Home ownership For rent by owner to private tenant

Someone renting out should not underestimate the associated risks. In the following, we answer the most common questions.

by Jürg Zulliger 17 Nov 2017

What to watch out for when concluding the rental agreement.

The law does not stipulate any formal requirements. This means a leasing relationship can also be entered into verbally. Both parties are of course free to draw up their own contract, though management professionals strongly recommend using preprinted model contracts.  “This gives you some guarantee that nothing has been forgotten,” says Albert Leiser, Director of the Zurich Landlords Association (HEV Zürich). Laymen generally know too little about what elements to include in a contract or how to correctly formulate legally binding language. Model contracts have the advantage that further important topics are specified in the general terms, which constitute an integral part of the contract. Some cantons, such as Zurich, Zug, Geneva or Neuchâtel even require you use compulsory forms to set the initial rent.

Remember to document the condition of your apartment in an acceptance log at the start of a tenancy – otherwise you can't hold the tenant liable for potential damages that occur during the tenancy. It is customary in the business today to demand a security deposit at the start in an amount of two to three months' rent; by law, the maximum allowed is three months' rent. Furthermore, the law provides for specific notice periods – for apartments, notice is at least three months, for business premises, six months.

It is important in a written contract to mention both contractual parties with all their details – for tenants, for example, both unmarried domestic partners, all members of a residential community, etc. In this way, all the tenants bear joint and several liability for their obligations, especially for the rent.

And last of all: associated costs such as heating, property maintenance, sewage etc. may only be charged if they have been specified in the contract.

What sorts of inquiries are allowed despite data protection? How should you check the creditworthiness of a prospective tenant?

Lost rent and vacancies are among the greatest risks a landlord faces. Generally, the challenge is choosing the appropriate tenant from among a larger number of interested parties. Most landlords hand over a registration form at the start in which the potential tenants provide their personal details, references, level of income, etc. The right to see details about financial circumstances is contested. A landlord cannot expect to learn about income down to the last decimal point. But rough details on annual income in increments of 10,000 can be demanded. References can be checked if the tenant has expressly mentioned them or given his or her consent. Of course, it makes sense to get in touch with the previous landlord. Generally, one can ask whether the tenant pays on time and if the previous landlord would consider renting to that person again. An extract from the Debt Enforcement Office is one of the more important documents to collect. If the tenant has moved around a lot, extracts from previous places of residence should also be requested. Last but not least, the impression based on a personal conversation also plays a role.

Tenancy law is so complex that laypeople can rarely make heads or tails of it. What are the most common pitfalls you may overlook due to inexperience?

Things can take an unpleasant turn with a rental if cantonal legislation (e.g. in Zurich, Zug, Geneva, Neuchâtel) requires a compulsory form for the initial rent. Should the landlord neglect to use the form, this can cost him or her dearly. If a tenant later contests the rent, a court will set it – and experience shows that this is typically substantially lower and effective retroactively up to five years.

Can the landlord set the rent at his or her own discretion?

In this regard, one must distinguish between a first-time rental and re-rental. Above all in the case of re-rental, the limits are relatively strict. If rent is raised by more than 10 percent, this would be viewed as substantial increase and potentially must be backed up by sufficient evidence. Such sharp increases are only less problematic if major changes have been carried out, for example extensive renovations. When it comes to a first-time rental, most private landlords stick to comparative values. But the prevailing city and district rates are de facto hard to document, as courts require a high burden of proof.  You might think about having an expert assess the rental value of the property. These days, increasing rent merely because your profit is too low is a delicate matter. According to rental law, for example, net returns cannot be more than half a percent above the current reference interest. What is crucial in practice is whether a very specific rent actually attracts interested parties who want to rent the apartment at this price.

How can you find out if the whole thing would really be worthwhile?

Financially, it all depends on correctly assessing the approximate condition of the property, technical installations and devices. Typically normal maintenance, for example the cost of replacing older devices, is included in the rent. A landlord should not make the mistake of setting rent too low in the beginning if larger maintenance and renovation costs are pending in the years to come. This must be taken into account from the very start when calculating the rent. In addition, owning property can have a strong impact on your tax bill.  The revenue from rent is taxed as income. On the other hand, the homeowner can deduct mortgage interest, maintenance and incidental costs (provided they are not paid for by the tenant).  Depending on the circumstances, you can also claim a maintenance charge of 20 percent of rental revenue.

What should you look for in the financing?

Someone who buys a house or apartment in order to rent it cannot use pension assets held in the second or third pillar (pillar 3a). With regard to financing, UBS does not distinguish between property you inhabit and property you rent out to a third party. The general principles of valuation and mortgaging are identical, regardless of use.

What obligations does a landlord have? How high are the landlord's expenses?

The landlord's obligations are precisely defined in the rental agreement. They certainly include keeping the apartment or house in good condition – i.e. maintaining the building, replacing defective parts etc., The time required should also not be underestimated, since among other things security in and around the building (such as safe use of stairwells and access to the house in winter) must be ensured. “The time expenditure depends heavily on the size, age and tenant mix,” says Albert Leiser from HEV Zurich. A new building eats up less time than an old one. Someone who owns an older house that hasn't been renovated in 30 years is probably working on it constantly. If property management costs exceed a certain amount, you could of course also hire a third party to manage it. The cost of doing so is based on the size of the property and falls within a range of four to five percent of the rental income. This doesn't often add up for individual properties, since management companies commonly demand a specific minimum amount.