Is a reservation agreement common when buying a flat?

The reservation agreement: practice, law and risks

Why is a reservation agreement almost unavoidable when buying?

If you want to buy a flat in Switzerland, in over 90 per cent of cases you will be confronted with a reservation agreement. The reason is simple: it often takes weeks to get to the notary appointment (finalising financing, drawing up the contract).

During this time, the seller wants to make sure that you don't back out. Conversely, as the buyer, you want to ensure that the flat is not sold to someone else tomorrow. The reservation agreement creates this exclusivity. The seller takes the listing off the market and turns down other interested parties. In return, you make a deposit.

The legal dilemma: formal requirements

This is where it gets complicated for laypeople, but it is important: the Swiss Code of Obligations (CO) stipulates that contracts for real estate transactions must be notarised (i.e. by a notary). A simple written reservation agreement for the purchase, which you sign at your kitchen table or at the estate agent's office, usually does not meet this formal requirement.

Strictly speaking, this means that the reservation agreement is void in terms of the obligation to purchase. You cannot legally force the seller to sell you the flat, and they cannot force you to buy it – even if you have signed. Why is the reservation agreement still made when purchasing? It is considered a "gentlemen's agreement". The deposit paid creates a high moral and economic hurdle to withdrawing from the purchase.

How much deposit is customary?

A central component of the reservation agreement when purchasing is the reservation payment.

• The amount: amounts between CHF 10,000 and CHF 30,000 or around 1 to 3 per cent of the purchase price are common.
• Be cautious with higher sums: if someone demands a 10 or 20 per cent deposit in the reservation contract when purchasing, alarm bells should ring. This is unusual and risky.

Where to put the money? The blocked account

This is the most important tip in this article: when you sign a reservation agreement for a purchase, never transfer the deposit directly to the seller's private account.

If the seller goes bankrupt before the notary appointment or turns out to be a fraudster, your money will be gone. A reputable reservation contract for a purchase always specifies a blocked account or a trust account held by the notary's office or an established estate agency. The money is kept there safely until the purchase is completed and is then credited towards the purchase price. Insist on this provision in the reservation contract for the purchase!

What happens if the purchase falls through?

Even if you have signed the reservation agreement, the deal may still fall through – either because the bank refuses to provide financing or because you change your mind. What happens to the deposit?

Since the reservation agreement is not legally valid without a solicitor, the seller would theoretically have to refund the deposit in full (unjust enrichment).

However, they are allowed to deduct proven expenses (known as culpa in contrahendo – fault in contract negotiations). These include:

• Notary fees for the draft.
• Advertisement costs if a new advertisement has to be placed.
• The estate agent's expenses (if agreed).

Clauses in the reservation agreement often contain flat-rate penalties ("penalty for withdrawal"), e.g. that the 20,000 Swiss francs are forfeited. Such flat rates are often not legally enforceable, but lead to disputes . A fair reservation agreement lists exactly which specific costs will be charged in the event of withdrawal.

Checklist: What must be included in the contract

To ensure that the reservation agreement is secure for you, pay attention to the following points:

• Parties: Buyer and seller with full address.
• Property: Clear description of the flat (including parking space, etc.).
• Purchase price: The fixed final price.
• Deposit: Amount and – very important – the bank details of the escrow account.
• Settlement: Confirmation that the deposit will be credited towards the purchase price.
• Cancellation clause: What happens if the purchase does not go ahead? What costs may the seller retain?
• Deadlines: By when should the notarised purchase agreement be signed?

Special considerations for newcomers

If you are new to Switzerland, you may be familiar with the "binding offer" system from Anglo-Saxon countries. The reservation agreement for purchases in Switzerland is not comparable to this. It is less binding.

In addition, you should stipulate in the reservation agreement that the deposit will be refunded in full if you do not receive approval for the purchase (Lex Koller, if relevant) or if the bank refuses to finance the property. This protects you against external factors.

Strategy: first the bank, then the signature

Only sign the reservation agreement when purchasing once you have the green light from the bank. Many buyers make the mistake of signing immediately for fear of competition.

Submit the draft contract and property details to the bank. Only when the bank says, "We will finance this property at this price," should you sign the reservation agreement for the purchase and make the payment.

Conclusion

The answer is clear: yes, a reservation agreement is absolutely common and standard practice in Switzerland. It is an important tool for creating calm and commitment in a hectic market. It secures the property for you while the details are being prepared for the notary.

But be aware of the legal grey area. A reservation agreement for a purchase without notarisation is not worth the paper it is written on when push comes to shove – except as proof of the deposit. Your best protection is not the signature, but the payment flow: only transfer money to an escrow account. If you follow these rules, you can use the reservation agreement for the purchase as a useful milestone on the way to owning your own home.

Use Loft to have your documents checked and navigate safely through the purchase process.

Glossary

• Reservation agreement when purchasing: A written agreement between the buyer and seller to reserve the property in exchange for a deposit. Often only enforceable to a limited extent without a solicitor.
• Escrow account (blocked account): A bank account that does not belong to the seller privately, but is managed by a notary or estate agent. It secures the deposit in the reservation agreement when purchasing.
• Public certification: The formal act at the notary's office, which is mandatory for property sales in Switzerland. Only this makes the purchase legally valid.
• Culpa in contrahendo: Legal term for fault in contract negotiations. Allows the seller to deduct costs incurred during the purchase (e.g. notary fees) from the deposit in the event of withdrawal despite the reservation agreement.
• Penalty clause: A sum agreed in the contract that is forfeited if one party withdraws from the contract. Often legally contestable in a simple reservation contract for purchase.