1 Real Estate Law
1.1 Please briefly describe the main laws that govern real estate in Austria. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 11.1.
The principal laws governing real estate in Austria are: the General Civil Code 1811 (as amended by the Federal Law Gazette 2010/58) (Allgemeines Burgerliches Gesetzbuch); the Land Register Act 1955 (as amended by the Federal Law Gazette 2010/58) (Grundbuchsgesetz); the laws governing the acquisition of land by foreigners of the nine federal states (Grundverkehrsgesetze); the Tenancy Act 1981 (as amended by the Federal Law Gazette 2010/29) (Mietrechtsgesetz); the Condominium Act 2002 (as amended by the Federal Law Gazette 2010/58) (Wohnungseigentumsgesetz); the Building Development Contract Act 1997 (as amended by the Federal Law Gazette 2010/58) (Bautragervertragsgesetz); the Building Right Act 1912 (as amended by the Federal Law Gazette 1990/258) (Baurechtsgesetz); the Real Estate Investment Fund Act 2003 (as amended by the Federal Law Gazette 2009/152) (Immobilien-Investmentfondsgesetz); and the building laws of the nine federal states (Bauordnungen).
1.2 What is the impact (if any) on real estate of local common law in Austria?
Given that Austria is a civil law country that follows a Roman law system, property law is governed exclusively by statute. However, consideration is given to case law by the Austrian Supreme Court (Oberster Gerichtshof) which is important for the interpretation of the statute law.
1.3 Are international laws relevant to real estate in Austria? Please ignore EU legislation enacted locally in EU countries.
The parties are free to choose the law governing the contract and the court that shall have jurisdiction over any disputes relating to the contract. As far as rights in rem to real estate located in Austria are concerned, Austrian law is, however, mandatory. Further, any disputes concerning such rights in rem mandatorily fall within the jurisdiction of Austrian courts. International laws are therefore not relevant to real estate in Austria. However, international treaties and conventions regarding real estate are applicable.
2.1 Are there legal restrictions on ownership of real estate by particular classes of persons (e.g. non-resident persons)?
Real estate may be acquired by individuals, as well as by legal entities. There are legal restrictions on the acquisition of ownership of real estate by foreigners (i.e. foreign-registered or foreigncontrolled entities and foreign individuals). The principal laws in this respect are the laws governing the acquisition of land by foreigners under the nine federal states (Grundverkehrsgesetze). The foreign purchaser must usually obtain a permit from the property transfer authority before buying the real estate. European Union (EU) and European Economic Area (EEA) citizens and companies are treated in the same manner as Austrian citizens and companies. According to some of the laws of the federal states, a certificate confirming EU or EEA status must be obtained from the property transfer authority for the purchase of real estate before real estate can be registered in the Land Register. However, the Supreme Court held that this requirement contravenes EU-law and is therefore not necessary if an EU/EEA citizen/company buys real estate. Under some laws of the federal states, the relevant land transfer authority must approve an acquisition of shares or shareholding increase in an Austrian limited liability company or partnership, before completing the transaction if the company or partnership owns real estate in the relevant state. However, some states do not apply restrictions to companies if the majority shareholder is a foreign controlled Austrian company.
3 Real Estate Rights
3.1 What are the types of rights over land recognised in Austria? Are any of them purely contractual between the parties?
The main types of rights over land in Austria are: ownership (sole ownership, co-ownership and condominium ownership); building rights; restraints on sale and encumbrances of real estate (Verauserungs- und Belastungsverbote); mortgages; easements; leases; rights of pre-emption (Vorkaufsrecht); rights of re purchase (Wiederkaufsrecht); and rights of resale (Ruckverkaufsrecht). Obligatory rights, namely (i) rights of pre-emption (Vorkaufsrecht), re-purchase (Wiederkaufsrecht) and resale (Ruckverkaufsrecht), (ii) leases, and (iii) restraints on sale and encumbrances of real estate (Verauserungs- und Belastungsverbote), may be registered in the land register (not required) and are purely contractual between the parties if not registered in the land register.
3.2 Are there any scenarios where the right to a real estate diverges from the right to a building constructed thereon?
The Austrian Civil Code foresees that the owner of the real estate is also the owner of the building erected thereon ("superficies solo cedit"). There are two exceptions to this rule: the building right (Baurecht); and the building on third party land (Superadifikat). The building right is registered in the land register and grants the right to erect a building on a third-party property. The building right is a temporary right (maximum 100 years) and the beneficiary has to pay rent (Bauzins) to the land owner. The Superadifikat is a building constructed on a property with the intention that it shall not remain there (oftentimes not connected to the ground). The owner of the future Superadifikat concludes a lease agreement with the owner of the property and subsequently constructs the Superadifikat thereon.
