Withdrawal from a rental agreement
Withdrawal from a rental agreement Withdrawal from a rental agreement in Switzerland: everything you need to know about preliminary agreements, defects and deception. For offices and commercial properties.
A signed lease agreement for office or commercial space in Switzerland is generally binding. But what happens if circumstances change and one party – be it the tenant or the landlord – wants to get out of the contract before the lease begins or shortly thereafter? Backing out of a lease agreement is a complex topic often associated with uncertainties. This article highlights the various aspects of withdrawal, including the situation with a preliminary lease agreement and the general possibilities of terminating an already signed lease.
In the dynamic business world, unforeseen events can lead to a situation where a recently concluded lease agreement for planned expansion, a new office, or business relocation suddenly no longer meets your needs. Perhaps a funding round has been delayed, an important contract has fallen through, or a more suitable property has been found at short notice. In such moments, the question of the possibilities for withdrawal inevitably arises.
Distinction from termination
It is important to distinguish backing out from the termination of a lease agreement. A withdrawal aims to cancel the contract from the outset or prevent it from taking effect, often before the rental property has even been occupied or immediately upon handover due to serious defects. A termination, on the other hand, ends an existing tenancy for the future, either ordinarily in compliance with notice periods and deadlines, or extraordinarily for important reasons during the ongoing lease term. The withdrawal scenarios discussed here operate in a gray area and often have similar consequences to an immediate contract dissolution.
Backing out of a preliminary lease agreement: The legal situation regarding pre-contractual agreements
Before a detailed lease agreement is drafted and signed, parties sometimes conclude a so-called preliminary lease agreement. A preliminary contract is particularly common for larger office and commercial spaces. This document records the essential cornerstones of the future tenancy, such as the rental property, the rent, and the approximate start of the lease. But how binding is such an agreement, and is backing out of the preliminary agreement easily possible?
In principle, a preliminary lease agreement is also considered a contract within the meaning of the Swiss Code of Obligations (CO) and has a certain binding effect. It aims to oblige the parties to conclude the main lease agreement. A complete and baseless withdrawal is therefore not readily provisioned if the preliminary contract is formally valid (usually in writing, if intended for the main contract or desired by the parties) and its content is sufficiently determined.
However, there are also scenarios here that can justify a withdrawal. If specific conditions for concluding the main contract were mentioned in the preliminary lease agreement (e.g., the granting of a building permit for specific conversions by the tenant), and these conditions do not materialize, a right of withdrawal may arise. A withdrawal can also be possible if one party has been maliciously deceived or if a fundamental error occurred.
The consequences of an unjustified withdrawal from a preliminary lease agreement can lead to claims for damages, depending on the agreement. This may include, for example, the costs incurred by the other party due to their reliance on the conclusion of the main contract (e.g., advertising costs for a renewed search, planning costs). It is therefore advisable to define clear regulations for a possible withdrawal and its consequences already when drafting a preliminary lease agreement. If such regulations are missing and the preliminary contract is binding, one party may under certain circumstances even sue for the conclusion of the main contract. In practice, however, the focus is more frequently on damages.
Backing out of a lease agreement: Options after signing the contract
Once the actual lease agreement has been signed by both parties – tenant and landlord – the situation becomes more complex. Swiss tenancy law does not recognize a general statutory right of withdrawal for lease agreements, as is the case with doorstep selling, for example. With their signature, both sides confirm their intention to enter into the tenancy at the agreed conditions. A unilateral withdrawal from the lease agreement by the tenant or landlord is therefore only possible under specific conditions.
The probably most straightforward option, which however depends on the goodwill of the other party, is the mutual termination of the lease agreement. If the tenant and landlord agree that the tenancy should not materialize after all, they can dissolve the contract by mutual agreement. It is strongly recommended to record such a termination agreement in writing and to regulate all relevant points within it, such as any potential compensation or the assumption of costs already incurred.
