Your lowdown on the pre-emptive right: What must I keep in mind as a seller?

The idea when selling property is to turn the bricks and mortar into liquid cash as swiftly and easily as possible. You can sum it up like this: Going to the right buyer at the right price. Unfortunately, it’s often easier said than done. When selling, as well as an inescapable sea of red tape, there are also many t’s to cross and is to dot - one of which is the pre-emptive right. But what is it anyway - and why do its practical aspects matter when selling a house?

First things first: What exactly is a pre-emptive right?

Those holding the pre-emptive right are entitled to purchase a certain object in case it is sold one day. Not only that - they are considered pre-emptors, which gives them priority over all other would-be buyers, no matter how many are waiting in line. And that’s it? Well, unsurprisingly, simplicity and our legal system are mutually exclusive. Three basic criteria have to be met for a pre-emptive right to become legally effective.

Only with these three criteria does the pre-emptive right apply:

1. First of all, the property actually has to be sold on the open market.The pre-emptive right only applies when so-called first refusal is offered, i.e. the sale of a property for which an existing pre-emptive right has been agreed. Gifting the property to your mother-in-law is all well and good, but definitely would not be a case to which the pre-emptive right applies.

2. The pre-emptive right was already established in advance.The pre-emptive right must already be legally valid before purchase agreements are drawn up. Once sales and negotiation are underway with other buyers, in effect, the stable door is open and the horse has bolted.

3. Whoever holds the pre-emptive right explicitly claims it. Note, however, that he or she is only entitled to purchase if signing the purchase contract within a certain period of time. Otherwise, the legal right expires.

What kinds of pre-emptive right exist?

We’ve gone through the basics - so let’s now tackle the finer details: pre-emptive rights come in a range of forms, each with different conditions.

The contractual pre-emptive right

The contractual pre-emptive right is a classic pre-emptive right governed by (surprise, surprise) contractual terms. For example, you can guarantee your favourite tenants a pre-emptive right if they keep your house in good condition. Reams of paper go with the territory when it comes to contractual pre-emptive rights: they have to be publicly notarised by a notary public and entered in the land register. That said, they are even more stable than their owners once in place - unless otherwise agreed, contractual pre-emptive rights are inherited after the owner passes away. To make things even thornier, two types of contractual pre-emptive right have been defined in the Swiss Civil Code: a limited pre-emptive right and an unlimited pre-emptive right.

When a limited pre-emptive right applies, all the factors around the sale - particularly the purchase price - are agreed in detail and in advance. This isn’t, however, guaranteed risk-free: If the market value of your property soars in the years having elapsed since first concluding the pre-emptive right and the sale, it may be under-priced. Accordingly, a limited pre-emptive right normally only applies when you want to sell your own property to relatives at a preferential price.

When unlimited pre-emptive right applies, conversely, price and other terms of sale are not determined in advance, but instead defined by the best current offer. This is what it boils down to: First and foremost - more upfront effort, given the need to obtain offers from third parties. Secondly, however, you tend to get more revenue, because of scope to drive up the sale price. So even if it’s a bit more work, it often pays off!

Remember, getting the most out of your real estate sale means maintaining your property well. Schedule regular renovations to preserve and boost value  and get the best available sale advice from professionals. Read more about how a broker gets a good price.

The legal pre-emptive right

Under certain circumstances, third parties have a pre-emptive right with no prior contract needed. Fortunately, however, this only applies in three specific situations:

1. Co-ownership:When the property does not belong to you alone, but is also co-owned by others. Classic example: You and your spouse own a dream house. In the unhappy event of a divorce, however, a pre-emptive right to your share of the home goes automatically to your (ex-) spouse.

2. Building lease: When someone owns the right to build on one of your plots. For example, if your son put his house right next to yours, which would mean him building on your land. If you wake up one day and decide to sell your property, you’ll find your son has the pre-emptive right.

3. Land rights: This applies when you own agricultural land. For example, if the plot of land you’re keen to sell is leased and farmed by a farming family, that family are automatically granted a pre-emptive right.

Focus closely on all things legal and any third-party claims before further planning of your property sale. Getting a good notary on board and scanning the land register is equally important.

What are the obligations for an existing pre-emptive right and how does the process unfold?

Enough of definitions! Let's get down to the nitty gritty of the sale. The key responsibility you face as a seller is the duty of notification. You have to inform whoever holds the pre-emptive right about the intention to sell your property. And if an unlimited pre-emptive right applies, determining a fair sales price is another must.

Proceed as follows in this case:

1. The first step is to offer your property for sale on the market. The prerequisite, though, is that you have to ensure all potential buyers are fully aware of any existing pre-emptive right and not let it go under the radar.

2. A purchase agreement is then negotiated with the highest bidder. So far, so good.

3. But the key step is the next one: Giving the notice to pre-emptors. Anyone with that pre-emptive right now has his/her “time to shine” and can seize the chance to buy the property if interested. This would involve entering into the purchase agreement in place of the highest bidder.

4. The process would also involve assuming the contractual terms and conditions negotiated by the highest bidder and has to be completed within three months, otherwise the pre-emptive right expires.

Duration, limitation and cancellation of the pre-emptive right

Keen to sell your property, but not to negotiate potential pre-emptive rights emerging from the past? Well, in some cases, waiting is all you need to do to avoid this problem. Contractual pre-emptive rights expire automatically after 25 years.

But if you still want to sell your property to another party before that deadline - sorry, you're out of luck. Contractual pre-emptive rights can only be terminated prematurely by mutual agreement between both parties. The smarter thing to do in that case would have been to already limit the pre-emptive right contractually at the time it was established - by shortening the term or other legal means.

Legal pre-emptive rights, conversely, come without any minimum term or minimum expiry. In fact, terminating them is only possible when a publicly notarised agreement has been concluded between all parties involved. Contractual pre-emptive rights are heritable. Legal pre-emptive rights, conversely, are not. Namely, the latter expire when the person entitled to pre-emptive rights passes away.

Summary has you stumped?

Mithered by the whole maze? Here are the key facts at a glance: