Protection Against Competition in Commercial Leases: Rights & Duties in Switzerland

What Does Protection Against Competition Mean in a Commercial Lease?

Protection against competition in a commercial lease refers to a contractual agreement in which the landlord undertakes not to lease any other spaces in the same property or within a defined radius to direct competitors. This clause is intended to secure a certain level of exclusivity for the tenant and prevent their business model from being weakened by direct competition in the same building or area.

Protection against competition is particularly relevant in shopping centers, commercial buildings, or mixed-use properties where several commercial tenants operate under one roof. For example, a bakery owner does not want a second bakery to open in the same building. A fitness studio wants to prevent a competing studio from poaching the same clients. Here, protection against competition provides planning security and protects the tenant's investment.

It is important to understand that protection against competition is not automatically part of a commercial lease agreement. It must be explicitly agreed upon. Without an appropriate clause, the tenant has no right to demand that the landlord refrain from renting other spaces to competitors.

Legal Framework for Non-Compete Clauses in Switzerland

In Swiss tenancy law, there is no specific statutory regulation regarding protection against competition in commercial lease agreements. The Code of Obligations (CO) regulates commercial leases in Articles 253 et seq. but does not contain explicit provisions on exclusivity or protection against competition. This means that such agreements are based on freedom of contract and must be negotiated individually between landlord and tenant.

Freedom of contract allows both parties to design the terms of the lease largely as they wish, as long as they do not violate mandatory law or public decency. Therefore, protection against competition is generally permissible, provided it is drafted reasonably and takes the interests of both contracting parties into account.

However, a non-compete clause that is drafted too broadly can be problematic. If it disproportionately restricts the landlord's economic freedom or violates antitrust regulations, it could be declared invalid in court. Therefore, it is crucial that protection against competition clauses are drafted precisely and proportionately.

Antitrust law (the Swiss Federal Act on Cartels and other Restraints of Competition) can also play a role, particularly if the non-compete clause significantly restricts competition in a specific market. In practice, this is rarely an issue for individual commercial leases, but it can become relevant for larger shopping centers or commercial parks.

Exclusivity in Commercial Spaces: What Options Are There?

Protection against competition can be agreed upon in various forms and degrees. The concrete implementation depends on the needs of the tenant and the interests of the landlord. Here are the most common variants:

Absolute Protection Against Competition

With absolute protection, the landlord undertakes not to lease any other premises in the entire property or a defined area to companies that carry out the same or a very similar activity. This option offers the tenant maximum security but is often difficult for landlords to accept because it significantly restricts their leasing options.

Relative Protection Against Competition

Relative protection is more flexible and limits the non-compete clause to a specific industry or product category. For example, it could be agreed that no other provider of premium baked goods is allowed, but a café with a small selection of bread is. This option allows for a more nuanced approach and is more common in practice.

Geographically Limited Protection

In this case, protection against competition is limited to a specific area of the property or a defined radius. For example, it could be agreed that no direct competitor is allowed on the same floor or within a 50-meter radius. This option is particularly sensible in larger commercial parks or shopping centers.

Temporally Limited Protection

In some cases, protection is only agreed upon for a specific duration, for example, for the first five years of the lease. This gives the tenant time to establish their business, while the landlord becomes freer to lease other spaces after this period expires.

How to Draft an Effective Non-Compete Clause

An effective protection against competition clause must be precise, understandable, and proportionate. Vague wording often leads to disputes and offers little protection in the event of a conflict. Here are important points to consider when drafting:

• Clear definition of the protected activity: Describe exactly what kind of business is to be protected. Instead of "grocery retail", you should specify whether it concerns organic food stores, supermarkets, specialty shops for certain products, etc.
• Geographical scope: Determine whether the protection applies to the entire building, a specific floor, or a defined radius.
• Time limit: Consider whether the protection should be indefinite or only apply for a specific duration.
• Exceptions and restrictions: Clarify if there are exceptions, such as for already existing tenants or specific niche offerings.
• Sanctions in case of violation: Agree on the consequences of a breach of the non-compete clause, such as claims for damages or an extraordinary right of termination.

It is highly recommended to have the non-compete clause reviewed by a lawyer specializing in tenancy law to ensure it is legally sound and enforceable.

Limits and Risks of Competition Protection

Despite all its advantages, protection against competition also has limits and carries certain risks that you should be aware of:

No statutory anchor: Since protection against competition is not anchored in law, its enforceability depends heavily on the quality of the contractual drafting. Inexact or overly broad clauses can be declared invalid in court.

Conflicts of interest with the landlord: Excessively strict protection can significantly limit the landlord's renting opportunities. This can lead to landlords being reluctant to accept such clauses or demanding higher rents.

Antitrust concerns: In rare cases, particularly with dominant market positions or large commercial parks, non-compete clauses can violate antitrust law. This is especially true if they disproportionately impede market access for competitors.

Changes in the business model: If your own business model evolves, an overly narrow non-compete clause can become an obstacle. Therefore, ensure that the clause offers enough flexibility for future adjustments.

Burden of proof in case of violations: Should the landlord violate the non-compete agreement, the burden of proof lies with the tenant. You must be able to prove that the new tenant is indeed in direct competition with you and that this has caused you damage.

Competition Protection in Practice: Typical Scenarios

To better understand the importance and functionality of competition protection, let us look at some typical practical examples:

Scenario 1: Retail in a Shopping Center

A shoe retailer rents a shop space in a shopping center and agrees on a relative non-compete clause. The landlord may not lease space to other shoe shops in the same center, although sports and outdoor shops with a small shoe section are allowed. This arrangement protects the shoe retailer's core business without restricting the landlord too severely.

Scenario 2: Gastronomy in a Commercial Building

An Italian restaurant agrees on absolute competition protection for Italian cuisine in the entire building. However, other culinary businesses with a different concept (Asian, Swiss cuisine, café) are permitted. This prevents a direct competitor from targetting the same customer base, while the overall culinary offer in the building remains diverse.

Scenario 3: Services in an Office Building

A coworking space operator secures a geographically limited non-compete clause for the ground floor and the first floor. On higher floors, other office renting models may be offered. This solution allows for a clear spatial separation and provides planning security for both parties.

Conclusion: How to Secure the Best Protection Against Competition

Protection against competition in a commercial lease is an important tool to protect your business model and create planning security. Since there is no statutory regulation for this in Switzerland, the contractual design is crucial. Make sure to draft the non-compete clause precisely, align it with your actual needs, and at the same time consider the landlord's interests.

A well-drafted clause should clearly define the protected activity, set the geographical and temporal scope, and regulate potential sanctions for violations. Avoid overly broad wording that could be classified as disproportionate in court.

If you want to conclude a commercial lease with competition protection, it is worth entering into negotiations with the landlord early on and drafting the clause together. Professional legal advice can help find a solution that is fair to both sides and legally sound.

On maison.work, you will find a large selection of commercial properties throughout Switzerland. Use the platform to find the right property for your business and make sure to pay attention to appropriate competition protection during contract negotiations.

Please note: This article is for general information purposes only and does not constitute legal advice. For specific questions regarding protection against competition or contract drafting, we recommend consulting a lawyer specializing in tenancy law.