4 System of Registration
4.1 Is all land in Austria required to be registered? What land (or rights) are unregistered?
The entire surface of Austria is covered by the land register which is maintained by the Austrian District Courts. All rights in rem, namely (i) ownership (sole ownership, co-ownership and condominium ownership), (ii) building rights (transferable and inheritable rights of one or more persons to construct (permanent) buildings on or beneath the surface of a certain piece of land), (iii) mortgages, (iv) easements, and (v) land charges must be registered in the land register to become effective vis-a-vis third parties. Obligatory rights may, but are not required, to be registered. (See question 3.1.)
4.2 Is there a state guarantee of title? What does it guarantee?
There is no formal state guarantee of title. However, according to the principle of good faith, entries in the Land Register can be relied on as accurate. Any person who relies, in good faith, on information in the land register is protected against third party claims, even if the registered information turns out to be inaccurate or incomplete.
Title insurance is not commonly used to protect property rights. According to the principle of registration, there is no need for title insurance because all registered property rights are secure.
4.3 What rights in land are compulsory registrable? What (if any) is the consequence of non-registration?
There is no obligation to register rights in land; however, rights in rem must be registered in order to become effective vis-a-vis third parties.
4.4 What rights in land are not required to be registered?
Obligatory rights may be, but are not required to be, registered. (See questions 3.1 and 4.3.)
4.5 Where there are both unregistered and registered land or rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.
No; the Austrian legal system does not provide for different classes or qualities of title on first registration.
4.6 On a land sale, when is title (or ownership) transferred to the buyer?
Ownership of the purchaser is transferred upon registration of its title with the land register. If the transaction is not registered, each party to the contract has only a contractual claim for specific performance against the other party. (See questions 4.1 and 4.3.)
4.7 Please briefly describe how some rights obtain priority over other rights. Do earlier rights defeat later rights?
Pursuant to the principle of priority, the registration application for the same real estate that is first filed to the competent land register has prior ranking. With regard to registered obligatory rights, all obligatory rights which are not registered in the land register have lower ranking.
5 The Registry / Registries
5.1 How many real estate registries operate in Austria? If more than one please specify their differing rules and requirements.
In Austria, there is one land register operating and covering all real estate. The land register is maintained by the respective Austrian District Court depending on where the real estate is located. The land register consists of the general ledger (Hauptbuch) and archives (Urkundensammlung). The Land Registry is stored in an electronic database with limited public access e.g. to notary publics, attorneys and banks.
5.2 Does the Land Registry issue a physical title document to the owners of registered real estate?
The Land Registry does not issue a physical title document but electronic excerpts can be obtained from individuals/institutions having public access (see question 5.1), at any district court or from other institutions with access.
5.3 Can any transaction relating to registered real estate be completed electronically? What documents need to be provided to the Land Registry for the registration of ownership right? Can information on ownership of registered real estate be accessed electronically?
Since 2010, all applications to the Land Registry must be filed electronically. In order to register ownership of the buyer of a real estate, the following documents have to be filed with the Land Registry: title document of ownership (e.g. purchase agreement signed before a notary public); proof of citizenship; prior approval of the authorities if the purchaser is not an EU-citizen; confirmation of the authorities that the property is construction land or – if this is not the case – prior approval of the authorities of the transfer of ownership; self-assessment of the registration tax; and a mortgage agreement, if applicable. All documents filed with the Land Registry since 2005 are available electronically. Excerpts from the Land Registry can be obtained from individuals/institutions having public access (see question 5.1), at any district court or from other institutions with access.
5.4 Can compensation be claimed from the registry/registries if it/they makes a mistake?
According to the State Liability Act (Amtshaftungsgesetz), the respective authority can be held liable for the resulting damages.
5.5 Are there restrictions on public access to the register? Can a buyer obtain all the information he might reasonably need regarding encumbrances and other rights affecting real estate?
See question 5.2. Only personal information data (Personenverzeichnis) are restricted.
6 Real Estate Market
6.1 Which parties (in addition to the buyer and seller and the buyer's finance provider) would normally be involved in a real estate transaction in Austria? Please briefly describe their roles and/or duties.
a) Real estate agents, brokerage offices, property developers
A real estate agent may act on behalf of one party only (either seller or buyer) or may serve both parties. For a seller, the agent collects and assembles all pertinent information related to the property such as size, price, location, and condition in order to market it to prospective buyers. For a buyer, the agent usually looks for available properties on the market that match the buyer's needs and then subsequently assists the buyer in making an offer.
Lawyers may assist a buyer or seller through the entire process of a sale. First, they may examine legal risks and financial concerns associated with the property. Further, they may draft and negotiate a purchase agreement. Finally, they may assist with the filing of an application for registration of the property with the land register. In addition, lawyers may act as escrow agents.
A notary public must witness the signing of the title deed, usually the purchase agreement. Additional documents filed with the land register must also be original documents. All signatures on documents presented to the Land Registry must be certified by a notary public.
d) Other parties
Sometimes the buyer will commission tax advisors, technical and environmental experts, and building engineers or architects to inspect the real estate in order to identify defects, etc.
