota for 2023 is 290 units.
3 Consequences of non-compliance with LFAIE regulations
From a civil point of view, it should be borne in mind that any legal act concerning an acquisition for which the purchaser is required to have authorization remains ineffective in the absence of a valid authorization.The purchase of a vacation home is therefore void without a valid authorization at the time of the transaction.
More specifically, legal acts are null and void when (i) the purchaser executes the legal act without requesting authorization or before the authorization has become legally valid, (ii) the authority has refused authorization or revoked it by a legally valid decision, (iii) the land registrar rejects the requisition,if the purchaser fails to apply for authorization within 30 days at the request of the land registrar, or (iv) the auction authority cancels the auction, if the purchaser fails to apply for authorization within a period of 10 days set by the said authority.
As a result of such a nullity of the transaction, the promised services are not due, or the services provided may be repeated within one year of knowledge of the right of repetition. In addition, the action for cessation of the unlawful state is brought ex officio.
The cantonal authority entitled to appeal or, if it fails to act, the Federal Office of Justice may bring an action for cessation of the unlawful state of affairs. The first aim of the action is to restore the original situation. If this proves unwise, the judge may order the sale of the property by public auction.
From a criminal point of view, failure to comply with the conditions imposed by the law can result in the application of several criminal offences, including the following:
- Intentionally carrying out a legal act (such as a deed of purchase) for the purpose of an acquisition subject to authorization, without having obtained such authorization, is punishable by a custodial sentence of up to three years or a fine.
- Intentionally providing the competent authority or the land registrar with inaccurate or incomplete information concerning facts on which the granting of authorization may depend, or cunningly exploiting an error on the part of the authority, is punishable by a custodial sentence of up to three years or a fine.
The LFAIE complicates the acquisition of vacation homes by foreigners, by making the purchase subject to authorization. The adoption of the LSR has also reduced the possibilities of acquiring such property, since the construction of new second homes has been severely restricted in certain areas, notably the tourist resorts most popular with foreign clientele. The LAT has further restricted the possibilities of building any type of housing, by significantly reducing the overall available building zone. One of the consequences of these various restrictions has been to restrict the amount of property available on the market, leading to higher prices.
The revision of the LRS, currently under discussion in Parliament, is intended to ease the restrictions imposed by the current version of the law and allow additional available goods to enter the market.
In addition, during the pandemic, many Swiss people discovered or rediscovered their home country as a vacation destination, further restricting the goods available to non-EU/EFTA foreigners without a C permit (settlement permit) on the market. This is also one of the reasons why prices for vacation homes and apartments rose sharply last year in all Swiss destinations.
Nonetheless, there are opportunities for non-EU/EFTA nationals without a C permit (settlement permit) to purchase a vacation home. However, it is crucial to strictly observe the legal requirements, otherwise the purchase of a vacation home may fail.
N. B. The content of this article is of a general nature only, and each individual case must be analyzed on its own merits.
Editors : Oberson Abels - septembre 2023