Another possibility provided by law for the tenant to be released prematurely from their obligations is proposing an acceptable replacement tenant (Art. 264 CO). This person must not only be willing to take over the lease agreement under the exact same conditions (rent, contract duration, etc.) but must also be objectively acceptable to the landlord. In particular, this means that the replacement tenant must be solvent and there must be no justified concerns regarding the contractual use of the rental property. The landlord has a reasonable period of time to assess the proposed replacement tenant. If the landlord rejects an objectively acceptable replacement tenant without good reason, or fails to respond within a useful timeframe, the original tenant is released from their obligations. If the tenant cannot find an acceptable replacement tenant, they generally remain obliged to pay the rent until the next possible ordinary termination date, minus what the landlord saves or intentionally fails to save by using the premises otherwise.
Specific regulations can also arise from the lease agreement itself if, for example, contractual withdrawal rights have been agreed upon for certain scenarios, which is rather rare in practice, however.
Backing out of a lease agreement: Special circumstances and reasons
In addition to mutual termination and proposing a replacement tenant, there are special circumstances that can justify a withdrawal. These are often tied to strictly defined requirements.
An important reason for a withdrawal can be the presence of serious defects in the rental property at the start of the lease. If the suitability of the office or commercial space for the intended use is significantly impaired or completely nullified (e.g., massive water damage, no heating in winter, serious safety defects), and the landlord has not remedied these defects despite being requested to do so and being given a deadline, the tenant may under certain circumstances back out of the contract or issue a termination without notice according to the rules of default or non-performance (Art. 258 Para. 2 CO in conjunction with Art. 107/109 CO or Art. 259b lit. a CO). It is crucial to document the defects precisely and to correctly follow the legal steps (notification of defects, setting a deadline for remediation). A merely minor defect generally does not justify a withdrawal, but rather gives the tenant other rights such as defect rectification, rent reduction, or damages.
A malicious deception by the landlord regarding essential features of the rental property can also entitle the tenant to contest the contract and thus back out (Art. 28 CO). Deception occurs when the landlord intentionally provides false information or conceals important facts that influenced the tenant's decision to conclude the contract (e.g., concealing an upcoming major construction site directly in front of the office windows, which would significantly restrict use). The tenant must be able to prove the deception and its causality for the conclusion of the contract and contest the contract within one year of discovering the deception.
Rarer, but conceivable, are cases of a fundamental error (Art. 23 et seq. CO). A fundamental error entitling the tenant to contest the contract exists if the tenant was mistaken about a factual situation which they, according to good faith in commercial practice, were entitled to regard as a necessary basis for the contract.
For the landlord, the possibilities of a unilateral withdrawal after signing the contract are also very limited and usually restricted to severe breaches of contract by the tenant before the start of the lease (e.g., if it becomes clear even before the handover that the tenant is insolvent and cannot pay the first rent or the deposit) or to special, contractually agreed reasons for withdrawal.
Conclusion on backing out of a lease agreement
Backing out of a lease agreement for office and commercial space in Switzerland is not an undertaking to be taken lightly. Once a contract is signed, it must generally be adhered to ("pacta sunt servanda"). The possibilities for a withdrawal are clearly defined by law and contract, and usually require special circumstances.
In the case of a preliminary lease agreement, the binding nature and any withdrawal conditions should be carefully reviewed and ideally recorded in writing. After concluding the main lease agreement, a withdrawal is most likely to be achieved through a mutual termination with the counterparty or by proposing an acceptable replacement tenant. Special reasons such as serious defects in the rental property upon handover or malicious deception can also justify a withdrawal, but require careful documentation and compliance with legal requirements.
Given the potential financial consequences of an unjustified withdrawal or a disputed contract termination, it is advisable for tenants and landlords of office and commercial spaces to seek legal advice at an early stage. Clear communication and looking for fair solutions can often help avoid lengthy and costly disputes. Carefully reviewing the lease agreement before signing and being aware of one's own rights and obligations form the best basis for a successful tenancy.