6.2 How and on what basis are these persons remunerated?
Real estate agents generally receive a commission after finalising a deal (3% of the purchase price, provided that the purchase price is above EUR 36,336.42; if the purchase price falls short of this amount, the commission rate increases to 4%). Legal fees are governed by the Attorneys' Tariff (Rechtsanwaltstarif) and the Autonomous Guidelines for Attorneys' Fees (autonome Honorarrichtlinien) issued by the Austrian Bar Association. However, with a few minor exceptions, attorneys may freely negotiate their fees with their clients, with the Attorneys' Tariff and the Autonomous Guidelines serving only as a guideline. Thus, for on-going consultation, clients and attorneys may agree on an hourly rate or a flat fee. However, it is generally prohibited to undertake a case on a purely contingency fee basis. According to the Notaries' Tariff (Notariatstarif) the payment of notaries follows a statutory rate unless otherwise agreed upon by the parties.
6.3 How has the real estate market in Austria recovered or reacted following the global credit crunch and worldwide recession in 2008/2010? What were the most important real estate transactions in Austria in the past year? Please include both local and international investors in your answer.
Whereby certain Austrian real estate players had to go through restructuring phases because of changed market circumstances in CEE/SEE, the Austrian market remained stable. Many of the transactions seen took place between national players, especially foundations invested in apartment and office buildings at prime locations. However, the ongoing difficult economic situation poses challenges to developers, investors and potential tenants. High quality concepts and innovation provide the best chances to compete. For the first time in years, large scale and modern retail properties are being developed in prime locations in Vienna's city centre like the "Golden Quartier" close to Graben. In Gerasdorf, close to Vienna, a retail park of approximately 12,000 sqm was recently opened. However, the pipeline in the retail and shopping park segment was reduced considerably during the last years. In the third quarter 2012 the investment market picked up substantially. The transaction volume was about EUR 1.5 bn in 2012.
6.4 Is there a trend in Austria towards the investment in retirement homes / nursing homes due to the increased ageing of the population?
Especially in areas of high population density, there is an increased demand for retirement homes. Depending on the structure of the investor, state aid for the construction and the operation of retirement homes can be obtained. The realisation of a mortgage retirement home is always subject to ethical considerations since the lease agreements with the residents cannot be cancelled on short notice. Lease agreements in retirement homes are not subject to the Tenancy Act (Mietrechtsgesetz).
7 Liabilities of Buyers and Sellers in Real Estate Transactions
7.1 What (if any) are the minimum formalities for the sale and purchase of real estate?
According to the principle of private autonomy, parties are free to establish their contractual relationship at their own discretion within the framework of bonos mores (Gute Sitten). However, a purchase contract must designate the parties, real estate and purchase price (or method of calculating it). Hence, oral agreements or side agreements are valid and binding upon the parties (such agreements may be entered in the land register only after having obtained a judgment on the existence of such agreement). Further, the seller must formally approve the registration of the buyer in the land register. The seller usually grants this consent (Aufsandungserklarung) in the purchase agreement, although it may also be granted in a separate document. The agreement to register must be made in writing and must be certified by a district court or a notary public. These formal requirements do not affect the validity of the agreement and are required for the registration in the land register only.
7.2 Is the seller under a duty of disclosure? What matters must be disclosed?
There are no statutory disclosure requirements for a seller. However, in the purchase and sale contract, the seller usually guarantees the correctness of any information disclosed and warrants that he did not withhold any relevant information.
7.3 Can the seller be liable to the buyer for misrepresentation?
Yes, the seller can be liable for misrepresentation if any untrue statement of the seller induces the buyer to enter into the contract, and, as a result, the buyer suffers loss. Further the seller will be liable if the buyer is under an obvious misapprehension regarding any attributes of the object of purchase or if the seller has caused the misapprehension.
7.4 Do sellers usually give contractual warranties to the buyer? What would be the scope of these? What is the function of warranties (e.g. to apportion risk, to give information)? Are warranties a substitute for the buyer carrying out his own diligence?
Contracts frequently contain representations and warranties relating to possible statutory liabilities of the buyer and defective or faulty performance of the seller, including those relating to: encumbrances and third party rights; the dedicated use of the real estate according to zoning ordinances and building regulations; environmental issues; administrative and corporate approvals; and taxes. Usually the seller warrants his/her ownership of the property and warrants that there are no other encumbrances other than those registered in the land register or otherwise disclosed. The statutory warranty period for real estate is three years, unless otherwise agreed upon by the parties. Alternative warranty periods are common and depend on the warranty. The buyer must notify the seller of defects or defective performance within the relevant warranty period. If the seller does not accept liability for the defect, the buyer must sue to prevent the claim from becoming statutorily barred. In addition, a buyer can claim damages for negligent or wilful breach of contract.
7.5 Does the seller warrant its ownership in any way? Please give details.
Yes, in the contract usually the seller warrants ownership of the property and warrants that there are no other encumbrances aside from those registered in the land register or otherwise disclosed. Further, the seller is liable for lack of title under the relevant statutory law.
