Transfer of lease agreement upon change of ownership even before lease commencement (art. 261 CO)

This provision is usually undisputed in practice, since the interests of the involved parties are aligned: An investor would like to acquire an object that is as rented out as much as possible, and the tenant would like to continue using the premises rented by him independently of the person of the owner – even after a transfer of ownership.

Up until now, a controversy has existed in the legal doctrine as to whether this legal consequence also applies if the lease agreement has been concluded but the lease has not yet commenced and the tenant has not yet moved into the leased property. This issue has now been resolved by the Federal Court in its decision BGer 4A_393/2018 of 20 February 2019, which confirms the decision of the Zurich Commercial Court HG160080-O of 15 May 2018 (Altenburger Ltd legal + tax acted as representative of one of the parties in the proceedings). The Supreme Court held that, In accordance with the wording of Art. 261 of the Swiss Code of Obligations, a lease does not have to have commenced and that the conclusion of the lease agreement is sufficient for the transfer of the lease to a new owner.

This is certainly good news for tenants who have already terminated an existing lease agreement and are relying on a new lease agreement, but who had not yet commenced such new lease before the property changed hands.

This is also good news for sellers, as they could have become liable for damages to the tenant if the lease had not been transferred, as the rented property could no longer be made available to the tenant.

For buyers of real estate, the decision obviously means that a thorough due diligence must be carried out before the acquisition, in particular with regard to the lease agreements encumbering the object of purchase. In addition, the cautious buyer of an investment property will ask for a warranty on the rent index and the validity of the lease agreements on the property. Finally, the buyer who intends to use the property himself will obtain an assurance from the seller regarding the absence of rental agreements. If this assurance turns out to be incorrect, the buyer can still assert his own use of the property and terminate the lease agreement with the tenant as of the next statutory termination date (art. 261 para. 2 lit. a CO). In this case, the buyer will become liable for damages to the tenant, but should be able to pass this on to the seller on the basis of the assurance obtained.

All in all, the judgement, which puts an end to a scholarly dispute which has lasted for many years, is appropriate and to be welcomed.