Energy-efficient refurbishment: how much can the rent increase by?

When a building is refurbished from the ground up, it can be expensive – not only for the owner, but also for the tenants. But it’s not legal to increase the rent to reflect the full costs. We explain the legal situation and provide some tips on the right procedure to follow.

Clean air, climate change, energy savings and sustainable buildings are probably close to all our hearts. Buildings play a major role in the energy transition that Switzerland strives for. Around 40% of energy consumption is attributable to their heating and operation. It is estimated that about half of all older residential buildings in Switzerland are in need of refurbishment. From roofs to windows and façades to basement ceilings, these buildings have major defects. In very old buildings from the 1950s and 60s, heat literally goes out the window.

Energy savings: buildings need to be refurbished

The conversion of buildings is not entirely voluntary. Technical building standards, cantonal energy laws and Switzerland’s future CO2 law stipulate more precise requirements. In individual cases, however, it is often unclear who has to contribute to what costs. Private property owners who live in their own property have to pay for refurbishments entirely out of their own pocket. To do so, they use their own money and possibly a mortgage from a bank and additional public subsidies.

Do tenants have to pay?

If the property is a multi-family dwelling with rented apartments, however, the costs must be broken down more precisely. What do owners have to pay for themselves? What will tenants be asked to pay? As a general rule, normal maintenance, upkeep and repairs are included in the rent agreed in the lease. So if an owner replaces the windows or heating with similar, equivalent products, they are not permitted to increase the rent. Typical examples of building maintenance include recurring maintenance work, such as fresh paint on the walls or replacing older flooring with new floors of the same quality.

In order to create incentives for greater energy efficiency and comprehensive refurbishment, energy-related measures are often generously interpreted as adding value. The ordinance on tenancy law also states that the additional benefits must be distinguished more precisely from normal maintenance. This is because, as mentioned, the latter is already included in the rent.

Rent: open questions regarding calculation

In specific individual cases, the allocation of costs is quite tricky. Let’s look at the following examples:

  • A property owner replaces 30-year-old windows with modern energy-saving windows with triple glazing. It would be legal to pass on the additional costs compared with those for an equivalent replacement to the tenant. But the 30-year-old windows are no longer available on the market. The added value offered is therefore difficult to quantify.

 

  • It is often the case that the owner concludes a lump-sum contract with a builder or general contractor. The lump sum does not break down the actual costs of the different measures and parts of the conversion.

 

In one case, the Federal Supreme Court recognised a 40% increase in value for modern energy-saving windows. Some lawyers now consider a 40:60 allocation formula to be a justifiable rule of thumb. The term comprehensive overhaul of a building is often used as well. This is referred to when the refurbishment significantly exceeds the usual annual maintenance costs. For such major refurbishments, which often include energy-related measures, a lump sum of 50% to 70% is assumed. This means that owners may increase the rent to reflect about 50% to 70% of the costs of a complete refurbishment.

Energy savings: what do tenants get out of it?

Fabian Gloor from the tenants’ association (Mieterverband) knows how complex the issue is and the difficulties of legal interpretation. For him, it also depends on whether or not the investments contribute to lower utility costs (Nebenkosten): ‘That would justify recognising a certain refurbishment measure as value-adding.’ For example, if the windows and building envelope are brought up to a much higher standard, heating and energy costs will decrease for many years to come. In this way, the tenants benefit.’ According to lawyer Fabian Gloor, it would be an indication of normal maintenance if the utility costs were to remain at the same level as before the refurbishment.

The revised ordinance on tenancy law raises new questions. Property owners will now be able increase rents to reflect the full amount of certain cost models. This is referred to as energy contracting. For example, a specialist energy service provider operates and installs the heating system in an apartment building. According to the new principle, owners will be able to increase rents to reflect the full amount of these third-party costs. This is intended to create an incentive for modernisation and energy efficiency. However, Fabian Gloor emphasises that it is not justifiable to simply increase the rent to reflect what may be an expensive solution. Owners are, of course, obliged to choose an economical solution.

Impact on rent: landlords should inform tenants

There is no simple rule of thumb regarding the extent to which rent increases can now be expected. Some landlords mix several things when there’s a change of tenant (investments, conversions, average local rent, etc.). In principle, however, landlords are required to report an increase in rent using an official form.

Rent increases: what does the law say?

Gloor says: ‘If a landlord wants to increase the rent due to additional benefits, they must provide the pertinent documents and a calculation.’ The landlord must also give an account of whether they receive subsidies for value-adding improvements. It is correct to deduct the government’s contribution from the value-adding share of costs. To provide clarity, Gloor considers it expedient to present the relevant documents: “It is advantageous to provide the tenant with the statement of building costs and copies of the invoice.”