Setting the rent: admissible yield and prevailing local rents

The question arises at every handover, and again whenever a flat becomes available after several years of occupation: at what rent should the property be let for the next tenancy? The landlord sometimes thinks of what he was receiving before, sometimes of what he sees on the portals, sometimes of what a neighbour mentioned. All three are useful reference points, but none is sufficient on its own. Setting the rent on a flat in Switzerland follows precise rules, and ignoring them exposes the landlord to challenges that can prove costly, long after the lease has been signed.

Here is how Alexandre approaches the question with his landlord clients: not as a right to be exercised freely, but as a calculation to be carried out methodically, between two boundaries that the law sets out clearly.

Two legal boundaries: yield and neighbourhood rents

Swiss law does not fix a rent in francs. It defines two criteria that determine whether a rent is admissible or open to challenge. The first is the admissible net yield: a rent is in principle lawful if it does not provide the landlord with an excessive return on the equity invested in the property. The second is the criterion of prevailing rents in the neighbourhood: even if the yield is slightly above the admissible threshold, a rent may be justified if it corresponds to what comparable dwellings in the same neighbourhood or village actually achieve on the market.

These two criteria are alternatives: it is sufficient for one to be met for the rent to be defensible. But neither can be assessed by eye. The net yield requires knowing the acquisition price, the equity committed, the costs borne by the landlord, and the reference mortgage rate in force at the time of the calculation — which is published each quarter by the Federal Housing Office. Prevailing rents require a serious comparison with genuinely similar dwellings, not a quick scan of online listings.

The initial rent and the official form

In the canton of Vaud, when a new lease is concluded, the landlord is required to notify the tenant of the initial rent using the official cantonal form (formule officielle). This obligation, often overlooked, is a central protection for both parties. It states the previous rent and, if the new rent is higher, obliges the landlord to justify the increase. A rent notified without the form, or on an incomplete form, may be challenged by the tenant within thirty days of the handover.

The admissible grounds for justifying an increase at the point of re-letting are defined: a rise in the reference mortgage rate since the last rent was set, an increase in costs, value-adding works, or reference to prevailing rents. Each ground calls for documented justification, not a bare assertion. If the landlord cannot produce this supporting material, a challenge before the conciliation authority has a good chance of succeeding.

What online listings do not show

Consider a landlord letting a 4.5-room flat in Lutry. He consults the portals, notes a few listings at CHF 2,800 or CHF 3,100, and concludes that his property can reach that level. The reasoning seems logical. He is overlooking two things.

First, listings show asking prices, not signed rents. A rent advertised at CHF 3,100 may be negotiated down to CHF 2,900 at the point of signing, or the flat may remain vacant for two months — which amounts to the same thing over twelve months. Second, portal listings do not distinguish between renovated properties and those in average condition, between upper floors with a view and ground-floor flats overlooking a courtyard, or between rents inclusive and exclusive of charges. Two flats of the same size on the same street can legitimately show a 15% difference without either rent being abusive.

The reliable benchmark for prevailing rents is leases actually signed, not properties currently vacant. That is precisely what La Juste Mesure documents for sales — and the same rigour applies when Alexandre assesses a market rent for a landlord.

The reference mortgage rate, a central variable

The reference mortgage rate (taux de référence hypothécaire) is the cornerstone of the Swiss rental mechanism. It determines whether a current rent may be adjusted upwards or downwards, and by what proportion. It is calculated on the basis of the average rate of mortgage loans in Switzerland and published quarterly by the Federal Housing Office.

When setting a new rent, it is essential to know at what reference rate the previous rent was calculated, and what the current rate is at the time of re-letting. If the rate has fallen since the last rent was set, the incoming tenant may argue that the rent should be lower — even if the landlord wishes to maintain or increase the initial rent. The official form requires precisely that this question be raised and documented. Since the exact value of the rate may change each quarter, it should be verified at the time of acting on the Federal Housing Office website.

Net rent, charges, and transparency

One further source of misunderstanding: the distinction between net rent and charges. Charges — heating, hot water, maintenance of common areas, and possibly cable or lift costs — do not form part of the rent in the legal sense. They are in principle provisioned separately, with an annual statement of account, and cannot be lumped into an all-in figure at will in order to inflate the appearance of the net rent.

A landlord who includes charges in a flat-rate rent must be able to demonstrate that the amount is in line with actual expenditure. Failing that, the tenant may request an itemised account and repayment of any overcharge. Transparency on this point protects the landlord as much as it protects the tenant.

Setting the rent on a flat in Switzerland means navigating between two boundaries — the admissible yield and prevailing local rents — and documenting the choice before anyone else challenges it.

Every landlord's situation is different: depending on the acquisition price, the date on which the rent was last set, the condition of the property and the commune, the admissible rent can vary considerably. If you wish to carry out this calculation properly before drafting the lease, the Letting service with Alexandre begins precisely there: with a documented rent assessment, before any listing is published. And if you are looking for a tenant for a property in Pully, Vevey, or elsewhere on the Riviera, the Advisor can answer an initial question before any appointment.