Right of first refusal for real estate: What do I need to know as a seller?

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The so-called right of first refusal entitles a person to claim the property for themselves in the event of a property sale before it is sold to a third party. This is therefore a type of preferential purchase, but it must be contractually stipulated. Here you can find out more about this topic in Switzerland, the different types of this right and the correct procedure for applying it.


Right of first refusal – what is it?


It consists of one person (the pre-emptor) having the privilege of entering into the purchase contract first when selling a property. Before the seller can sell the property to a third party, he must first offer it to the person entitled to pre-emption. The seller is only able to sell the property to a third party as planned if he withdraws from his right.

This is often a special tenant right of first refusal. This must be contractually stipulated in order to apply. If necessary, ask your tenants whether they are interested in such a right when drawing up the rental agreement. Alternatively, this can also be entered later.

In Switzerland, the corresponding requirements are precisely regulated in the Swiss Civil Code from Article 681 onwards. Among other things, it states that you may not bequeath or assign it. In addition, Article 216 of the Swiss Code of Obligations contains provisions such as the maximum pre-emption period of 25 years and information on the registration of the right in the land register.

The right of first refusal is particularly important when selling houses, plots of land and floors of buildings. The following conditions must be met:

  • The seller actually wants to sell the property
  • A purchase contract is concluded to which both parties agree
  • The beneficiary of the pre-emptive right expressly exercises its right
  • The seller has guaranteed the beneficiary the right of first refusal to the property

Please note that it does not necessarily affect factors such as the purchase price or the purchase contract. These normally remain the same for the pre-emption beneficiary. At the same time, you as the seller may not demand more money from the seller than from third parties – the limited right of first refusal is an exception.


What types are there?


In Switzerland, a distinction can be made between contractual and statutory pre-emption rights. There are also differences between limited and unlimited rights.

Contractually, the right is based on a so-called right of first refusal contract, which you as the seller conclude with the beneficiary. This can be the tenant, but also another person. In the contract, you undertake to offer the property to the beneficiary first when you sell it.

The following variants of the contractual right of first refusal exist:

  • Limited right: All conditions relating to the purchase price of the property are already set out in the preliminary contract. You must therefore offer the property to the beneficiary, who then decides whether he wishes to exercise his right to purchase, taking the fixed price into account. The current market value and the price that willing third parties would pay are not relevant here.
  • Unlimited right: The contractual conditions that you as the seller have agreed with a third party apply here. These also apply to the beneficiary.

Please note that both the limited and the unlimited variant must be publicly notarized by a notary. The latter takes care of recording the right in the land register in order to guarantee its legal effect. Nevertheless, the beneficiary may refuse his right.

The statutory pre-emption right, on the other hand, arises according to Article 682 of the Civil Code through a co-ownership relationship in a property, through a building rights relationship or through land rights. No contract is necessary for the beneficiary to be able to exercise his or her right. Nevertheless, it is advisable to record the legal situation in a contract.

Tip

As the seller, find out in good time whether there is a statutory right of first refusal that you may not have been aware of.


Bear in mind that the right of first refusal exists in the event of a sale. This is therefore relevant if you want to sell your property. However, if you transfer the property by way of a gift or pass it on to an heir, this right is not relevant.


How is the right of first refusal recorded?


The following procedure is important in order to record the contractual right of first refusal in a legally valid manner:

  • Conclude a right of first refusal agreement with the beneficiary, such as the tenant. In this contract, you undertake to give priority to the beneficiary when selling.
  • Have the right of first refusal publicly notarized. This applies in particular to contractual, limited pre-emption rights for which a visit to the notary is necessary. The expert takes care of the public notarization, which is not necessary in the case of an unlimited right of first refusal.
  • An entry in the land register is required for both limited and unlimited pre-emption rights. The notary will ensure that the entry is made and that the right of first refusal is valid vis-à-vis third parties. Without a land register entry, you are not in a position to assert the right of first refusal against persons who are not your contractual partner.

While the form of contract is important in the case of contractual pre-emption rights, you should pay attention to the provisions on the reason for creation in the case of statutory pre-emption rights. Proceed as follows when exercising:

  • Co-ownership as a reason for the statutory right of first refusal: In this case, all other co-owners of the property have a right of first refusal against any non-owner who is willing to buy.
  • Building right as a reason for the statutory right of first refusal: In this case, both the owner of the property and the person who has the building right have a right of first refusal.
  • Agricultural land with land rights as a reason for the statutory pre-emption right: Close relatives and tenants of agricultural land have pre-emption rights.

What are the rights and obligations?


As a seller, you should be well informed about your rights and obligations with regard to the right of first refusal. One important point here is that tenants do not automatically benefit from this right. This may be the case for tenants of agricultural land, but not for tenants of traditional properties who have no contractual right of first refusal.

If you know that there is a beneficiary – whether under the contractual or statutory right of first refusal – then you must fulfill your duty of notification. So inform the person about the intention to sell. The beneficiary then has the right to exercise his right of first refusal or to reject it. If the beneficiary decides to do so, you will inevitably have to sell him the property.

The following steps are important when selling a property with a right of first refusal:

  • Conclude a purchase contract with a third party who is willing to buy. This is the only way that the pre-emption case can occur, as interest or contract negotiation alone is not sufficient to exercise the pre-emption right.
  • Inform the beneficiary that there is a purchase contract with a third party. The notification should include the purchase price and the most important contents of the purchase agreement.
  • The beneficiary of the right of first refusal now has three months to decide whether or not to buy the property. If the deadline expires, the right lapses. An express written declaration of intent is required to exercise the right.
  • If the beneficiary decides to exercise his right of first refusal, he must conclude a purchase agreement with you as the owner to make the transaction valid.

When does the tenant have a right of first refusal?


Many tenants wrongly assume that they automatically include a right of first refusal for the rental property. However, this is only the case if there is a contractual right of first refusal or if one of the above-mentioned conditions for the statutory right of first refusal applies.

In principle, the Swiss right of first refusal is intended to give preference to certain persons when selling. As the seller, you are free to choose these persons in the contractual right of first refusal. In many cases, these are in fact longstanding tenants who know the property well. The right of first refusal must be accepted and contractually secured by both parties in order to be valid.

You should also be aware that statutory pre-emption rights are not inheritable. Contractual pre-emption rights, on the other hand, are inheritable – provided that nothing to the contrary has been agreed in the pre-emption right contract. Normally, the contractual right of first refusal expires automatically after 25 years.


When can the right of first refusal be revoked or circumvented?


Contractual pre-emption rights expire automatically on expiry of the agreed term, at the latest after 25 years. However, it is also possible to restrict the right or include certain conditions in the contract. It is not normally possible to cancel them completely.

Although statutory pre-emption rights do not have a minimum term, they can also be restricted and, if desired, revoked by means of a publicly notarized agreement. It is best to seek advice from a notary or an experienced estate agent.

If there is a beneficiary of the right of first refusal whom you have inadvertently not informed or who only learns of the sale much later than planned, they can still exercise their right of first refusal within ten years of the purchase in the contractual variant. The statutory right of first refusal, on the other hand, expires two years after entry in the land register. To avoid the law, you can transfer your property by way of a gift or pass it on to your heirs. In these cases, the right of first refusal does not apply, as there is no case of first refusal.

Do you have further questions on the subject of pre-emption rights in Switzerland? We offer free counselling appointments for landlords and sellers.

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All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be assumed for the accuracy of the information provided.

 

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