7.6 What (if any) are the liabilities of the buyer (in addition to paying the sale price)?
In addition to paying the sale price, the buyer is liable for paying: other taxes and fees, e.g. land transfer tax, (see question 9.1); a registry charge of 1% of the tax base (value of compensation); stamp duties for mortgage agreements, etc. Please note that both parties are liable as joint and several debtors vis-a-vis the financial authorities. However, it is common practice to agree that the buyer bears these taxes and fees.
8 Finance and Banking
8.1 Please briefly describe any regulations concerning the lending of money to finance real estate. Are the rules different as between resident and non-resident persons and/or between individual persons and corporate entities?
No specific laws regulate the financing of real estate in Austria, and the law does not distinguish between individuals and business entities in regards to real estate financing, except for consumer protection laws. Generally, real estate financing is established through a loan agreement, entered into between a bank and a borrower, that requires payment of a stamp duty where agreed upon in writing. See question 8.3 below.
8.2 What are the main methods by which a real estate lender seeks to protect itself from default by the borrower?
The lender will typically ask for a mortgage over specific real property (freehold), a pledge over the shares of the borrower, a pledge of movables, a pledge of accounts, an assignment over receivables and/or an assignment of the benefit of any major contracts.
The creation of a mortgage is subject to a mortgage agreement (Pfandbestellungsvertrag), which must be drawn up in writing. The signatures of the parties to the contract must be duly notarised by a notary or a court to allow an entry in the Land Register. The mortgage agreement may be made in the form of a notarial deed and may contain a clause, which certifies that the mortgage agreement establishes an executory right, thereby enabling the bank to enforce the mortgage immediately in enforcement proceedings without the necessity of prior court proceedings in order to obtain a valid title.
8.3 What are the common proceedings for realisation of mortgaged properties? Are there any options for a mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor?
Generally, a mortgaged property is realised by way of a foreclosure claim (Pfandverwer-tungsklage, Pfandrechtsklage, Hypothekarklage). The court decision following such claim will serve the plaintiff (mortgagee) as title for the foreclosure sale of the property. Pursuant to the judicial foreclosure proceedings, the property must be evaluated by an expert before the property is sold at a public auction.
Alternatively, and in order to avoid court proceedings, namely a foreclosure claim as described above, the mortgagee and the mortgagor (owner of the real estate) can sign a notarial deed suitable for immediate execution (vollstreckbarer Notariatsakt). Such deed is a title enabling the mortgagee to commence the foreclosure sale of the property.
An option for the mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor might be the freehand sale of a pledged property (freihandige Pfandverwertung). The Austrian Civil Code has been amended, effective 1 January 2007, including regulations on the freehand sale of moveable goods. For the lack of case law, it is not clear yet whether the freehand sale of pledged property is valid. In any case, the mortgagor must give the mortgagee a power of attorney to sell the real estate in case of default of payment. Such power of attorney can be included in the pledge agreement entitling the mortgagee to sell the pledged property without the mortgagor's contribution and not bound by the court foreclosure proceedings.
8.4 What minimum formalities are required for real estate lending?
The borrower must have the capacity to enter into the contract and carry out the necessary formalities, and the appropriate, dulyauthorised persons must sign the documentation. Aside from the general requirements relating to a loan agreement, there are no specific duties or characteristics for loan agreements used as a finance instrument towards the purchase/acquisition of real estate. If the respective document will be registered in the land register, it must include the other party's consent for registration (the so-called Aufsandungserklarung). Typically the signatures to the written loan/mortgage agreements must be notarised by a notary public before registration with the land register. If foreign nationals are involved and the respective agreement was signed abroad, the signature of the notary public must be certified, in many countries, by affixing an Apostille pursuant to the Convention of The Hague to the contract. Stamp duty must be paid on the creation of a mortgage at a rate of 1% of the secured amount (or 0.8% for non-revolving facilities and revolving facilities with a term of up to five years and 1.5% for revolving facilities with a term in excess of five years if the mortgage is to secure a loan agreement (as opposed to any other financial obligations)). However, as of 1 January 2011, an amendment to the Stamp Duty Act might bring the abolition of the stamp duty on loan agreements and mortgage agreements. The stamp duty is usually paid by the mortgagor, although all parties to the mortgage agreement are jointly and severally liable for it. A registration fee of 1.2% of the secured amount must be paid by the party who applies to register a mortgage.
8.5 How is a real estate lender protected from claims against the borrower or the real estate asset by other creditors?
Mortgages must be registered in the land register in order to become fully effective, which is of particular importance with regard tothird parties. As long as a legal transaction involving real estate isnot registered, the party to the contract has only a contractual claimfor performance against the other contracting party. A rankingsystem applies to mortgages entered into the land register. Thus,prior registered mortgages will be satisfied before mortgages with alater rank. Keeping this system in mind, the lender can protect itselfby lending to a newly-incorporated special purpose vehicle (SPV)whose only activity is holding the specific property asset; theborrower will be prohibited from giving security to any other party,borrowing money from any other party, or disposing of his/herassets to any other person; and where a lender creates a legalmortgage over the specific property, he will register this at the landregister. In this way, no other creditors can later apply for amortgage to be entered into the land register in a prior rank.
