Typically-speaking, as regards dwelling ownership, the homeowner also owns the land on which it is built. These two items can be separated however. In this case, the owner of the land on which the home is built may be different from the homeowner.
This legal form is referred to as right of superficies (or surface right). The landowner grants this right to the homeowner, referred to as the superficiary, for a fee paid as rent (identical to paying rent for using the land). The legal form of this right is an easement entered in the Land Register. The right of superficies is, however, time limited. It is concluded for at least 30 years, may be renewed, but cannot exceed one hundred years.
What is the advantage of the right of superficies?
It reduces the acquisition costs of the home. The homeowner does not purchase the land which reduces the amount payable by several dozen or hundred thousand Swiss francs based on where the home is located. Fees and costs which the homeowner has to bear are reduced when purchasing or building the property.
Given that the right of superficies is registered in the Land Register, the homeowner can obtain a mortgage, which facilitates financing the purchase or building of the property.
Cost of the right of superficies
The rent which the superficiary pays to the landowner in return for this right of superficies is freely set between the two parties. It may change based on the consumer price index or on mortgage interest rates. Fiscally-speaking, it is considered as travel expenses and may be deducted as such. It may also be deducted from the rental value.
Jean owns 1,000 square metres of land worth 200,000 Swiss francs. He grants a right of superficies for 40 years to Lionel in return for the payment of an annual rent of 5,000 Swiss francs.
Through this right, Lionel obtains a loan of 400,000 Swiss francs from his bank to build a house. He builds the house for 600,000 Swiss francs, 200,000 of which come from his own capital. If he had had to purchase the land, he would have had to have borrowed an extra 200,000 Swiss francs.
The financial costs for Lionel’s home (excluding operating costs, such as power supply, heating, etc.) include interest and amortization payments, which he owes to his bank for his loan of 400,000 Swiss francs, and the annual rent of 5,000 Swiss francs. The latter can be deducted from the house rental value.
Jean retains land ownership and receives, in return for the right of superficies, an annual rent of 5,000 Swiss francs. This rent may be modified if the contractual clauses provide for adjustment to take into account the consumer price index, regional property price indexes, change in mortgage interest rates and any other indicator mutually agreed by the two parties. If inflation rises by 1% on average over 40 years, the 5,000 Swiss francs annual rent could reach 7,444 Swiss francs by the end of the contract term.
What happens at the end of the right of superficies?
When the contract ends, the property built will be reverted to the landowner. Consequently, the occupants must leave the land, unless otherwise agreed with the landowner. In return, the latter must compensate the superficiary or their heirs. This payment is based on the value of the property, taking into account its condition, upkeep and the price of property in the region. As a matter of principle, it is advisable to specify the bases in the right of superficies contract.
Generally-speaking, compensation is between 70 and 80% of the real value of the land and the property, thus taking into account the value of both.
Jean is a landowner. His land was worth 200,000 Swiss francs when he drew up and concluded the right of superficies contract with Lionel. At contract term, the land was worth 300,000 Swiss francs.
Over the 40-year contract term, Lionel’s house price rose from 600,000 to 900,000 Swiss francs.
The aggregate value stands at 1.2 million Swiss francs. In principle, Jean must pay Lionel 900,000 Swiss francs. However, if the contract provides for 70% compensation, then Jean must only pay Lionel 630,000 Swiss francs. Lionel will, in this case, lose 270,000 Swiss francs in relation to the market value of his house.
Given these intricacies, it is essential to seek advice from real estate specialists before concluding any right of superficies contract.
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