Swiss construction law and real estate sales law, although satisfactory in general, are not without their idiosyncrasies, the practical significance of which sometimes turns out to be rather unfortunate.
Take, for example, the case of a client or purchaser of a building, who has to check the building and report any defects, whether apparent or hidden, to the contractor “without delay”, under threat – in the event of non-compliance – of expiry, that is, quite simply, the disappearance of any claims arising from such defects. In the face of this utterly Swiss wording chosen by the legislator, the Federal Court has found itself forced to specify this indeterminate legal concept and, in its established case law, deems that notice of defects must be given within 7 days. It even considers that this time limit should be shortened if the defects are such that they could cause greater damage in the event of a delay. In practice, this very short timeframe puts buyers in an uncomfortable situation.
When concluding a real estate sales contract, whether or not it is for a building still to be built, the buyer and the seller (and/or contractor) will very frequently exclude any guarantee of the seller (and/or contractor) due to defects, while providing, in return, for the assignment by the seller (and/or contractor) to the buyer of its guarantee claims against its subcontractors. While the assignment of such claims may seem advantageous at first sight, it does not seem to be such a good idea in practice. Indeed, buyers faced with a defect may not necessarily have sufficient information to know which subcontractor they should go after and will most likely have to struggle to assert their claims.
On the strength of this observation, on 19 October 2022 the Federal Council sent a message to the Federal Assembly setting out a range of measures intended to strengthen the position of the buyer and the client. Based on this message, Parliament drew up a first draft revision of the Code of Obligations, published on 15 November 2022, from which the following can be determined:
- Firstly, the draft revision specifies 60 days to report the defects of a building or works to the seller, it being understood that, for hidden defects, this time limit starts as from the moment they are discovered.
- With regard to real estate sales, a completely new provision has been introduced, establishing that the purchaser of a building that includes works done during the year prior to the acquisition or which are still to be carried out, may demand that the seller remedies the defects at its expense. This right is moreover binding and cannot therefore be excluded contractually, when the building in question is intended for personal or family use.
- Lastly, the draft intends to specify the amount of collateral to be provided by the seller when registering the legal construction mortgage of artisans and contractors for their unpaid work. It is currently practically impossible to pledge collateral, as this must in principle provide unlimited cover, since the duration of the default interest to be covered is not laid down by law. The aim of the draft revision is to clarify this aspect and thus provides that the collateral to be provided by the seller must be sufficient and must cover default interest for a period of 10 years inclusive.
These significant changes to the legislation on building defects and the construction mortgage of artisans and contractors shift the balance of such real estate transactions in favour of the buyer and the client. They will undoubtedly have a major impact on the negotiation, drafting and conclusion of contracts for the sale of real estate and businesses.
All of this, however, remains a pipedream. For the time being, first the competent parliamentary committees and then each of the chambers of the Federal Assembly still have to rule in favour of this revision. The Swiss legislative system being what it is, it will doubtlessly continue to be fiercely discussed and reviewed, and will surely feature on these pages again.
Quentin Bärtschi, Kellerhals-Carrard, Bern