9.1 Are transfers of real estate subject to a transfer tax? How much? Who is liable?
Land transfer tax (Grunderwerbssteuer) must be paid on the acquisition of property at the rate of 3.5% of the tax base (which is generally the value of the consideration such as the purchase price, the exchange or trade, highest bid in forced sales, indemnification for expropriation, or any other form of consideration accepted by the buyer, such as payments or outstanding mortgage) plus – if applicable – VAT (or 2% if purchased by a spouse, first degree ancestor, or first or second degree descendant). The parties involved in the acquisition are liable as joint and several debtors vis-a-vis the financial authorities. However, it is common practice that the purchase agreement sets out which party must pay the tax (usually the buyer). If there is no consideration or if the consideration cannot be determined, the tax base is assessed at three times the standard value (Einheitswert), an assessed value for tax purposes, which is calculated in accordance with the Valuation Law (Bewertungsgesetz). The standard value of real estate is quite often considerably lower than its actual value (market value). However, at the end of 2012, the Austrian Constitutional Court has declared the calculation of the land transfer tax as being unconstitutional. This is because the tax base is not the same for all transactions (it can be either the consideration or the standard value of the property). The deadline for repair of the underlying provision granted by the Constitutional Court is 31 May 2014.
9.2 When is the transfer tax paid?
In general, the property transfer tax is due no later than on the 15th day of the second month following the signing of the purchase contract, unless the contract contains a condition precedent. (Specific provisions apply in case of the transfer of property via share deal and in case of a merger.)
9.3 Are transfers of real estate by individuals subject to income tax?
Up until the effective date of the new Austrian Stability Act 2012 (1 April 2012), the sale of non business (private) real estate was only dutiable within a speculation period of 10 years from the acquisition of the property. Exemptions were granted for properties continuously used as the main residence for at least two years from the acquisition of the real estate and for self-built buildings (but not the subjacent property).
The new provisions of the Austrian Income Tax Act introduced by the Austrian Stability Act 2012 foresee a final tax rate of 25% for all gains from private sales of real estate acquired after 1 April 2002 (so called "New Assets", Neuvermogen). Subject to the real estate income tax is the difference between the sale proceeds and the acquisition costs of the property. This profit on realisation does not add to other dutiable income; it is only taxed as real estate income tax. The gain may, however, be reduced by 2% per year for inflation starting with the 11th year after acquisition. A maximum reduction of 50% is permitted. Real estate acquired before 1 April 2002 (so-called "Old Assets", Altvermogen) is subject to a reduced tax rate of 15% of the sale proceeds if the property was rededicated (Umwidmung) from grassland (Grunland) to constructible land (Bauland) after 31 December 1987. If there was no such rededication, or if the rededication took place before 31 December 1987, the applicable tax rate is further reduced to 3.5% of the sale proceeds. No compensation for inflation is granted for Old Assets. Tax exemptions are still granted for properties continuously used as a permanent residence by the seller for at least two years after acquisition, or for at least five years during the past 10 years if (in both cases) the property is no longer used as a permanent residence after the sale. The same is true for self-built buildings if they did not generate income during the past 10 years. Also, the sale of real estate because of, or for the avoidance of, a public intervention (e.g., expropriation) is exempt from real estate income tax.
9.4 Are transfers of real estate subject to VAT? How much? Who is liable? Are there any exemptions?
Sale proceeds on real estate within the meaning of the VAT Act 1994 (as amended by the Federal Law Gazette 2010/54) are exempt from VAT. However, entrepreneurs can treat transactions concerning real estate as taxable (opting-in). If so, input taxes are deductible.
VAT is paid by the buyer to the seller, and the seller must pay the VAT to the tax authority. The current VAT rate is 20% of the purchase price.
9.5 What other tax or taxes (if any) are payable by the seller on the disposal of a property?
The seller is responsible for the fees of his own lawyer, notary public, agent and surveyor. The buyer usually pays: costs associated with the execution of the contract; fees to register the agreement with the land register; all taxes, stamp duties and other charges related to registration of the agreement with the land register; and the seller and buyer are each entirely liable for the land transfer tax payable to the tax authorities (although, in relation to stamp duty and land transfer tax, the parties are free to agree otherwise between themselves). Each party is responsible for his/her own lawyer, notary public, surveyor and agent fees.
9.6 Is taxation different if ownership of a company (or other entity) owning real estate is transferred?
With respect to asset deals, the land transfer tax at a rate of 3.5% of the purchase price must be paid. However, it is possible to avoid the registration fee at a rate of 1% of the purchase price if the new owner does not file an application to the land register and stays as the owner without being registered (which is only advisable if he/she re-sells the land immediately).
