How electricity and gas supply shortages can affect leases

Andreas F Vögeli
Niederer Kraft Frey, Zürich
andreas.f.voegeli@nkf.ch

Annina Fey
Niederer Kraft Frey, Zürich
​​​​​​​annina.fey@nkf.ch

Introduction

The Federal Constitution of Switzerland provides that the Confederation shall implement precautionary measures to ensure the country’s supply of essential goods and services in the event of the threat of politico-military strife or war, or of severe shortages that the economy cannot offset (Article 102, Federal Constitution).

In view of the current situation, the Federal Council has reacted to threatened shortages of power and gas supplies by implementing and preparing various ordinances (eg, Ordinance of 18 May 2022 on ensuring supply capacity in the event of a severe shortage of natural gas supply; Ordinance of 4 May 2022 regarding the Organisation for Securing the Economic National Supply in the Gas Industry; Ordinance regarding the Organisation for Securing the Economic National Supply in the Electricity Industry of 10 May 2017, current version 1 June 2022); and in-depth plans of measures against such shortages.

To address potential power cuts, the Association of Swiss Electricity Companies (Verband Schweizerischer Elektrizitätsunternehmen or VSE) has established the Organisation for Electricity Supply in Extraordinary Situations (Organisation für Stromversorgung in Ausserordentlichen Lagen or OSTRAL), which consists of power supply companies. OSTRAL is charged with preparing organisational measures and implementing them on request from the Federal Office for National Economic Supply and the issuing of a respective ordinance by the Federal Council, if a power shortage occurs. The ordinances to be implemented, if necessary, shall describe the measures set in place. The type and scope of such measures will depend on the specific circumstances of a shortage. Potential measures may include bans on certain electricity consumers (consumption restrictions or bans on applications that are not absolutely necessary and energy-intensive), electricity quotas or rolling grid shutdowns.

To ensure the necessary gas supply, the Federal Council seeks to implement an in-depth plan, which will come into force, if necessary and depending on the extent of the shortage. The plan includes information campaigns on saving gas, switching to alternative heating systems where possible (eg, from gas to oil), and contingencies on the use of gas.

For landlords and tenants this may raise the question of who will bear additional ancillary costs for power and heat and whether such impacts may raise claims from the tenant.

Additional costs

In principle, Swiss tenancy law provides that a tenant must only pay ancillary costs, if this is specifically agreed on in the lease agreement. Costs such as electricity or heating are typical ancillary costs for which the tenant must compensate the landlord (Article 257a, para 2, Swiss Code of Obligations (CO)).

In most cases, lease agreements provide for monthly payments on account. These are based on empirical values of past years. Once a year, the landlord sends a final statement of heating and ancillary costs to the tenants, which shows the actual costs incurred. Tenants are entitled to a refund of overpaid ancillary costs or are obliged to make up for shortfalls in case of differences between amounts paid on account and final amounts.

If the lease agreements include the tenant’s obligation to cover ancillary costs in addition to the rent and such costs are not agreed as a fixed amount, price increases will therefore in principle be borne by the tenant.

This is different in cases of rental agreements which provide for a lump sum for additional costs. Such lump sums must be based on the average values of the effective ancillary costs of the three previous years (Article 4, para 2 of the Ordinance on the rent and lease of residential and business premises). In this case, a landlord cannot pass on the increased energy and ancillary costs directly to the tenants.

A landlord can only adjust a lump sum for ancillary costs in line with the next possible termination date. This is achieved by giving notice of the adjustment ten days before the start of the notice period using the official form approved by the canton and stating the reasons for the adjustment.

If the notice of the lump sum increase does not meet these requirements, it is null and void. Moreover, the threat or notice of termination of the lease agreement at the same time is null and void. Tenants who consider the lump sum increase to be too high may challenge it as abusive within 30 days (Article 270b, CO). However, increases are only considered abusive if in doing so, the landlord obtains an excessive profit from the rental property (Article 269, CO). As a rule, increases are not abusive if they are justified by cost increases or additional services from the landlord (Article 269a lit b, CO). The price increase for energy and raw materials is a classic cost increase, which in principle justifies an adjustment. However, the lump sum must correspond to the average value of the last three years. The timing of such adjustment should therefore be carefully evaluated, as prices that have skyrocketed in the short term may be diluted in costs which have remained more or less stagnant for quite a long time.

In summary, price increases for electricity and gas may in principle be allocated to tenants, if they are contractually obliged to pay ancillary costs, albeit not always immediately or fully, depending on the conditions of the lease agreement.

