The right of first refusal in Switzerland: types, processes and legal consequences

The right of first refusal in Switzerland: A comprehensive guide to property transactions

The right of first refusal is a key instrument in Swiss property law, which grants certain persons priority in the purchase of a property under defined conditions. It serves to protect existing relationships with a property and is of crucial importance for owners, pre-emptive purchasers and interested third parties. The regulations are primarily found in the Swiss Civil Code (ZGB) and the Code of Obligations (OR).

What is a right of first refusal?

A pre-emptive right grants the person entitled to pre-emption the right to claim the transfer of ownership of a plot of land or a property by means of a unilateral declaration of intent when a so-called pre-emptive event occurs. This means that the authorised party can enter into an already negotiated purchase agreement with a third party under the same conditions.

What is the legal basis for the right of first refusal?

The legal basis for the right of first refusal in Switzerland is anchored in two main areas:

• Statutory pre-emption rightsThese are regulated in Art. 681 ff. ZGB. They arise automatically by law and do not require a contractual agreement.
• Contractual rights of first refusalThese are regulated in Art. 216 ff. OR. They arise through an express contractual agreement between the owner and the person entitled to pre-emption.

Statutory pre-emption rights take precedence over contractual pre-emption rights, unless the parties have agreed otherwise.

What types of contractual pre-emption rights are there?

The contractual right of first refusal is divided into two main forms:

1. unlimited right of first refusal:

• The pre-emptive purchaser can acquire the property on the same terms that the seller has negotiated with a third party.
• Formal requirement: The contract only requires simple written form.
• Effect vis-à-vis third parties: In order to have an effect in rem vis-à-vis third parties, the right must be registered in the land register.

2. limited right of first refusal:

• The purchase price and the other conditions are already set out in the pre-emption agreement.
• Formal requirement: The contract must be officially notarised.
• Risk: For the seller, there is a risk of not realising the current market value in the event of a sale if the agreed price is lower.

How does the right of first refusal for property work?

The right of first refusal is only triggered in the event of a pre-emption case. As a rule, a pre-emption case exists when a purchase agreement is concluded with a third party.

Process of a property sale with right of first refusal

1. Conclusion of the purchase agreement with a third partyThe owner concludes a valid purchase agreement with an external buyer.
2. Duty to informThe seller must inform the person entitled to pre-emption in writing and without delay of the conclusion of the purchase agreement and its essential conditions (in particular the purchase price).
3. Exercise periodThe pre-emptor has three months from receipt of the notification to exercise his pre-emptive right (Art. 216e CO in conjunction with Art. 681a para. 3 CC).
4. Exercise declarationIf the authorised party wishes to assert his right, he must inform the seller of this by means of a unilateral, informal declaration of intent.
5. Consequence of the exerciseWith the timely exercise of the pre-emption right, the person entitled to pre-emption enters into the purchase agreement in place of the third party. The sale is then finalised between the original owner and the person entitled to pre-emption.
6. Consequence of non-exercise/expiry of deadlineIf the entitled party waives his right or allows the deadline to expire unused, the sale to the third party can be processed as normal.

How long does a right of first refusal last?

The maximum duration of a contractual right of first refusal is limited by law to 25 years from the conclusion of the contract (Art. 216a CO).

Statutory pre-emption rights, on the other hand, apply indefinitely as long as the legal requirements are met.

What do I have to consider as a pre-emptive purchaser?

• Meet deadlineThe three-month exercise period from notification of the sale is mandatory.
• Secure financingYou must be in a position to pay the purchase price in accordance with the terms of the third-party contract (in the case of unlimited rights) or the pre-emption contract (in the case of limited rights).
• No compulsionYou are not obliged to purchase. However, failure to exercise the right will cause the right to lapse for the current pre-emption case, whereby a right noted in the land register will be revived in the event of a future sale (provided the 25-year period has not yet expired).

How do I use the right of first refusal as the owner?

As the owner (seller), you must above all fulfil your duty to provide information. Before selling, check whether there are any statutory or contractual pre-emption rights registered in the land register. Careful adherence to the process is essential in order to avoid legal consequences.

Can the right of first refusal be circumvented?

The right of first refusal only applies in the event of a sale or a transaction that is economically equivalent to a sale (the case of first refusal). Certain transactions do not legally qualify as a case of pre-emption and circumvent the right, for example:

• DonationThe transfer of the property free of charge.
• Inheritance and division of inheritanceAllocation to an heir.
• Forced sale (only contractual rights are circumvented, statutory rights can be asserted).

However, in the event of circumvention by donation, a pre-emptive right noted in the land register remains in place against the new owner and can be asserted in the event of a subsequent sale.

What does the right of first refusal mean for me as a buyer?

As a potential third-party purchaser, you must check whether a pre-emptive right exists (inspection of the land register). If a pre-emptive right is exercised, the authorised party will take your place in the purchase contract and the planned purchase will not be completed for you.

What happens if I violate the right of first refusal?

If a pre-emptive right recorded in the land register is violated, the pre-emptive right holder can sue for the transfer of ownership to himself and thus cancel the sale to the third party (so-called effect in rem).

If a contractual right of first refusal that has not been reserved is violated, the entitled party is generally only entitled to compensation from the seller (obligatory effect).

How does the right of first refusal work in the case of co-ownership?

Co-owners have a statutory right of first refusal pursuant to Art. 682 para. 1 of the Swiss Civil Code if a co-ownership share is to be sold to a non-co-owner (e.g. in a community of heirs). This right does not apply to condominium ownership.

How does the right of first refusal work in condominiums?

There is no statutory pre-emption right for condominiums. However, the condominium owners' association can pass a resolution to agree a contractual right of first refusal in favour of all condominium owners. Such a contractual right of first refusal is not limited to 25 years, but can be agreed for the entire duration of the condominium ownership.

Conclusion

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