With respect to share deals, it is common (especially on acquisitions of large real estate portfolios) to avoid the land transfer tax and registration fees by acquiring shares in the company holding the real estate through two different companies (for example, one buyer and an affiliated company or a trustee holding a minimum share). However, if these two companies merge then the land transfer tax becomes due. Such well-established practice has recently been questioned in a decision by the Independent Finance Board Innsbruck (Unabhangiger Finanzsenat); a final decision is currently pending before the Highest Administrative Court (Verwaltungsgerichtshof) and is not expected for at least two years.
10 Leases of Business Premises
10.1 Please briefly describe the main laws that regulate leases of business premises.
Lease agreements for business premises are mainly governed by the Tenancy Act (Mietrechtsgesetz) and by the General Civil Code (Allgemeines Burgerliches Gesetzbuch). The Tenancy Act does not apply to real estate if there are not more than two separately rentable objects situated on one plot and the lease agreement is concluded after 31 December 2001. The Tenancy Act also does not apply to real estate leased in connection with the tourist industry, parking houses, warehouses, employee housing, business premises leases for a definite period not exceeding six months, apartments used for recreation, dwelling houses for one or two families, or topfloor apartments. If the premises are part of a building established without public funds after 30 June 1953, only parts of the Tenancy Act will be applicable. To the extent that the Tenancy Act is not applicable, the respective provisions of the General Civil Code apply.
10.2 What types of business lease exist?
Under Austrian law, two forms of lease agreement exist – the lease (Mietvertrage) or the leasehold (Pachtvertrage). A different legal regime applies to each form of lease agreement, where significant variations appear in regards to rent control (maximum amounts), duty to repair and maintain the premises, reimbursement for operating costs, and certain limits on lease termination and term duration.
10.3 What are the typical provisions for leases of business premises in Austria regarding: (a) length of term; (b) rent increases; (c) tenant's right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?
a) Length of term
The length of a lease is defined in the contract between the landlord and the tenant and is usually for an indefinite or fixed term. Generally, indefinite contracts can only be terminated by the landlord for the specific reasons listed in the Tenancy Act. Therefore, contracts for commercial and residential property are usually for a fixed term (at least three years in the case of apartments, to avoid termination provisions that favour the tenant).
b) Rent increases
Generally, the parties are free to agree upon the amount of rent payable, provided that, from the day the lease agreement is executed, the rent is adequate for the relevant category (type, condition, location and maintenance) and size of the property (if the Tenancy Act is fully applicable). Apartments may be subject to a complex system of rent control. Typically, rent is adjusted from time-to-time (indexed), usually according to the consumer price index.
c) Tenant's right to sell or sub-lease
A tenant might be granted the right to sublet or assign. If the tenant sublets the whole object of the lease or asks an unreasonable sublease rent (as compared to his own rent and investment) without consent, the landlord can terminate the main lease (as a result, the sublease is also cancelled but the subtenant may ask for damages). If he/she sublets or assigns, a tenant is responsible for any damage caused by the subtenant.
Usually the landlord takes out adequate insurance for the building, continuously maintains in force such insurance, and provides proof thereof upon request, to ensure insurance cover in respect of the following risks: building liability insurance, including duty to ensure safety for persons and vehicles; and building insurance (e.g. fire, lightning/explosion, flooding, sewage, storm, hail, malicious damage, overvoltage, costs of clean-up, salvage and security). Insurance costs are part of the operating expenses and are in general charged to the tenant as operating costs.
e) (i) Change of control of the tenant
e) (ii) Transfer of lease as a result of a corporate restructuring (e.g. merger)
Change of control of a company does not affect its holdings of real estate. However, the tenant of business premises must notify the landlord of any substantial changes in its enterprise or ownership structure (Tenancy Act). Such changes do not amount to good cause for the landlord to terminate the lease, but the landlord can (if the Tenancy Act is fully applicable) increase the rent to market level. The same applies to corporations as tenants upon a substantial change in (economic and legal) control over the tenant, such as where a merger or a respective change in the tenant's shareholder structure occurs.
A landlord must keep the leased premises in good condition, unless agreed upon otherwise (section 1096, General Civil Code). It is common to exclude the landlord's maintenance obligation, except in relation to structural repairs. A tenant cannot waive his/her right to reduce rent payments in advance, to allow for potential inability to use the premises (section 1096, General Civil Code).
10.4 What taxes are payable on rent either by the landlord or tenant of a business lease?
A written lease agreement is subject to a stamp duty at a rate of 1% of all rental payments (including service charges, operating costs and VAT) that must be paid by the tenant to the landlord during the term of the lease. For indefinite contracts, the stamp duty is calculated on the basis of three annual rental payments. For fixedterm contracts, stamp duty is calculated on the basis of the rental payments for the whole term, up to a maximum of 18 years (or three years for apartments).
10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.)? Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?
