KMU Magazin No. 6, June 2024 Aspects of buying a home

Even today, many people dream of owning their own four walls. What few people realize, however, is that the property of their dreams can also become a nightmare. To avoid this, there are a few points to consider when signing the purchase agreement. This article pro-vides an overview.

The property purchase contract must be officially notarized. The purchase contract sets guide-lines for future differences. Even though the purchase contracts are often neither particularly long nor difficult to read, they should be professionally reviewed by an independent expert be-fore signing. In particular, when it comes to good properties for sale, sellers often do not exactly have an open ear for contract adjustments. However, an independent review will at least show you what you are getting into. But what should you pay particular attention to?

Description of the property

With existing single-family homes or condominiums, you usually know what you are getting. The situation is different when buying off-plan. In this case, it is necessary to describe the prop-erty as precisely as possible with plans and a building description. The plans and the building specifications should be attached to the property purchase contract as an integral part. The building specifications often contain budget items - for example, for floor and wall coverings, sanitary appliances or kitchens.

Before signing the purchase agreement, you should check with a specialist to ensure that the specifications are complete and that the amounts in the budget are adequate. These amounts are often set low, which can lead to disappointment or the need for a strict austerity program.

For condominiums, you should also check whether your apartment includes all the rooms and outdoor spaces that the seller promised as part of the deal. To do this, request the regulations and the deed of foundation.

Transfer of ownership

Ownership of the property is transferred to the buyer as soon as she is entered in the land regis-try as the new owner. She also owns everything that is firmly attached to the property, for ex-ample a house under construction or a condominium that has not yet been completed. The property thus offers the buyer security for the purchase price she has paid. As a buyer, you should therefore ensure that ownership of the property is transferred as soon as possible.

If ownership is not transferred until shortly before the handover, but a large portion of the pur-chase price has already been paid up to this point without any other collateral, the buyer is ex-posed to a significant financial risk. The same applies in the rare case that ownership is trans-ferred, but remains encumbered with a prior lien in favor of the seller.

Benefit and risk

The term “benefit” refers to the buyer's authority to use the property purchased by him from a certain point in time. At the same time, however, the risk is also transferred. If the condominium is damaged by fire, the buyer is liable. He must therefore be insured at this point in time. Unless otherwise specified in the purchase contract, benefits and risks are generally transferred to the buyer when the purchased property is handed over.

In order to avoid any possible responsibilities, including those related to construction delays, it is recommended that, for newly constructed properties, the transfer of use and risk be agreed upon at the earliest at the time of the building inspection approval of the apartment. Otherwise, it may happen that use and risk are transferred to you before the property is even ready for oc-cupancy. In any case, the purchase agreement should specify the date by which the completed property must be handed over.

If this date cannot be met, it is advisable to agree on a contractual penalty. This should be high enough to cover the costs incurred by you as the buyer as a result of the delay – for example, the costs of alternative accommodation, multiple moves or storing furniture. Unfortunately, however, contractual penalties often meet with strong resistance from sellers.

Payment of the purchase price

When buying residential property, large sums of money usually have to be transferred to the seller long before you take possession of your own four walls. In most cases, this begins with a “reservation payment” of several tens of thousands of francs. Even though this payment is made on the basis of a “reservation agreement”, the buyer makes it without any security and on the basis of mere trust.

Before making such a payment, the other party should therefore be carefully checked. Other-wise, if the other party has payment difficulties, there is a great risk of losing the reservation payment without receiving the purchase object. It should also be noted in this context that the reservation agreement customary in practice is worthless, because as a preliminary contract for the conclusion of a purchase contract for a property, it does not fulfill the formal requirement of public notarization.

After the purchase contract has been signed, the buyer should only make payments under the condition that ownership of the property has been transferred to him and that the respective payments correspond to the progress of construction, i.e. that they are made in such a way that the purchase object reflects the value of the payments made.

Finally, it would be desirable to have to make the last payment, which amounts to around ten percent of the purchase price, only when the single-family house or condominium has been handed over, the (most serious) defects found in the process have been remedied, no building contractor's liens have been registered and the selling party has handed over the revision docu-ments belonging to the property.

Unfortunately, in practice the opposite is usually demanded: the last payment must be made before the property is handed over. In view of the fact that the buyer practically always has to provide a promise of payment from a bank or insurance company when the purchase contract is concluded, this demand by the seller is incomprehensible, but unfortunately it is a reality.

