Real estate ownership Condominiums: terms, figures and tips

Condominiums have existed in Switzerland since 1965 and are as popular as ever. What do potential owners need to know?

by UBS Insights 03 Mar 2022
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Article 712a of the Swiss Civil Code entered into force on 1 January 1965. It is the legal basis for condominiums, i.e., owning an apartment. According to the Federal Housing Office, the rapid rise in the number of condominiums is the reason why Switzerland's homeownership rate has consistently risen from less than 40%, which is low by international comparison. As the latest data from the Federal Statistical Office shows, the number of owner-occupied apartments rose from 373,474 in 2010 to 446,373 in 2019.

The main features and terms in connection with condominiums

There are many reasons why people choose to buy a condominium. Compared to a single-family house, the cost of land as well as other infrastructure elements – heating, façade, staircase, roof – are split between several people. For the same money, condominium owners usually benefit from more living space or a higher standard of living than they would get with a house. Maintenance costs are also split between several parties. Condominium ownership comes with a number of rules, terms and expressions that you should know before buying one. They are explained in the glossary below.

With a condominium, you acquire a co-ownership share in the entire plot of land and the building built on it. The purchase is associated with something known as a special right, a key term in condominium ownership. This refers to your right to use the apartment and other enclosed parts of the building, such as a cellar or hobby room, exclusively and to design them according to your individual taste. This special right also extends to balconies or verandas; however, it also stipulates that your usage must not adversely affect the interests of the other owners.

Joint planning and decisions

The co-owners together form the condominium association, which is responsible for using, managing and maintaining the plot of land and the property. Although the community is not a legal entity, it can sue and prosecute independently, as well as be sued and prosecuted. It meets at least once a year for the owners’ annual meeting, during which information is provided about expenses or changes to the condominium bylaws which, together with the house regulations, govern the co-existence of residents.

Decisions are made by simple majority. The law stipulates that for a quorum to exist, half of the community must be present, at least half of whom must also hold co-ownership shares. Changes to the condominium declaration which records the co-ownership shares, i.e., the shares of the individual units in the total ownership, must be made unanimously.

The decisions of the owners' annual meeting are recorded in the minutes. As a potential buyer, these give you a good idea of the relationship between the condominium owners, how property maintenance is financed and the running costs. If a management company is involved, they will be responsible for the minutes.

Financing, maintenance costs and the renovation fund

Condominium owners have the same basic financing options as house-buyers. Whether you finance the purchase with a private loan, mortgage, personal equity or pension fund assets, you’ll need to check the different options and mortgage types and select the best solution for you. Professional advice is advisable in nearly all cases.

Knowing the approximate annual costs that you will incur before buying will help you stay on the safe side financially. A UBS client advisor will be happy to help you with this. Your costs will include the interest on the mortgage and the capital repayments stipulated in the loan agreement. For a sufficient safety margin, financial viability is calculated using a hypothetical interest rate of five percent on the total loan amount.

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Maintenance and ancillary costs also arise. Individual owners must be able to finance all repair, maintenance, redecorating, etc., to their unit themselves on a pro rata basis and according to their co-ownership share. The amount required depends mainly on the age and condition of the apartment, but one percent of the property value can be taken as a basis. It is often difficult to estimate general ancillary and management costs, especially for a new building. “We recommend asking the seller or a general contractor about them,” suggests Michel de Roche, Basel lawyer and President of the Professional Chamber for Condominium Ownership.

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To finance repairs, experts recommend having a renovation fund to build up reserve funds on an ongoing basis. Having sufficient reserves is important. “In our experience, renovation funds in condominium associations are often underfunded,” says de Roche. This can lead to serious problems. For example, if there are insufficient reserves necessary for major building works, such as energy-efficiency renovations or a new roof, this can lead to conflict between owners.

