The case

The Swiss tenancy law is essentially based on the principle of cost-based rent with a limited return. Landlords are only allowed to achieve a certain net return on the equity they have invested, and it is calculated on the basis of the rental income minus costs, such as mortgage interest, maintenance and administration.

Source: CH-Medien (German) – Christoph Bernet 17 April 2026, heavily abridged

The commentary

The permitted return is linked to the mortgage reference interest rate. Since a ruling by the Swiss Federal Supreme Court in November 2020 (BGE 147 III 14, 4A_554/2019), the net return may be up to 2 percentage points above this rate, which allows for higher returns in the current interest rate environment compared to the one before this ruling. At present, the maximum permitted net return is 3.25 %.

Rent increases in existing contracts are only allowed under certain conditions, i.e. when reference interest rates increase, due to inflation, increased costs or after value-adding renovations.

There has been criticism of the underlying calculation model, which is based on assumptions from the 1980s. Studies suggest that today’s financing costs and cost structures are in some cases significantly lower than assumed at the time. As a result, the current return on equity may be higher than the model planned for.

In addition to this, ownership structure has changed: Institutional investors such as pension funds and real estate funds have become more important and often operate with higher levels of equity. Within the current system, this can tend to favour higher returns.

Politically, the issue is controversial. Reform proposals aim, among other things, to adjust the calculation of the permitted return and to limit potential excess returns. At the same time, such proposals have faced resistance, particularly from the real estate industry. A fundamental revision of the model is currently being examined again. By the end of September 2026, the Federal Office for Housing is expected to present a revised rent model to the Federal Council. Whether the more than 40-year-old foundations will be modernized this time round remains to be seen.