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Reference interest rate increase to 1.50%, what does this mean for property owners

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The reference interest rate used to calculate rents was increased by 0.25 percentage points to 1.50% effective June 1, 2023. This development may lead to Swiss households being confronted with higher rental costs. Within the next five years, owner:ins can raise rents by about 15 percent.

Especially in this day and age, this is a controversial topic. The housing shortage and high rents for the population are offset by inflation-related cost increases for owners. Yields have declined and in some cases continue to decline. For many, it’s about finding the balance between cost recovery, reasonable return on investment and sustainable management.


Forecast of the reference interest rate (in %)



Reasons for rent increase


Since inflation can have serious consequences for tenants, such as putting them under considerable financial pressure and forcing them to leave their homes, the validity of any rent increase must be legally guaranteed. The rent may be adjusted, among other things, in the event of value-enhancing investments, increased operating and maintenance costs, general inflation or if the reference interest rate has been raised.

Do you want to be on the safe side when adjusting your rent? Our checklist supports and guides you step by step through the process.

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Correlation between average bank interest rate and mortgage reference rate (in %)



How can owners raise rents based on the increase?


In principle, only the rents of tenancies of indefinite duration can be increased. For this purpose, it is mandatory to fill out an officially approved form of the respective canton for the notification of rent increases. If you inform the tenants about the increase in an accompanying letter, the form must be mentioned and enclosed in it, otherwise the increase is void. It is also important to note the timely notification of the rent adjustment. This should usually reach the tenant:s 10 days before the next ordinary notice period. Thus, the rent increase would take effect after 3 months at the earliest.

Tipp

The rent increase is inadmissible if:
– The reason for the rent adjustment is not clearly defined
– The adjustment of the rent was not communicated with the officially approved form
– The termination is threatened or pronounced at the same time
– The increase is not communicated in due time


By how much can rents be increased?


The reference interest rate stipulated in the rental agreement shall be decisive for the increase of the rent. If the new reference interest rate of 1.50% exceeds that specified in the contract, there is nothing to prevent the increase in principle. If no interest rate has been quoted in the lease agreement, the reference interest rate published at the time of conclusion shall apply. This means that for most leases, which are based on the reference interest rate of 1.25%, which has remained constant to date, a rent increase of 3% can be demanded by the tenants.


Calculation example

If the rental agreement was concluded in 2020 at a reference interest rate of 1.25% and the net rent amounts to CHF 2,800.-, you can demand a rent increase of 3% from the tenant:s due to the new interest rate of 1.50%. The adjusted net rent would therefore be CHF 2,884.00.


Is it worth it to implement a rent increase?


A rent increase can be a way for landlords to counteract generally rising prices as well as inflation. However, there are several factors that must be considered before acting. On the one hand, landlords:inside must observe the legal provisions and ensure that the rent is not increased beyond the permissible limit. Second, landlords should consider the relationship with their tenants and weigh potential impacts on their long-term satisfaction and retention. It is important to know that tenants can contest a rent increase with the local arbitration authority within 30 days of receiving the letter. This would delay the entire process and may possibly lead to avoidable personnel as well as court costs.


Do you know the optimal rent for your property? Our free online calculator will help you determine it.

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Conclusion


Rent increases require careful planning and review of all legal requirements. Furthermore, in today’s environment, it is important to find a balance between cost recovery, adequate returns and sustainable management. Seek advice from an Expert:in to ensure you are compliant and not at a disadvantage.

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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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