ABOUT THE AUTHOR: Marie-Noëlle Zen-Ruffinen TEP is
Associate Professor (University of Geneva), PhD in law,
Attorney-at-law (Partner, Tavernier Tschanz, Geneva), M Phil
Since the Hague Convention on the Law Applicable to Trusts
and on their Recognition (1985) (‘the Hague Convention’)
entered into force in Switzerland on 1 July 2007, there has been no
doubt that it is possible, in principle, to transfer Swiss real
estate into trust. The Hague Convention entitles a trustee who
desires to register an asset ‘to request its registration in his
capacity as trustee or in such other way that the existence of the
trust is disclosed […]’. Swiss law gives a concrete form to this
registration by specifying that a trust relationship can be
registered in the land register.
However, the transfer of Swiss real estate into trust raises
major difficulties. This is mainly due to the existence, in
Switzerland, of a law restricting access to property by foreigners
(Lex Koller). This law applies when Swiss real property is
transferred into trust, whatever the law governing the trust.
The principles of the Lex Koller
The rules laid down by the Lex Koller (completed by a
federal ordinance and cantonal and/or communal implementing laws)
are complex. The basic principle of the Lex Koller is that
a ‘person abroad’ must receive an authorisation to acquire real
property in Switzerland.
It is therefore essential to determine those who are ‘persons
abroad’ according to this law and who therefore must in principle
seek an authorisation. These persons are, in particular, foreigners
living abroad and foreigners living in Switzerland who are neither
citizens of a European Commission/European Free Trade Association
(EC/EFTA) member country, nor hold a Swiss permanent residence
permit (permit C). Swiss nationals are not ‘persons abroad’ within
the meaning of the law, even if they are living abroad.
The acquisition operations subject to the Lex Koller
are very broadly construed. The economic result is decisive: the
deed only needs to grant the acquirer a position that is similar to
that of the owner (for instance, the acquirer is granted a right to
occupy or to purchase the real property; they benefit from a
long-term rental contract that allows them not only to use the real
property but also to transform or extend it; they fund more than
two-thirds of the acquisition or construction of the real property,
with the possibility of the funding exceeding this threshold if the
acquirer is a bank).
The implementing ordinance of the Lex Koller requires
that the ‘person abroad’ who wishes to acquire a residential
property (main residence, second residence or holiday residence)
does so directly and in their own name; it thus prohibits any
fiduciary acquisition for this type of asset or any acquisition
through a company. Moreover, only physical ‘persons abroad’ (to the
exclusion of legal entities subject to the Lex Koller) can
acquire this type of asset.
The Lex Koller sets forth some exceptions to the
authorisation system. In particular, acquisition is possible
without authorisation and without restriction when it concerns a
permanent establishment, namely real property that is only used for
commercial purposes (e.g. factories, storehouses, offices, retail
centres, stores, hotels, restaurants, medical practices). In this
case, the transfer into trust is always possible, irrespective of
whether the trustee personally carries out the economic activity or
rents or leases the real property to a third person who carries out
such an activity. Moreover, the acquisition of a residential
property is not subject to authorisation when the acquirer is
either a relative in ascending or descending line of the
transferor, or the latter’s spouse, or a person who is already a
co-owner or joint owner; the same applies when the acquisition is
made through inheritance by a legal heir. However, in all these
cases, the acquisition must be made directly and in their own
name.
Specific difficulties linked to transferring
real estate into trust
When reconciling the possibility of transferring Swiss real
estate into trust with the Lex Koller, major difficulties
can be encountered, mainly in two respects.
First, what are the criteria for determining whether the
contemplated transfer into trust is subject to the Lex Koller (e.g.
the nationality and/or domicile of the trustee, of the beneficiary
or of the settlor)? This is a key question. If the Lex
Koller does not apply because there are no ‘persons abroad’
within the meaning of the law, there should be no restrictions on
transferring Swiss real estate into trust (in particular, the
acquisition would not be required to be direct and in their own
name). Conversely, if the Lex Koller applies, the
acquisition must be made directly and in their own name.
Secondly, when the Lex Koller applies, does the rule
that states that a person who desires to acquire a main residence,
a second residence or holiday residence must do so directly and in
their own name, disqualify any acquisition of this type of property
through a trust?
