Commercial tenants in Switzerland can defer a lease
termination on the grounds of hardship, but a recent case extends
previous interpretations of the law
The Swiss Code of Obligations (CO) governing lease contracts
gives a commercial tenant the right to apply in court for a
continuation of the lease "where termination of the lease
would cause a degree of hardship for [the tenant] that cannot be
justified by the interests of the landlord". This extension
can be granted for up to six years.
In its constant jurisprudence the Federal Tribunal,
Switzerland's highest court, affirms that the court needs to
take into account all relevant circumstances of the case while
determining whether and for what duration to extend the lease. The
CO itself enumerates the primary interests, such as the duration of
the lease, the personal, family and financial circumstances of the
parties, as well as their conduct, any need that the landlord might
have to use the premises for himself as well as the urgency of such
need, and the prevailing local market conditions for residential
and commercial premises.
Not all of the enumerated elements are relevant for the
commercial lease to the same extent. The Federal Tribunal, however,
has repeatedly reminded in its judgments that the courts need to
weigh the specific interests of both parties, and also emphasises
that the courts need to keep in their mind the extension's aim
to "provide time in order to find an alternative
location". An extension appears justified if it provides the
chance that the hardship will be mitigated by postponing the
relocation. A tenant is, however, obliged to prove sufficient efforts made to find an alternative location.
In a decision rendered
last year (case reference 4A_699/2014) the Federal Tribunal
appears, however, to have somewhat broadened the grounds on which
it is ready to extend a commercial lease.
Facts of the case
The dispute concerned a family-owned fashion store at a prime
location in Zurich. Founded in 1884 at the same place, later
generations separated the ownership of the business and of the
building and transferred both into separate companies. The last
lease contract dated from the year 2000 and was terminated by the
landlord in mid-2015.
The tenant started court proceedings asking
for a first extension of the lease for the duration of four years.
The fi rst instance court granted a one-year extension starting
after the end of the contract, i.e. lasting till mid-2016. The
second instance judgment confirmed this extension, an important
element of the decision being that the tenant had been too
selective in its search efforts and was thereby not able to claim a
hardship from the fact that it was not able to find an alternative
Judgment of the Federal Tribunal
The Federal Tribunal, on appeal, went well beyond the judgment
of the lower instances and granted a prolongation of the lease for
three years, i.e. until mid-2018. Contrary to the second instance
the Federal Tribunal came to the conclusion that the tenant had not
been unwilling, but unable to find an adequate alternative for its
premises. The Federal Tribunal accepted the tenant's argument
that, in view of its specific needs, other locations on the market
would not have been reasonably suitable.
The Federal Tribunal came to the conclusion that there was no
reasonable chance that the tenant would be able find such a
suitable alternative within the six years during which the lease
could be extended at the maximum. In this situation the hardship
justifying the extension for the tenant could not be based on a
need for additional time to find a scarce alternative. Rather, the
hardship consists in the fact that the tenant is forced to find and
accept a solution with a different content, i.e. to change its
Implications of the decision
Taking into account the formula that the Federal Tribunal most
often uses in its judgments, it would not have been surprising if
the court had decided that no particular extension should be
granted. As the court had assumed that no valid alternative could
be found in time, the extension of the lease seems, on the fi rst
glance, only to postpone the hardship of leaving the premises, but
not to mitigate it.
By expressly accepting a forced change of the business structure
as a relevant hardship, and by clearly increasing the duration of
the extension granted by the lower instances, the Federal Tribunal
has now – although it referred to older jurisprudence –
clarified and in fact expanded the commercial tenant's claim to
an extension of the lease.
While the implications of this decision in local courts'
practice remains to be seen, it is certainly advisable for a
prudent landlord to keep in mind this jurisprudence when planning
the termination or renewal of its leases.
Previously published in The Lawyer, April 2016
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