Right of first refusal in Switzerland: what is limited and unlimited right of first refusal?

1. What is right of first refusal?

A person with a right of first refusal is given the opportunity to purchase a property before it is offered to anyone else. Only if the persons entitled to right of first refusal decline to purchase the property can other interested parties buy it. A right of first refusal may be contractually agreed or statutory.

2. What types of contractual right of first refusal are there?

The owner of a property may grant a contractual right of first refusal. There are two types of contractual right of first refusal.

• Limited right of first refusal: the purchase price and other conditions of sale are laid down in advance. The current market value and any higher offers are not relevant to the sale.

• Unlimited right of first refusal: right-holders may purchase the property under the same terms as those for a potential external buyer. If you have agreed a price of 800,000 francs with a potential buyer, the same price applies to the holder of the right of first refusal.

Good to know: contractual rights of first refusal do not apply in the case of a compulsory auction.

What do I need to bear in mind when signing a first refusal contract?

For limited right of first refusal, a notarized deed has to be prepared by a notary for it to be valid vis-à-vis third parties.

The unlimited right of first refusal must be recorded in writing. Notarization is not required.

Good to know: by entering the property in the land register, the beneficiaries of the right of first refusal ensure that the property does not change hands without their knowledge.

Which is better: limited or unlimited right of first refusal?

The advantage of limited right of first refusal lies in ease of planning. The parties know exactly how much they will receive or will have to pay for the property.

In the case of a limited right of first refusal, you as the seller are bound to the price during the agreed contractual period. This increases the risk of not receiving a fair market price for the property. It is therefore to the property owner’s advantage to grant unlimited rights of first refusal.

3. Is there such a thing as statutory right of first refusal?

The law (Art. 681-682, Swiss Civil Code) defines the following rights of first refusal:

• Co-ownership: parties A, B and C own a property. C would like to sell their share. In this case, parties A and B have a right of first refusal. One example of this situation would be a community of heirs.

• Holders of building rights: a right to build lasts for a limited period and gives a person the right to erect a building on someone else’s land. The right-holder has a right of first refusal on any sale of this land.

• Land owners: if the holder of a right to build sells the building, the land owner has a right of first refusal.

• Agricultural land: if agricultural land is for sale, close relatives and leaseholders have a right of first refusal.

• Local authorities: if land is for sale in recreational or no-build zones, the relevant local authority has a right of first refusal.

Good to know: if both contractual and statutory rights of first refusal exist, the statutory right of first refusal has priority.

4. Cases of right of first refusal: how do property sales with a right of first refusal work?

Do you want to sell a property with a right of first refusal in place to a third party? Then this represents a pre-purchase case. If you are selling in a pre-purchase case, there are a few things you need to bear in mind. The following procedure applies to all types of rights of first refusal:

• Draw up the purchase agreement: set up a purchase agreement with an interested third-party buyer. Interest or a contract negotiation alone is not sufficient for a right of first refusal to be exercised.

• Comply with the duty of information: inform the beneficiary of the right of first refusal of the purchase agreement. You should inform the beneficiary of the purchase price and the key contents of the purchase agreement as a minimum. The beneficiary has the right to inspect the purchase contract.

• Observe the waiting period: the holder of the right of first refusal then has three months to make a decision. If they wish to purchase the property, they must inform the seller of this fact in writing.

• Sign the purchase agreement: if the holder of the right of first refusal decides to buy, you have to enter into a new purchase agreement under the conditions of the agreed right of first refusal. You may only sell the property to someone else if the holder of the right of first refusal waives their right.

5. How long is a right of first refusal valid?

Duration of contractual rights of first refusal

The contracting parties decide on the duration of the right of first refusal. By law, the right of first refusal applies for a maximum of 25 years from the conclusion of the contract (Art. 216a, Swiss Code of Obligations).

Unless otherwise agreed, the right of first refusal is passed on to the holder’s heirs. The heirs are not allowed to assign or sell the right of first refusal to third parties without the property owner’s consent.

Duration of a statutory right of first refusal

The duration of the statutory right of first refusal is unlimited. Time restrictions only apply when it comes to an actual sale.

Once notice of an existing purchase agreement has been given, the holder of the right of first refusal has three months in which to assert their right. If the holder is not notified, the right of first refusal does not lapse until two years after ownership has been transferred. Statutory rights of first refusal cannot be inherited.

6. What should I do if I fail to comply with the right of first refusal?

If, as a property owner, you fail to disclose the sale to the holder of the right of first refusal, you should expect certain consequences. If a purchase is still possible, the person entitled to the right of first refusal can file a claim. If the purchase is no longer possible, you will be liable for damages.

7. Can a right of first refusal be evaded?

Property owners can evade rights of first refusal by bequeathing or giving away the property. An inheritance or a gift is not deemed in law to be subject to a right of first refusal. In this case, beneficiaries of a right of first refusal cannot exercise this right.

An example to illustrate this point: person A owns a property. Person B has a right of first refusal on this property. If person A makes a gift of the house or bequeaths it to person C, person B cannot exercise their right of first refusal.

8. How does right of first refusal work in the case of a condominium property?

A condominium owner has no statutory right of first refusal vis-à-vis third parties or other condominium owners.

You can agree upon a right of first refusal by contract, for example by means of an entry in the land register when the deed of condominium ownership is established or by a unanimous written agreement of all the condominium owners. It’s also possible for individual owners to mutually agree a separate right of first refusal.

9. How does a right of first refusal work in the case of land?

If you want to sell land, you should check for any statutory rights of first refusal. The communal authority may have a right of first refusal. Contractual rights of first refusal for land are usually established in writing and recorded in the land register.

If the land is split up into several plots, holders of rights of first refusal will be allowed to exercise their right to individual plots. This also applies if a plot has been built on.

Good to know: a communal authority’s right of first refusal lapses in the event of an inheritance or a gift.