The Tenancy Act imposes limits on the landlord's ability to terminate a lease, restricting it to important reasons such as non-payment of rent, improper use, prohibited subleasing, etc. Lease agreements concluded for an undefined term may be terminated be the tenant without a reason. Consequently, lease agreements are often concluded with a fixed and definite term. Additionally, for residential leases, tenants may terminate a fixed term lease after one year of the lease term has elapsed. In the event of an early termination based on one of the aforementioned important reasons, the party at fault may be held liable for damages resulting from the early termination. Some lease agreements contain a contractual penalty in such cases.
10.6 Does the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest? Can they be responsible after the sale in respect of pre-sale non compliance?
Under the Tenancy Act, the purchaser enters into the existing lease when the entire business is sold. The original tenant, however, continues to be liable for any obligations until the transaction becomes effective.
Where a landlord sells leased premises, the purchaser will generally replace the landlord under the existing lease, thereby assuming his rights and obligations under the lease. However, the former landlord may remain liable to the purchaser depending on the terms agreed to in the sale.
10.7 Green leases seek to impose obligations on landlords and tenants designed to promote greater sustainable use of buildings and in the reduction of the "environmental footprint" of a building. Please briefly describe any "green obligations" commonly found in leases stating whether these are clearly defined, enforceable legal obligations or something not amounting to enforceable legal obligations (for example aspirational objectives).
"Green obligations" in lease agreements are not common so far. However, landlords and tenants are increasingly aware of the reduction of the "environmental footprint" of a building. This awareness is having some effect on the amount of rent and especially operating costs tenants are willing to pay for a given object. According to the Act on the submission of an Energy Performance Certificate 2008 (Energieausweis-Vorlage-Gesetz), a certificate on the energy performance of a building must be presented to the buyer or tenant, when a building, business premises or an apartment is sold or leased out. For newly erected buildings, a certificate must be obtained during construction. If no certificate is presented, the seller or landlord has to warrant that the energy performance of the building is, at a minimum, at a level which is typically expected from a building of such type and age.
11 Public Law Permits and Obligations
11.1 What are the main laws which govern zoning and related matters concerning the use and occupation of land? Please briefly describe them and include environmental laws.
Building, regional planning and zoning regulations are subject to state legislation. The laws of each federal state vary in detail, but follow the same basic principles. The Building Laws set out basic material and procedural rules for regional development and building constructions. Each municipality enacts a zoning plan (Flachenwidmungsplan) and building regulations (Bebauungsbestimmungen) based on these rules, to govern the development of, and set limits for construction in certain areas (such as building, recreation and industrial areas).
11.2 Can the state force land owners to sell land to it? If so please briefly describe including price mechanism.
In general, real estate may only be expropriated by the state if a significant public interest exists (e.g. in road or railway construction) and only with compensation. The respective provisions are located in sec 365 of the General Civil Code and sec 5 of the Basic Law of the State of Austria (Staatsgrundgesetz) and in special laws [e.g. the Railway Expropriation Law (Eisenbahnenteignungsgesetz)]. Further authorisation for expropriation can be found with respect to mining, electricity, energy, etc. The amount of compensation shall be adequate and shall also cover any individual damage caused to the property of the expropriated person. On occasion, before providing compensation in money, another real estate (parcel) is offered; compensation in money reflects the current value and is safeguarded by a right to judicial review of the value.
11.3 Which bodies control land/building use and/or occupation and environmental regulation? How do buyers obtain reliable information on these matters?
Initial planning applications are made to the local building authorities of the states. Generally, building law competencies belong to municipalities (in the first instance, the mayor). The competent authority in Vienna is a special department of the municipality (Magistratsabteilung 37). Particularly in construction matters, buyers may request a confirmation from the respective authorities regarding the zoning and building regulations in question for a certain piece of real estate.
11.4 What main permits or licences are required for building works and/or the use of real estate?
It is usually necessary to obtain a building permit (Baubewilligung) from the federal state building authority before constructing a new building. State building laws provide an exhaustive list of cases where a building permit is required. Construction work cannot be carried out before the permit has been granted and comes into effect. A building permit belongs to the property and is valid for any successive owner of a property.
The completion of a construction project must be notified to the municipality (Fertigstellungsanzeige), which grants a permit to use the premises (Benutzungsbewilligung) after checking that the building complies with the building permit. A building permit is also required from the state building authority for structural changes to, or the demolition of existing buildings.
11.5 Are building/use permits and licences commonly obtained in Austria? Can implied permission be obtained in any way (e.g. by long use)?
Prior to the construction of a building it is generally necessary to obtain a building permit. Construction work may not be carried out before the permit has been granted and has become effective and final. Upon the completion of a building, a notice of completion or an application for a permit to use the property must be submitted to the building authority, depending on the regulations of the Building Acts of the individual federal states. In those federal states where the submission of a notice of completion is sufficient, that notice must contain the confirmation by an independent civil technician that the building was constructed in compliance with the terms and conditions of the permit and the provisions of the Building Act of the relevant federal state. If a permit to use the property is required, the building authority examines whether the building was constructed in accordance with the main terms and conditions of the building permit. The building may not be used before a notice of completion has been submitted to the building authority or before a use permit has been issued. Implied permission cannot be obtained in any manner. In addition, the Trade Code requires an operating permit from the local trade authorities for localised plants operated for commercial purposes.
