The legal expert's view

Montreux Furer SA
Me Eric Ramel
Mr Eric Ramel, lawyer, member of the Board of Directors of Furer SA.
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Lex Koller - Resale of holiday accommodation by foreigners: an important decision for property sector players

The Court of Administrative and Public Law for the Canton of Vaud (formerly the Administrative Court, hereafter referred to as the “CAPL”) recently returned a decision which significantly changes the practices of the Land Commission II (“Commission foncière II”, hereafter referred to as “LC II”) – the authority of first instance in the Canton of Vaud on this issue – in the event of the resale of holiday accommodation by foreigners (28 August 2008 order no. FO.2008.0004).

The case in point

The plaintiff, who was selling, and the buyer were both resident in Britain and therefore subject to this legislation.

The seller had acquired a holiday apartment in the Vaudois Alps in March 2005 for an amount of CHF 270,000.00 Less than three years later, the buyer was willing to purchase it for CHF 505,000.00.

The LC II rejected the authorisation request submitted by the buyer. The Commission considered that, while the buyer fulfilled the conditions for authorisation, the seller did not fulfil the conditions for obtaining an authorisation to sell.

In brief, the Cantonal authority (i) upheld that the authorisation to purchase delivered in 2005 included a usage obligation – namely the (actual) use of the apartment as holiday accommodation – which had not been met, and (ii) alleged that any person abroad who resells holiday accommodation after such a short time while simultaneously making a profit transforms the purchase into a prohibited investment under the law (article 12, subparagraph a of the Federal Law on the Acquisition of Real Estate by Persons Resident Abroad).

A few reminders

This issue is governed by the 16 December 1983 Federal Law on the Acquisition of Real Estate by Persons Resident Abroad (“LFAIE”) 1 . In the Canton of Vaud, this is supplemented by a cantonal implementation Act dated 19 November 1986 2 .

According to article 2 of the LFAIE, the acquisition of real estate by persons resident abroad is subject to authorisation by the competent cantonal authority, which is only granted on grounds provided for by the law (article 3, para. 1, LFAIE).These grounds are detailed in article 8 of the LFAIE (general grounds for authorisation).

Article 3, para. 2 of the LFAIE gives cantons the authority to stipulate additional grounds for granting authorisation, as well as stricter restrictions.

Cantons may therefore legally provide for authorisation to be granted, within the limits of their quotas, to individuals acquiring real estate as holiday accommodation or apartments within serviced apartment complexes.

1 RS 211.412.41; see also its implementation order: Order on the Acquisition of Real Estate by Persons Resident Abroad OAIE, RS 211.412.411

2 RSV 211.51

The Canton of Vaud made use of this option by adopting article 1 of the LVLFAIE.

This provision is supplemented by article 4 of the LVLFAIE, which provides that, for apartments and other real estate, authorisation to purchase holiday accommodation, an apartment within a serviced apartment complex or building land with a view to building individual holiday accommodation may only be delivered where the seller has applied for authorisation to sell.Such authorisation is granted, within the limits of quotas, where the seller has entered into a properly constituted agreement with a buyer fulfilling the conditions for an authorisation to purchase to be issued.

Finally, the cantons determine those places where such acquisitions by persons resident abroad are necessary for the development of tourism tourism (tourist resorts - - article 9, para. 3 of the LFAIE). In the Canton of Vaud, this list is determined by the Council of State (Conseil d’Etat)3.

The decision

The CAPL firstly noted that, according to article 4 of the LVLFAIE, the condition in relation to the seller is not that they must have obtained an authorisation to sell but that they must have applied for one, such authorisation being subsequently delivered if an official deed has been drawn up (in casu in the form of a conditional sale).

(i) With respect to theusage obligation, the CAPL affirmed that the fact of not occupying the accommodation does not in itself constitute a violation of this obligation. . The buyer simply has to intend to acquire the property as holiday accommodation. The law does not require the buyer to actually occupy the property. The buyer may rent out the property to third parties. The only limitation lies in the fact that the law prohibits annual rentals (article 11, para. 2, subparagraph f of the OAIE).

(ii) With respect to capital investments prohibited by law, this ground must be considered at the time the authorisation to purchase is delivered and not a posteriori at the time of resale (on the understanding that the new buyer must not be intending to make a prohibited investment!).The fact of making a substantial profit does not change this.

The Court therefore observed that the LC II had violated the guarantee of ownership inasmuch as there was no sufficient legal basis for it to subject the authorisation to sell or purchase to conditions not provided for by the law.

Moreover, the Court noted that the restriction was not based on any public interest, to the extent that the property in question was already in foreign hands and that it was therefore not a question of preventing foreign control of Swiss land (article 1 of the LFAIE).

After receiving the case subsequent to the cantonal order, the authority of first instance admitted the authorisation application submitted by the buyer.

3 See appendix to the implementation ruling in relation to the implementation Act on the Federal Law on the Acquisition of Real Estate by Persons resident Abroad (RLVLFAIE), RSV 211.51.1.

The General Secretariat of the Department for the Economy, as the cantonal authority authorised to appeal, forwarded this decision to the Federal Justice Office, indicating that it was not lodging any appeal.

The Federal Justice Office, the federal authority authorised to appeal, did not make use of its right, such that it may be inferred that this cantonal decision may legitimately be applied by all cantons with such additional grounds for authorisation.

A final comment

Each case in point must be examined separately!

It is possible that other purchase decisions returned by the LC II might have stipulated different obligations, such as a ban on reselling within a certain period or an obligation to use the apartment for one’s own personal use for a predetermined amount of time each year.

It is equally possible that the Land Commission II could change its practices in the future to impose stricter obligations, as allowed for by article 11, para. 3 of the OAIE, to ensure that properties are used for the purposes indicated by the buyer.

Eric Ramel4

4 Lawyer and Doctor in Law, Ramel& Roussianos lawyers, author of a thesis entitled “Le régime des apparthôtels dans la Lex Friedrich” (“The law governing serviced apartment complexes in Lex Friedrich”), Lausanne 1990.

Furer SA est la plus ancienne régie de la Riviera vaudoise et cultive avec bonheur le paradoxe de compter parmi les plus modernes. Sa renommée lui vaut d’être active sur l’ensemble de l’Arc lémanique ainsi qu’en Valais.