Defects and remedies

Defective rental property in case of lack of heating

Should tenants be faced with (temporary) blackouts, reduced power, heating or hot water supply, this begs the question of whether the rental property is defective and the tenant is therefore entitled to remedies, such as rent reductions or claims for losses/damages.

In principle, a rental property is defective if it is unfit or less fit for its designated use, that is, it lacks a contractual property that (significantly) impairs its utility value for the tenant (BSK OR I-Weber, Article 258, N1). Swiss tenancy law distinguishes between severe, medium and minor defects, depending on their impact on the designated use of the rental property (Article 258, Article 259b, CO).

Severe defects are defects which exclude or significantly impair the use of the object (Article 258, para 1; Article 259b lit a, CO). These are defects which threaten the vital interests of the tenant or which make the agreed or presupposed use of the rental object, or essential parts of it, impossible for a certain period of time (BSK OR-I Weber, Article 258, N2). Severe defects are denied if the impairment is only for short duration (SVIT-Komm.-Tschudi, Vorbemerkungen zu Article 258–259i, N64).

A severe defect may constitute in: insufficient heating of an apartment of a certain extent (BGE 97 II 58; eg, significant deviation from the normal room temperature of 20–21°C) and power cuts of a long duration, although there is no case law which specifically mentions a minimum duration.

Medium defects are defects which reduce the utility of the rental property but do not significantly impair it (Article 258, para 3 lit a; Article 259b lit b; Article 259d CO). These include all defects that neither prove to be serious nor can be remedied by cleaning or minor repairs (BSK OR I-Weber, Article 258, N2).

Medium defects may include:

• less severe insufficiency in heating and draughts in the heatable rooms of a house without central heating (BGer 4C.66/2001 (15 May 2001) E 2b);
• temperature deviations between 3–5°C from the normal room temperature of 20–21°C (BGer 4A_581/2016 (25 April 2017) E 3.2);
• short-term total or partial failure of the heating (SVIT-Komm.-Tschudi, Vorbemerkungen zu Article 258–259i, N62); and
• less significant power cuts, if not of very short duration, however again such duration is not defined in case law.

Minor defects are defects to be remedied by the tenant during the rental period. However, accommodation with too low a temperature or power cuts do not fall under this category.

Defects are therefore to be affirmed in principle if the room temperature drops below 20°C. The severity of the defect must be determined on a case-by-case basis; at a few degree Celsius, it is probably only a medium defect. In case of power shortages, the severity will depend on the extent and duration of the shortage.

Remedies

In case of defects to a rental property, the tenant in principle benefits from the following remedies (Article 259 et seq, CO):

• rectification of the defect by landlord (except for minor defects) – this may frequently not be possible in cases of supply shortages;
• immediate termination of the lease agreement in case of severe defects, as shortages may occur in wide spread areas or even nationwide, this will most likely not be purposeful for the tenant;
• reduction of rent in cases of severe or medium defects;
• damages or losses – however in this case, tenants would have to prove the extent of the damages/losses, the causal link to the shortages, a violation of the lease agreement and the landlord’s fault, the latter especially, will hardly be possible, as such shortages would not be considered the landlord’s fault; and
• rent deposit – however this is inadmissible if rectification of the defect is impossible or unreasonable (BSK OR I-Weber, Article 259g, N4), which we believe to be the case here;

As a caveat, should the performance of a lease agreement be considered (partially) impossible, the rent owed could be adjusted by a judicial reassessment (SJ 2001 I 541 E. 2e). The consequence would therefore be an obligation to pay partial rent if it is reasonable for the tenant to accept the remaining performance (ZK OR-Higi/Wildisen, Article 258, N25).

This begs the question whether a landlord faced with tenant’s claims can recover costs, for example, from the power suppliers or the authorities. This will prove very difficult unless there is insurance coverage. However, as a recovery of losses from the suppliers (eg, power suppliers) is usually excluded in their general terms and conditions, and the conditions for state liability are extremely high and would require an unlawful action and the authorities’ fault, in the vast majority of cases, the costs will therefore remain with the landlord.

Summary

In response to threatened supply shortages, the Federal Council has set in place various measures which may affect lease agreements.

These measures, as well as the situation in general, may lead to increased prices for gas or power. The extent to which a landlord may pass on such price increases to the tenants depends on the conditions of the lease in question. Difference is made between ancillary costs to be paid on account by the tenant, allowing the landlord to pass on the price increases directly, or as a lump sum, requiring a formal notification procedure and the fulfilment of certain conditions.

Power or heating blackouts may be considered as defects of the rental property, the severity of which would be determined on a case-by-case basis, entitling the tenant to a variety of remedies.