The vocabulary related to property transactions with the “viager” clause is difficult to understand, and even discouraging. In order to remove the language barriers, we present a glossary of terms related to “viager”. Read these few definitions, and everything will become much clearer! You will be able to safely engage in a project of selling or buying a property with the “viager” clause.
Glossary of terms related to “viager”
Debtor: property buyer. Pays the initial amount upon contract conclusion and is committed to pay the life-long pension. If unable to pay the pension any longer, the creditor (seller) may request the return of one’s property and cancel the sale. The viager contract must contain a termination clause that determines the option of cancelling the sale by the creditor if the debtor obliged to pay the pension stops paying it. After the court has announced contract cancellation, the seller shall recover ownership of one’s property and, as a compensation, keeps the amount paid upfront upon contract conclusion, as well as the pensions already paid. If the debtor dies before the creditor, the debtor’s heirs must continue to pay the pension.
Creditor: this is the seller of the property. The creditor receives the capital upfront (the amount paid upon contract conclusion), and then the pension, providing him/her with an additional regular revenue. If the property is sold with the viager clause with the right to life-long inhabiting the property, the person can remain at the apartment/house until one’s death.
Upfront amount paid upon contract conclusion: this is capital paid in cash after signing the notarial deed of contract. The amount to be paid upon contract conclusion is individually agreed between the buyer and the seller, considering the needs of one party and financial capacity of the other. The higher the amount paid upon contract conclusion, the lower the life-long pension. Payment of the amount upon contract conclusion is not mandatory, but allows reducing the amounts payable as life-long pension. It is also possible to pay the pension with no initial capital. Generally speaking, the older the seller, the higher the amount paid upon contract conclusion.
Viager with property use by the seller and without life-long pension: It is possible to purchase a property with the viager clause and the option where the seller occupies it, under a single upfront payment of capital without paying a pension. The benefit to the buyer is that property purchase occurs at a price lower by 30–50% of its market value. Nevertheless, unobstructed disposal of the property is only possible after the death of the seller.
Value of the property occupied by the creditor: in the event of viager with the option of property use by the seller, this is its value after deducting the discount. It is calculated considering the estimated length of the seller’s (creditor’s) life, value of the property, and the discount rate. The discount can total from 30 to 40% of the market value of the property. On this basis, corresponding to the estimated time of property use by the seller, the amount to be paid upon contract conclusion and the life-long pension are calculated.
Life-long pension: This is the amount to be paid by the buyer periodically (once per year, monthly, or quarterly) as long as the seller (creditor) lives. The pension can be awarded to one or two people, usually a couple, in which case the pension is paid until the death of the other person. The amount of pension is to be agreed individually by the parties, depending on the age and expected life of the creditor, accounting for the property value in line with its fair value.
Usufruct: from Latin: “usus” (right to use an item) and “fructus’” (right to dispose of an item). The right to live in an apartment (or use property) without the need to leave it, and the right to receive pension. The user (in this case: the creditor) is thus a person who uses the property without being its owner. The use shall end upon the death of the user, or leaving the apartment pursuant to the contract. If the creditor leaves the apartment, the creditor is still entitled to the life-long pension, but the debtor may fully dispose of the property.
Ownership without use: this means owning a property without its use. In the event of a viager contract, the buyer (debtor) is the owner of the property without the right of using it. The buyer cannot live there or receive income from such property (rent).
Viager with use of the property by the seller: The creditor (seller) reserves either the right to use the property (which means it can be rented) or the right to live in it. In the case of a viager contract with the use of the property by the seller, the amount to be paid upon contract conclusion is lower, and the pension is lower than in the case of viager without the use of the property by the seller. In both cases, this is an actual sale of the property, and the deed is signed before the notary public. Registration fees are paid by the buyer. Upkeeping and repairs are the responsibility of the creditor (user), unless the sales contract includes a respective clause.
Viager without the use of the property by the seller: in this case, which is much less frequent than the viager with the use of the property by the seller, the debtor can dispose of the property to live in it or rent it, as deemed appropriate. The debtor must perform the necessary works, bear the maintenance costs, and pay all the fees. In such a case, the amount to be paid upon contract conclusion and the pension are higher than in the case of viager with the use of the property by the seller, as the buyer can immediately dispose of the property. Because the amount to be paid upon contract conclusion is not mandatory, the buyer and the seller may decide exclusively on the pension. Just as in the case of a viager with the use of the property by the seller, the viager without the use of the property by the seller also guarantees a life-long pension to the seller.
Buying and selling properties with the viager clause is becoming increasingly popular in Switzerland, but this type of transaction remains complicated, so it is most recommended to use the services of a specialist. Because viager is a solution to meet the needs of an increasing number of people, and because it is still complicated, Lookmove has established cooperation with real estate specialists dealing with viager in Switzerland. They will be able to provide you with detailed information, and can assist you in buying or selling your property with the viager clause.