Condominiums and taxation

As is generally the case with real estate ownership, as a condominium owner you can also deduct mortgage interest from your taxable income when filing your tax return. Value-preserving maintenance costs for your apartment, such as redecoration, replacement of kitchen appliances, renewal of floors, are also deductible. You can also deduct the costs of property administration and maintenance by third parties – details can be found in the guidelines of the cantonal tax authority. Payments into the renovation fund also qualify for tax relief, provided that the money is actually used for building maintenance and not for another purpose. Last but not least, energy-saving measures (e.g., installing a photovoltaic system, fitting energy-efficient windows, etc.) are also usually fully deductible. However, you cannot claim value-adding investments or expenses that are part of your living costs, i.e., household insurance premiums, electricity, hot water and heating costs.

Depending on your initial situation, it may be sensible for you to make capital repayments indirectly. Although the mortgage amount will not be reduced, this has tax benefits. The capital repayments are then paid, for example, into a pillar 3a account at the bank.

A management company is recommended

In principle, the condominium association can manage the property independently. However, it is both customary and advisable to outsource the management to a professional management company, especially if there are several co-owners. The management company is chosen by the condominium association.

The choice of management company is very important. As a rule, their duties are precisely defined in the management contract and, in some cases, also in the condominium bylaws. They include administration and accounting (insurance premiums, janitorial costs, heating and hot water costs), preparation of annual accounts, maintenance and management of the building as well as representation of the community vis-à-vis third parties. If the building is renovated, the management company will also be responsible for other tasks such as building analysis, budgeting, commissioning architects, etc.

Condominium expert de Roche mentions a further point: “The management company is also responsible for ensuring the condominium bylaws are observed.” They must speak to anyone who does not adhere to the agreed rules within their own apartment or in the shared parts of the building. If warnings by the management company do not bring any improvement, the issue would have to be discussed at the next annual meeting. For example, if, contrary to the condominium bylaws, an owner uses their apartment as a beauty salon or dental practice, they can be prohibited from doing so by majority vote. The next step would be for a court to decide the case after a complaint for non-compliance with the bylaws has been lodged. “Managers have to operate in delicate situations and therefore require a lot of tact,” states de Roche. Unlike rental apartments, a management company is sometimes forced to act against its own clients.

Condominium ownership – glossary of the main terms

  • Condominium ownership: This is a co-owner's share in a built-up plot. Associated with the purchase of an apartment is the special right to use certain parts of the building exclusively and to design them according to individual wishes. This must be done without adversely affecting the special rights of the other co-owners.
  • Condominium association: Comprises all condominium owners of the built-on parcel of land which they manage and maintain together. Although the association is not a legal entity, it can sue and prosecute independently, as well as be sued and prosecuted.
  • Annual owners’ meeting: Held at least once a year. For a quorum to exist, the law states that half of all condominium owners – but at least two – and half of all holders of co-ownership shares must be present or represented. The rules can also provide for a different quorum.
  • Condominium bylaws: The condominium bylaws outline the legal status of the individual condominium owners within the community. The rules of conduct and regulations listed therein are drawn up by the community members themselves.
  • Renovation fund: For future renovation and renewal work, it is advisable to set up a condominium renovation fund. Each owner will pay in an amount determined at the annual owners’ meeting.
  • Management: The condominium association can commission a specialist company to manage the common parts of the property and the relevant day-to-day business. Its tasks and duties are laid down in the annual owners' meeting and recorded in the management contract.
  • Co-ownership share: The co-ownership share in condominium ownership reflects the share of one residential unit as a percentage of the total value of the condominium. The co-ownership shares of the different units are recorded in the condominium declaration.
  • Shared costs: Costs for repairs and renewals of the common parts of the land and buildings, as well as costs to pay the management company and ongoing maintenance, must be borne jointly by each condominium owner according to their individual co-ownership share.
  • Common property: This includes, as an imperative, the plot of land and any constructions required for the stability of the building and its fabric and which determine its external design and appearance. Stairwells, hallways, corridors, elevators, heating and the underground parking lot are all common property. Gardens and terraces can also count as common property or be exclusively assigned under rights of special use.
  • Unanimity: The regulations stipulate whether a decision at the annual owners’ meeting needs to be unanimous. Unanimity is often reserved for expensive, far-reaching measures. A simple majority refers to the people present. A decision by qualified majority requires a majority by head count and a majority by co-ownership shares.

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