Philippe Kenel

 

The challenge of large property projects

 

By

 

Philippe Kenel, Doctor of Law, Lawyer in Geneva, Lausanne and Brussels, Python & Peter

 

In order for Switzerland to remain a competitive place in terms of tourism, it is imperative that it should have infrastructure which meets market requirements. This means in particular that it should be possible in our country to build residential property or hotels that fit into natural sites, like those found abroad. However, given the cost of such projects, these are often financed by foreign investors. Having at a certain time been at the head of one of them, may I be so bold as to set out a certain number of recommendations to the readers.

 

Determine and analyse the opposition

 

One of the common characteristics of all large property projects financed by foreign funds is that they have to deal, at least in the first instance, with a reaction of mistrust or even hostility on the part of certain local interests. There are two particular reasons for this attitude. First of all, certain associations are opposed in principle to any construction of this kind in the name of environmental protection. Secondly, the fact that the investors are foreigners may give rise to a certain amount of jealousy, raise certain questions regarding the source of the funds and the financial strength of the promoter or create certain fears regarding the tourists who will inhabit the buildings.

 

Communication, communication and communication

 

In order to overcome the mistrust and hostility from various sources, it is imperative to adopt an adequate communication policy. The essential characteristics of this policy must be the following. On the one hand, with the help of a public relations agency, it should be led by some Swiss personalities, the sight of whom at the head of the project should create a climate of trust with the various local interests. It is particularly important to quickly obtain the support of the local authorities as well as a positive image in the press. On the other hand, the investor should provide all the necessary information and guarantees relating to its solvency. It should be emphasised that one of the essential fears of the authorities is that the construction of a property complex is started but not finished. In other words, the investor should supply all the information and guarantees relating to the feasibility of the project. In order to do this, he should not hesitate to turn to local business associations, such as the “Société Suisse des Hôteliers” [Swiss Hotel Association]. Lastly, the directors of the project should enter into negotiations with the environmental protection associations even if, it should be stated, some of them will pursue the matter to the end, regardless of the concessions granted, in order to stop the completion of the project.

 

Incorporate the legal framework

 

As in any country, Switzerland has laws on construction, the environment and regional development which obviously have to be complied with. It is particularly characterised by the fact that much opportunity is given to the environmental protection associations to present their points of view.

 


However, unlike many States, Switzerland imposes a certain number of limitations on the ability of foreigners to acquire real property on Swiss soil.

 

In order to determine whether a foreigner may acquire real property in Switzerland, a fundamental distinction needs to be made between the case where a foreign person is domiciled on Swiss soil and a case where the person is domiciled abroad.

 

Where a foreigner is domiciled outside Switzerland, he/she may acquire a property or apartment solely for residential purposes if the following conditions are fulfilled:

 

  • The property must be located in a tourist zone within the terms of the cantonal legislation. For example, in the Canton of Vaud, unlike Lausanne and Montreux, Villars and Vevey belong to a tourist zone. On the other hand, the Canton of Geneva does not have any tourist zones.
  • The living area must not be greater than 200m2 and the total surface area should not exceed 1,000m2.
  • One unit of cantonal quota should be available.

Furthermore, both in the Canton of Vaud as well as in the Canton of Valais, a foreign person who has acquired a property in a tourist zone under the terms of the abovementioned rules does not have the right to let it on a year-round basis and cannot resell it within five years of its acquisition. Furthermore, only an individual, and not a company, can purchase in a tourist zone.

 

Swiss law has specific rules relating to apartments located in “aparthôtels” and cases where the foreigner can prove that he/she has extremely close relations, which are worthy of protection, with the place where he/she wishes to acquire a second home.

 

It should be specified that a foreigner domiciled outside Switzerland may freely acquire commercial property, hotels or companies with a permanent establishment in Switzerland.

 

Although the abovementioned rules are identical for all foreigners, a distinction should be made between European foreigners (European Union and European Economic Area) and people from third-party States, in order to determine the principles applicable to foreigners domiciled in Switzerland who wish to acquire real property.

 

The situation is simple for European nationals to the extent that, from the moment that they become domiciled in Switzerland under the terms of a residence permit (B permit), they can acquire one or several properties without any restriction.

 

On the other hand, the acquisition of a property by a foreign national originating from a third party State is subject to compliance with the following conditions:

 

  • The foreign person may only acquire his/her principal residence.

  • The total surface area must not be greater than 3,000m2. Certain derogations may be granted by the authorities.

These restrictions cease from the moment when the person concerned becomes the holder of an establishment authorisation (C permit) issued, in principle, after 10 years of residence in Switzerland under the terms of a B permit.

 

It is not sufficient to set up a Swiss company to get around the abovementioned principles. Indeed, a legal entity created under Swiss law, within which persons domiciled abroad have a dominant position, is itself considered to be an entity domiciled abroad.

 

In light of the principles set out above, the foreign investor should obtain the answers to the following questions: does he/she have the right to acquire said land in Switzerland and to build residential property on it? If such is the case, can he/she sell it to foreign nationals whether or not they are domiciled in Switzerland? Can he/she sell apartments or must he/she build a hotel in which he/she could sell co-ownership shares? Since the answers to these different questions have not always been the same for all the property projects that have been launched in Switzerland, it is not possible to answer them within the scope of this article. However, we draw the reader’s attention to the fact that it is imperative to carefully review these questions, the answers to which will have a determining influence on the economic feasibility of the project.

 

Conclusion

 

To conclude, Switzerland needs to renew its tourist infrastructure and must be open to foreign investors. However, I draw their intention to the necessity to inform, communicate and create a climate of trust and to make a detailed study of the possibilities offered by Swiss legislation, which limit the ability of foreign domiciled individuals to acquire real property assets.