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Price and cost increases in the real estate field – A reflection on who to pass them on and how

By 15. May 2023June 2nd, 2023No Comments

Price and cost increases in the real estate field - A reflection on who to pass them on and how

According to the Swiss Federal Statistical Office, apart from transport, the items that have increased the most since 2022 are household and household management, as well as housing and energy. This is caused, among others, by the rise and large variations in the prices of certain raw materials, electricity, products or materials, the consequences of disrupted supply chains or even shortages, mortgage rates surge (Swiss National Bank key policy rate at -0.75 in May 2022 and since 24.03.2023 at 1.5), or the global political situation. So many factors also play a role and raise even more questions about the legal possibilities as regards financial impacts on the parties involved and for everyone (sale; rent). Let’s take a little bit of time and reflection to, hopefully, help save time when the question comes up.

1. Impact of price increases on sales (construction, renovation, building works, material goods, etc.):

As is often the case in the legal field, the possibilities depend on the concrete situation.

However, as a general rule, in case a delivery date is close to the date of conclusion of the agreement, it should be the responsibility and at the risk of the service provider/seller to have included any market price increases in the sale or offer price.

Some of the rules setting the financial upper and lower limits are derived from those established by the Swiss Code of Obligations (CO), or the SIA-norms (references for construction in Switzerland) – where applicable.

Therefore, let’s review some of the main legal provisions. As regards fixed prices, they cannot be increased unless ” production of the work was prevented or seriously hindered by extraordinary circumstances that were unforeseeable or excluded according to the conditions assumed by both parties” (Art. 373 para. 2 CO and Art. 59 para. 1 SIA-norm 118). According to SIA-norm 118, without fault on the part of the contractor, it is specified that the client (owner/customer) may have to bear the costs associated with delays (in case of material shortage for instance), while excessive surpassing of a cost estimate may allow the client to withdraw from the contract and demand an appropriate reduction on the price or pay only fair a compensation (Art. 375 CO). The limits are therefore set by unforeseeable and extraordinary elements or by amounts exceeding a quote by more than 10% if the client has a damage.

All this is subject to what has been foreseen in the contract.

For instance, if there is a clear and well-defined subject matter of the agreement, it can also allow to distinguish it from possible additional orders. For example, there may also be provisions for a margin of increase – automatically included in the price – and which only leads to a price increase if it is exceeded; or a list of situations excluding a price increase, etc. It may also sometimes be appropriate, depending on the circumstances, for the contract to summarise the conditions which have been taken into account for the fixing of the price or to reserve the possibility of adapting it in the future to agreed and determined/determinable conditions.

Let’s consider a concrete example: one of the parties has been able to obtain a very good price for wood from a country whose political situation is unfortunately unstable. The availability on the day of the actual order is uncertain, so it may be useful for the parties to already agree on an automatic solution accepted by both parties to the contract such as “the client accepts in advance any EU FSC/PEFC fir wood, as long as the price doesn’t exceed +2% and the seller proves the impossibility to obtain the wood at the initially agreed location”.

Thus, although there are often few detailed applicable rules to the specific problems that can occur, it is particularly interesting for the parties involved to specify the relevant conditions or circumstances in a contract to each specific case.

2. Impact of increased charges/costs on the lease:

In this branch, the applicable rules are stricter and more comprehensive.

Obviously, some elements are usually directly addressed and charged to the consumer (e.g. electricity, gas for cooking, etc.) – and can be considered as a kind of simple consumption expenses. The Swiss Code of Obligations sets a delimitation (art. 256b ff. CO), charges and costs arising from the use of the property are to be borne by the tenant, while those related to the ownership of the property belong to the landlord.

However, other financial items related to a building may be included in the rent, in accessory charges, in lump sums, or through other mechanisms. The extent of contractual freedom in this respect is still subject to discussion in the legal sector and there are many situations. It all mostly depends on compulsory rules, the wording of the contract and the (local) practice of the parties to the lease or sometimes on the existence of framework contracts, except for some clear delimitations briefly discussed below.

Increases in accessory charges can usually be passed directly on the tenant, but only if the expenses are actual and justified. Profit is not allowed for the landlord/owner on this financial position.

In the case of flat rates or rent including charges, for instance, the adjustment to the increase in charges can be more delicate as it may, depending on the case, require an amendment to the lease agreement – which must be carried out in accordance with the legal conditions, in particular as regards its form. Furthermore, it is always particularly important to be able to provide the adequate supporting documents that prove with sufficient accuracy the change and its reasons.

An increase in line with the Swiss consumer price index (CPI) can be anticipated and contractually agreed, as can index-linked rents or stepped rents, but only under certain conditions.

Another topical issue concerns the modification of an heating system by a new one – e.g. less energy-intensive or no longer using a fuel that would be too expensive or not very environmentally friendly, such as oil, gas or electricity. It can sometimes lead to terminations in order to allow the building works to be carried out, but the formal and substantive legal conditions must be respected. However, in certain situations, the effective rent increase may be small (or sometimes even zero in the case of certain district distance heating systems) in view of the savings made in terms of invoiced consumption, which is modified and reduced for the tenant. Furthermore, in view of the current state on the subject, it is worth keeping an eye on the legislation, which could add specific provisions on this subject (for example, depending on the results of the vote on June 18th 2023 on the new climate and innovation act).

So, any questions? Is your quoted price increase justified and how can it be implemented correctly? How can your situation be framed in order to save you some time? Is a termination of the contract justified/justifiable and under what conditions and consequences? Is a new law expected or applicable to my situation?

Are you facing a situation in relation with this topic and you would need some advice on the related legal issues? 

Preis- und Kostensteigerungen bei Immobilien - an wen können sie weitergegeben werden und wie?

Die aktuellen Preisanstiege im Zusammenhang mit Immobilien haben ihre Ursache unter anderem in den steigenden und stark schwankenden Preisen für bestimmte Rohstoffe, Strom, Produkte oder Materialien, den Folgen gestörter Lieferketten, Lieferengpässen, steigenden Hypothekenzinsen (SNB-Leitzins im Mai 2022 bei -0,75 und seit dem 24.03.2023 bei 1,5) sowie der weltpolitischen Lage. Es stellen sich daher viele Fragen zu den rechtlichen Möglichkeiten, die finanziellen Auswirkungen für die Betroffenen abzuwälzen.

Das Thema wird in diesem Beitrag aus zwei Perspektiven betrachtet: 1.) im Bereich der Weitergabe von Preissteigerungen zwischen Verkäufer und Käufer, und 2.) im Bereich des Mietrechts.

Im Zusammenhang mit Kaufverträgen gibt es in der Praxis zwar einen gesetzlichen Rahmen, der aber oft nicht detailliert genug ist, um konkrete Probleme zu fassen. Für die beteiligten Parteien ist es daher von Interesse, das Vorgehen etwa im Falle von Preisanstiegen vertraglich festzulegen und sich im Einzelfall professionell beraten zu lassen.

Im Bereich des Mietrechts sind die Rechtsgrundlagen streng. Von den Beteiligten sind gute Kenntnisse gefordert, um etwa im Zusammenhang mit den Nebenkosten, der Höhe der Miete, Pauschalen etc. korrekt und rechtsgültig vorzugehen.
Ein weiteres aktuelles Thema im Zusammenhang mit dem Mietrecht ist etwa das Ersetzen einer bestehenden, ineffizienten Heizanlage. Denn auch in diesem Zusammenhang stellen sich Fragen der Kostentragung.

Haben Sie Fragen zum Thema und benötigen bei den damit verbundenen rechtlichen Fragestellungen eine Beratung? 

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