Increasing rent after a renovation: what’s allowed?

Not every renovation justifies a rent increase

As a general rule, Swiss tenancy law allows landlords to increase the rent if inflation has risen, the reference interest rate has increased, maintenance and operating costs have genuinely gone up (“general cost increases”), or substantial renovations or improvements have been carried out. But not every renovation justifies a rent increase.

As the property owner, you must keep the rental property in a “condition fit for use”

As per the Swiss Code of Obligations, landlords are required to keep the rental property in a “condition fit for its designated use” (Art. 256 of the Swiss Code of Obligations). If you replace worn-out building components or restore the apartment to its previous standard, this is considered maintenance. As a general rule, these costs cannot be passed on to tenants through a rent increase.

Typical examples include repainting walls, replacing a faulty washing machine with an equivalent model, or repairing bathroom tiles. This kind of work is carried out to preserve the property’s value. It forms part of your business risk as a property owner and landlord and is already covered by the existing rent.

Value-enhancing investments: a basis for increasing the rent

It’s a different matter if you make lasting improvements to the property’s usability or comfort. Swiss tenancy law allows the rent to be adjusted for what are known as additional services provided by the landlord (Art. 269a(b) of the Swiss Code of Obligations). The amount by which the rent may be increased depends on the cost of the investment, its expected lifespan, and the estimated financing and maintenance costs over that lifespan.

To determine the expected lifespan of an investment, landlords’ and tenants’ associations jointly develop a standard lifespan table. The current reference interest rate is used to calculate the return on the investment, with an additional allowance for the return on equity.

The value added is often calculated using a standard percentage

Examples of “additional services” include installing a high-quality new kitchen with significantly improved fittings, carrying out energy-efficient upgrades to the building envelope, or adding a balcony. In practice, however, many projects involve a combination of maintenance and improvements. For example, if you replace a 25-year-old kitchen in a rented apartment, the part of the investment that simply restores the previous standard is considered value-preserving maintenance. Only the added value, such as better appliances, higher-quality materials or an improved layout, is regarded as an additional service.

According to established case law of the Swiss Federal Supreme Court, the value-enhancing share is often calculated using a standard percentage, typically between 50 and 70 percent of the total investment cost, depending on the specific circumstances. For modern kitchens or bathroom renovations, courts often consider 50 percent of the investment to be value-enhancing, increasing to as much as 70 percent where the level of comfort has been significantly improved.

How do you calculate the allowed rent increase?

Under Swiss law, rent must not be excessive or generate an unfair return. For value-enhancing investments, you are allowed to charge interest on the value-enhancing share of the investment and depreciate it over its expected lifespan. Any changes in maintenance or operating costs may also be taken into account.

The allowable return is based on the mortgage reference interest rate published periodically by the Swiss Federal Office for Housing (FOH). It’s not any market interest rate that matters, but the cost structure recognised under Swiss tenancy law. The calculation must be transparent and easy to understand so that it can withstand scrutiny. The legal basis for these rules can be found primarily in Articles 269 and 269a of the Swiss Code of Obligations, as well as the Ordinance on the Rental and Leasing of Residential and Commercial Premises (RRBPO).

Formal requirements: any increase is invalid without the correct form

Even if the calculation is correct, a rent increase can still be invalid if you don’t comply with the formal requirements. Every rent increase must be communicated using the official form approved by the relevant canton (Art. 269d of the Swiss Code of Obligations). It must also be done in good time. The letter must be received by the tenant no later than ten days before the start of the notice period.

It must clearly explain what work has been carried out and how the rent increase has been calculated. Vague or generic explanations are not sufficient. As a rule, procedural errors render the rent increase invalid. Tenants have the right to inspect the relevant supporting documents (such as invoices and other evidence) to verify the value-enhancing share of the investment.

Objecting to the rent increase: what happens if the rent increase is challenged?

Tenants can challenge a rent increase within 30 days by applying to the competent conciliation authority (Art. 270b of the Swiss Code of Obligations). In practice, this is most common following major renovation projects or where the rent increase is substantial. The conciliation authority examines whether the rent increase is objectively justified and has been calculated correctly. In many cases, the parties reach a settlement.

If no agreement can be reached, the case may be referred to the tenancy court. In particular, the court will examine whether the value-enhancing share of the investment has been assessed realistically and whether the allowable return has been calculated correctly. Experience shows that many cases do not result in the rent increase being overturned entirely, but instead in a moderate reduction.

Don’t overlook the commercial reality

Just because a rent increase is legally allowed, this doesn’t necessarily mean it makes commercial sense. In tight housing markets, landlords are generally more likely to recover their investment through higher rents than in regions with higher vacancy rates. The length of the tenancy, the tenant’s payment history and your relationship with the tenant can also play an important role. A rent increase that is formally correct but pushed to the maximum allowed could, in some cases, lead to tenants moving out and unwanted vacancies, with the associated costs.

Summary

In Switzerland, a rent increase following renovations is only allowed where the work creates genuine added value. Routine maintenance is still your responsibility as the property owner. You may earn a return on and recover the cost of value-enhancing investments, provided the return is not excessive and you comply with the strict formal requirements. By calculating the increase carefully, communicating transparently and taking a realistic view of the market, you can greatly reduce the risk of objections and lengthy legal proceedings.