Caution is advised if the purchase price is not to be paid only after the transfer of ownership and not in line with the progress of construction. The buyer should only accept such conditions if they can trust the seller absolutely or if the purchase price payments are secured with a bank or insurance guarantee or other equivalent security.

Taxes

Properties are usually sold at a profit, which the cantons regularly tax at the seller's expense. As a rule, the faster the property is resold after purchase, the higher the tax burden. The amount to be paid to the tax office can be quite high. As a rule, the cantons can register a lien on the prop-erty sold in the event that the tax is not paid by the seller. If the buyer does not pay the tax in-stead of the seller, the property of the buyer may be seized.

The purchase contract should therefore contain a clause stating that part of the purchase price is to be paid into a security account held by the notary or tax authorities. The amount to be se-cured in this way is to be determined by the tax office before the purchase contract is conclud-ed.

The warranty

Unless it is an old building (not renovated), the seller usually provides the buyer with a “guaran-tee” for the newly constructed building. Describing the individual advantages and disad-vantages of the options available would go beyond the scope of this report. However, a warran-ty that follows the provisions of SIA standard 118 is certainly recommended. The solution pro-vided for in the Swiss Code of Obligations is not particularly favorable for the buyer. In a nut-shell, SIA standard 118 offers the buyer the following options:

• She can report the defects she has identified within a period of two years and does not need to take action immediately after their discovery.
• She does not have to prove that the reported circumstance constitutes a defect. Rather, it is up to the seller to prove that there is no defect.
• SIA standard 118 gives the seller the right to rectify the defect. This is also the best way for the buyer to rectify the defect.

Care should be taken with formulations such as “the seller offers a guarantee as granted to him by the craftsmen and contractors who built the property”. In such a case, the scope of the guar-antee depends on the unknown conditions agreed between the seller and the craftsmen. For a variety of reasons, assignment of warranty is also not advisable. In this case, the seller assigns all of his warranty claims against his contractual partners to the buyer and simultaneously waives his own warranty.

In addition, the buyer's warranty claims are generally not secured. If the seller is no longer able to meet his contractual obligations and rectify the defects for financial reasons, the buyer has to finance the rectification of the defects himself. This can also cost a pretty penny! However, the costs of rectifying the defects can be covered. To do this, the buyer can request a “performance bond”. Unfortunately, however, many buyers also have difficulties with such a requirement.

It should also be noted that not every document labeled “guarantee” represents a guarantee as the buyer expects it. Often, the guarantees are sureties, i.e. a bank or insurance company guar-antees to cover the costs of remedying the defect up to a certain amount if the seller is no longer able to do so. Unfortunately, enforcing the guarantee is often very costly.

It would be much easier for the buyer to have the costs of remedying the defect reimbursed with the help of a guarantee at first request. With such a guarantee, a bank or insurance company undertakes to pay an amount up to a certain limit upon the declaration of the buyer that the pur-chased property has a defect. For understandable reasons, however, such guarantees are the exception in standard real estate purchase agreements.

Finally, a form of guarantee retention is available to the seller as a means of covering himself in the event of defects. If such a retention has been agreed in the purchase contract, the buyer can withhold a certain amount – usually around five percent of the invoice amount – until defects that arise during the guarantee period have been remedied. If the seller fails to remedy the de-fects, the buyer can use the withheld money for this purpose.

Construction lien

A construction lien can be registered at the expense of the purchased property within four months of completion of the work. It gives the tradesman the option, in the event that he is not paid by the seller, of demanding the auction of the property from the buyer and covering his claim from the proceeds.

The best way to protect yourself against a building contractor's lien is to agree that a certain part of the purchase price will only be paid after the four-month period for registering the building contractor's lien has expired. Unfortunately, buyers usually have little sympathy for this. The same applies to granting a guarantee in the sense of what has just been said about defects, and a surety is also usually difficult to come by. So often the only option left for the buyer is to bear the risk of the registration of builders' liens.

Conclusion

Those who are able to purchase residential property today can count themselves lucky. As a rule, the process leading to home ownership is accompanied by a great deal of joy for buyers. The (financial) risks often go unnoticed.

However, these risks should be checked by a specialist before the purchase agreement is signed. Even if not much can be changed in the contract afterwards, you will be better informed.