The Swiss Code of Obligations provides that tenants can request a reduction in their rent when it allows, among other things, the landlord to obtain an excessive return (CO 269, 270 I, 270a I). To avoid potentially inaccurate shortcuts, it is first necessary to understand when the amount of rent is permissible and thus does not constitute an excessive return: "when the ratio between the invested equity and the net income allows the landlord to cover their expenses and achieve a reasonable (net) return from the leased property" (ATF 122 III 257 c. 3a).

**The Concept of Return**

The return on a leased property is the ratio – expressed as a percentage – between the income the property generates and its value. For a building, the return is defined as the ratio between the rents it produces and its value. To determine whether there is an excessive return, the expenses must be subtracted from the rents of the building. The calculation is thus as follows:

Return on a Property [%] =

**The Determinant Return**

The equation mentioned above provides the net return on the building. However, to determine if there is an excessive return, it is also necessary to determine the net return on the invested equity (ATF 141 III 245 c. 6.3, 123 III 171 c. 6a, 122 III 257 c. 3a). This invested equity is calculated based on the actual cost of the building – although the actual cost can be partially disregarded if the purchase price was manifestly excessive – by subtracting the value of external funds (ATF 123 III 171 c. 6a).

According to the Federal Supreme Court, an excessive return is reached when the net return on the invested equity exceeds the reference mortgage interest rate set periodically under Article 12a OBLF by 0.5% (half a percent) (ATF 120 II 100 c. 5a). As of February 25, 2020, this rate is 1.5% and can thus be a maximum of 2%.

Adding the net return on the invested equity to the property expenses (operating expenses and interest on borrowed capital) results in the permissible rent of the property. Thus, whether there is an excessive return can be determined by comparing this permissible rent with the disputed rent (ATF 125 III 421, c. 2b, 123 III 171 c. 6a).

A final criterion that may need to be considered is the allocation of accounts. This criterion stipulates that the excessive return should be assessed on the specific unit or apartment in question, rather than the entire building or a group of buildings (ATF 139 III 209 c. 2.1, TF 4A_35/2008 c. 4.3, ATF 125 III 421 c. 2d). The allocation of accounts should thus take into account the number of rooms, the living area, and qualitative elements, but only in cases of significant differences between the various properties.

**Example**

Example taken from the Practical Commentary - Lease and Farm Law, 2nd edition, 2017, pp. 933-934:

On September 30, 2009, the rent for a 4-room apartment is CHF 1,380. The landlord notifies a rent increase due to rising costs, setting the new rent at CHF 1,550.

The building consists of 6 apartments with 4 rooms of equal standard. The invested equity amounts to CHF 676,966, the reference mortgage interest rate was then 3%, and thus could rise to 3.5%, with annual expenses totaling CHF 84,392.

Applying the interest rate to the equity: 676,966 x 0.035 = 23,694

Adding this amount to the annual expenses: 23,694 + 84,392 = 108,086

This CHF 108,086 corresponds to the total permissible rent, taking into account the 6 apartments.

In this case, the landlord receives CHF 99,360 annually for the 6 apartments: ([1,380 x 6] x 12)

Thus, the landlord can increase the annual rent by CHF 8,726: 108,086 – 99,360

Next, the accounts are allocated by dividing the authorized increase by the number of apartments: 8,726 / 6 = 1,454

This CHF 1,454 is the maximum authorized increase per year, so the maximum monthly increase is CHF 121.

The rent of CHF 1,380 can therefore only be increased to CHF 1,501. Tenants can thus recover CHF 49 per month.

It should be noted that Article 269 CO is imperative law. The landlord, including framework contracts, cannot deviate from or modify this provision (LCBD 3 III b; ATF 133 II 61 c. 3.2.2.2).

If you wish to obtain further information on this subject, the Consultation juridique du Valentin will be pleased to welcome you at our offices located at rue du Valentin 1, 1004 Lausanne, to answer any questions you may have. We are also reachable by phone at 021 351 30 00 and by email at info@cjdv.ch.

Reference Work: BOHNET et al., Practical Commentary - Lease and Farm Law, 2nd edition, 2017, see especially the commentary on Article 269 CO, pages 908 to 934 of the aforementioned work.

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