Practical application by the
authorities
The practical application is still in its early days. Few
decisions have been issued to date in cases concerning the transfer
of Swiss real estate into trust. Moreover, the decisions and
positions taken by the authorities are far from uniform.
The Federal Tribunal (the supreme court in Switzerland) had the
opportunity to clarify the situation in a specific case: the
transfer of Swiss real estate into trust is not subject to the
Lex Koller (and is therefore possible without restriction)
when neither the trustees nor the beneficiaries are ‘persons
abroad’. In my opinion, however, when the trust is revocable, the
situation of the settlor, who is in principle in a position that is
economically similar to that of an owner (since the settlor retains
some control over the trust’s assets as well as the economic
benefit insofar as he can freely reinstate his rights of ownership
on the trust’s assets), should be analysed. This was not really an
issue in the case submitted to the Federal Tribunal since the
settlor (who was also a beneficiary) was a Swiss citizen.
On the other hand, the situation is less clear in practice when
all or some of the trust players are ‘persons abroad’ within the
meaning of the Lex Koller. The practice varies from one
canton to another. Thus, the practical application is, for example,
restrictive in the cantons of Vaud and Valais, while it is flexible
in Gstaad (district of Saanen).
The Federal Office of Justice attempted to provide some
clarification by drafting, in July 2009, a new version of the
‘instructions to the attention of the land registry offices
concerning the acquisition of real property by persons abroad’ and
of the Memorandum on this subject.
(i) According to the current practice, the transfer of Swiss
real estate into trust is not subject to authorisation when the
trustee and beneficiary are not ‘persons abroad’ and a subsequent
extension to other beneficiaries is not possible under the trust
deed (it should be noted that this latter clarification, indicated
in the instructions, is not, however, reflected in established
precedents of the Federal Tribunal).
(ii) In the Office’s opinion we can, moreover, consider that the
transfer of Swiss real estate into trust is not subject to
authorisation when the foreign beneficiaries are descendants in the
direct line of the settlor; when the beneficiary is also the
settlor; or when the beneficiaries do not acquire rights granting
their holder a position similar to that of an owner. However, the
Office adds that there is currently no consistent and undisputed
practical application on this point and the examination of the
criteria for the applicability of the Lex Koller requires,
in the majority of cases, major analysis that must be carried out
by the cantonal authority responsible for implementing the Lex
Koller.
The instructions of the Federal Office of Justice can be
interpreted as a willingness of opening. We will, however, remain
prudent in the conclusions that can be drawn from this text. First,
because it reserves the appreciation of the cantonal authorities
responsible for implementing the Lex Koller; and, further,
because the Office does not indicate how to reconcile the transfer
of a residential property into trust (even if it is not subject to
an authorisation) with the obligation to acquire such an asset
directly and in own name. Indeed, in a case concerning a
residential property in Valais, the Federal Office of Justice
(consulted by a foreigner desiring to transfer his holiday
residence into trust) endorsed the negative opinion of the Valais
authority, concluding that the obligation to acquire a residential
property directly and in own name excluded acquisition through a
trust.
Conclusion
‘Persons abroad’ can transfer Swiss real property into trust
when it is used solely as an economic activity. The situation is
less clear when a person abroad wishes to transfer a residential
property (for instance a holiday residence) into trust.
Under the current legislation, there is an incompatibility
between the provisions of the Lex Koller and the
possibility (undeniable since the ratification of the Hague
Convention) of transferring Swiss real estate into trust.
Under the Swiss legal system, this incompatibility should, in
principle, be rectified with an amendment to the law. The
legislation should, in fact, have been adapted upon the
ratification of the Hague Convention if the intention was to allow
persons abroad to transfer freely a Swiss residential property into
trust. The authorities responsible for implementing the Lex
Koller cannot act as legislator and make more flexible the
rule that requires a ‘person abroad’ to acquire real property
directly and in their own name. However, experience shows that the
practical application of the law sometimes goes further than the
actual text of law, and it emerges that certain authorities
responsible for implementing the law are partly innovating their
role by developing rules that, today, it would be illusory to
expect the federal legislator to specify.