11.6 What is the appropriate cost of building/use permits and the time involved in obtaining them?
The time period for obtaining an initial decision varies between a few weeks and several months, depending on the nature and size of the development project and the state in which the application is submitted. Average duration of proceedings is about six months up to a year.
11.7 Are there any regulations on the protection of historic monuments in Austria?
If any, when and how are they likely to affect the transfer of rights in real estate? Once a building has been classified as a historic monument under the Act of Protection of Historical Monuments (Denkmalschutzgesetz), any modification or destruction of the building has to be non-invasive. Indispensable changes, such as a reconstruction, have to be carried out as sparsely as possible and need to be approved by the Federal Office of Historical Monuments. The Federal Office of Historical Monuments (Bundesdenkmalamt) has to be notified of any transfer of the ownership. A list of all historic monuments is available on the homepage of the Federal Office of Historical Monuments (www.bundesdenkmalamt.at).
11.8 How can e.g. a potential buyer obtain reliable information on contamination and pollution of real estate? Is there a public register of contaminated land in Austria?
According to the Clean-up Contaminated Sites Act (Altlastensanierungsgesetz), a list of suspected contaminated properties (Verdachtsflachen) has been compiled. This list is publicly available on the homepage of the Environment Agency Austria (www.umweltbundesamt.at). If a property appears to cause a significant environmental threat, it is scheduled in a list of properties (Altlastenatlas) which require clean-up measures. Once listed, the competent authority must determine whether somebody can be held liable for the repairs of the damage or the payment for the decontamination (usually the person that caused the contamination is primarily responsible). If nobody can be held liable, the federal government must conduct the necessary actions under the Clean-up of Contaminated Sites Act. However, if a property is not listed in the Altlastenatlas, it does not provide proof that the property is not contaminated.
11.9 In what circumstances (if any) is environmental clean up ever mandatory?
A mandatory clean up is subject to and varies according to the different federal states and their regulations and laws. It will become mandatory where it exceeds the tolerated level provided by the respective federal state.
11.10 Please briefly outline any regulatory requirements for the assessment and management of the energy performance of buildings in Austria.
The European Parliament adopted the Directive 2002/91/EC on 16 December 2002, for all Member States to implement the requirements to ensure that when buildings are constructed, sold or rented out, an energy performance certificate is made available to the owner or by the owner to the prospective buyer or tenant. Such certificate shall include reference values such as current legal standards and benchmarks in order to make it possible for consumers to compare and assess the energy performance of the building. Austria implemented the Directive via the Act on the Submission of an Energy Performance Certificate 2008 (in force since 1 January 2008).
12 Climate Change
12.1 Please briefly explain the nature and extent of any regulatory measures for reducing carbon dioxide emissions (including any mandatory emissions trading scheme).
Please see question 12.2 below.
12.2 Are there any national greenhouse gas emissions reduction targets?
In 1997 in Kyoto, Japan, the 38 industrialised countries of the United Nations Framework Convention on Climate Change agreed on the reduction of greenhouse gas emissions by signing the Kyoto Protocol. There are states which emit less greenhouse gas and still may increase their greenhouse gas production and others which are compelled to reduce their emissions. Austria has agreed to reduce its greenhouse gas emissions until 2008-2012 by 13% compared to 1990. According to actual studies, Austria will not be able to reach its goal even when buying emission rights from abroad. The EU collectively will likely reach its emission reduction goals. So far, all efforts to enact a federal climate protection law in Austria have not succeeded.
A significant reduction of carbon dioxide emissions could be reached through better thermal insulation in residential buildings to be regulated by the Building Acts of the nine federal states. The respective laws regularly foresee government aids.
12.3 Are there any other regulatory measures (not already mentioned) which aim to improve the sustainability of both newly constructed and existing buildings?
For regulatory measures regarding (environmental) sustainability of newly constructed and existing buildings, please see the explanations regarding the Act on the Submission of an Energy Performance Certificate 2008 in questions 10.7 and 11.10 above. Additional but non-regulatory initiatives include the Passive House Standards. The term Passive House (Passivhaus) refers to the rigorous, voluntary Passivhaus standard for energy efficiency in a building, reducing its ecological footprint. It results in ultra-low energy buildings that require little energy for space heating or cooling. The standard is not confined only to residential properties; several office buildings, schools, kindergartens and supermarkets have also been constructed to the standard. Although it is mostly applied to new buildings, it has also been used for refurbishments. Since 2007, Vorarlberg acts as a pioneer as large scale subsidised housing (gemeinnutziger Wohnbau) have to be constructed to the Passive House standard.
This article appeared in the 2013 edition of The International Comparative Legal Guide to: Real Estate; published by Global Legal Group Ltd, London. www.iclg.co.uk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.