Austria

Author: | Published: 3 Apr 2003
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Lease and property are the two main concepts of the Austrian real estate legal framework. Other legal instruments as ususfructus or the Building Concession (Baurecht) have some significance in the Austrian legal system.

Commercial Leasing

1. What legislation and/or regulatory bodies are responsible for regulating the relationship between landlord and tenant in your jurisdiction?
Austrian landlord and tenant law is governed by two pieces of federal legislation - the Austrian Tenant Law Act (Mietrechtsgesetz or MRG), enacted in 1982 and recently essentially amended, with effectiveness January 1 2002, and the Austrian Civil Code (Allgemeines bürgerliches Gesetzbuch or ABGB). The principle of freedom of contract (Privatautonomie) generally applies provided compulsory statutory provisions are not violated. Application of the MRG cannot be excluded contractually.

Historically, the main purpose of the MRG was the protection of the tenant as the weaker contractual party. Due to market development and political response to necessary adjustments to European standards within the last 10 years, the law has developed regulatory instruments for a suitable real estate market including the lease renewal process.

The key provisions of the MRG cover the determination of the rental fee for industrial (retail and office) space in respect of buildings for which the building license was issued before June 30 1953 (in respect of condominiums, before May 8 1945) - so called old buildings. With respect to old buildings the MRG also contains provisions on operating costs, specific business succession rules and in particular prohibits a separate consideration for entering into or assigning a lease contract (verbotene Ablöse, § 27 MRG). In addition the Act provides for the termination and duration of lease contracts for all types of buildings and therefore plays an important role with respect to the lease market for high value office spaces.

Where the MRG is not applicable, lease agreements are governed by the ABGB. If at least one of the parties is a commercial entity or a merchant, the Austrian Commercial Code (Handelsgesetzbuch or HGB) also applies. §1/2 MRG provides a list of exceptions to which the MRG does not apply, such as those rental entities in airports and other traffic infrastructure buildings.

Following recent reforms of the MRG, the lease contract may be either limited or unlimited in time. As a residual of the former system, the landlord may only terminate contracts that are unlimited in time in the circumstances provided by § 30/2 MRG. Termination due to expiration of the agreed term only applies if it was expressly agreed between the parties. If such a clause was not agreed upon or termination did not occur after expiration of the agreed term, the lease period is then considered as unlimited in time.

The tenant can terminate lease contracts that are unlimited in time in compliance with notice periods and effective dates set forth in the lease contract, or by law without reasons or preconditions. Lease contracts limited in time can be terminated prematurely by the tenant only in accordance with specific provisions of the lease contract or with s.1117 ABGB, which grants a cancellation right where the landlord fails to perform his duties. In all other situations the tenant cannot terminate the lease contract before the expiration date. Therefore, contractual precautions ought to be taken to create divestment options.

2. What is the effect of a tenant's insolvency in your jurisdiction and what remedies are available to landlords?
In the case of a tenant's insolvency the administrator is entitled to terminate the contract on short notice. Where the administrator does not terminate the lease, the bankrupt's estate is liable for the rent for the period after the insolvency procedures opened. Because of defaults in rental payments prior to the start of insolvency proceedings, the landlord will usually have the right to terminate the contract prematurely on the basis of § 1118 ABGB or § 30/2/1 MRG.

3. How does human rights legislation in your jurisdiction affect the landlord/tenant relationship?
At present, as a result of the not unbalanced consideration of the parties' interests given by the statutory framework, human rights legislation has no impact on the landlord/tenant relationship.

Securitization of real estate assets and property outsourcing

1. How significant is the real estate securitization market in your jurisdiction?
Securitization is a relatively new form of debt financing in the real estate market in Austria, though mortgage bonds (Pfandbriefe) have been in use for a long time. New structures for the securitization of real estate assets have been considered, as has public sector securitization, but so far very little has materialized.

2. To what degree of detail (if at all) are the parties obliged to disclose the lease terms on a formal registry (eg the land registry) in your jurisdiction?
Parties are not obliged to disclose the terms and conditions of the lease contract on any formal registry. But, as a protection of the lease against third party purchasers, the parties may choose to register the lease with the land registry.

3. How important a role do the rating agencies play in securitization transactions in your jurisdiction?
Rating agencies have not developed as predominant a role in Austria as they have in other countries.

Property outsourcing

1. How relevant is property outsourcing in your jurisdiction?
Despite being more developed than real estate securitization, private sector property outsourcing is still fairly uncommon. However, it is becoming increasingly common in the public sector.

2. What are the relative benefits of each of Private Finance Initiatives (PFIs) and Public-Private Partnerships (PPPs)?
Property outsourcing involves the transfer of freehold and/or leasehold property (including the associated risk and management) to an outsourcing specialist that delivers serviced accommodation in line with the occupier's business needs. The Austrian market naturally expects advantages from property outsourcing, such as an increase of cash and more flexibility that allows the companies to concentrate on their core business.

The public and the private sector have implemented, or are in the process of implementing, PPP transactions with respect to projects such as infrastructure, hospitals, waste and sewage disposals. So far, standardized PPPs similar to PFIs in the UK have not been developed in Austria.

To avoid high taxes associated with property outsourcing, tax law allows the transfer of properties if and when done in the context of transfer of public legal duties and functions free of real estate transfer tax and VAT. The same applies to stamp duties and court fees. These exemptions only apply if the outsourced legal entity is mainly under the control of the respective public sector entity (Gebietskörperschaft) such as the federation, federal states (provinces) or communities (Bund, Länder or Gemeinden).

Property outsourcing is an option for Austrian banks or telecommunication companies owning a substantial amount of properties and which are therefore subject to considerable cost pressure as a result of competition from internet and other telecommunication companies. In future it is likely that smaller to medium-sized entities will begin to adopt property outsourcing models as they realize that traditional property ownership is no longer the sole or the best use of resources and assets.

Financing real estate transactions

1. What are the most common methods by which purchasers finance high-value real estate transactions in your jurisdiction?
The most common method of financing real estate transactions is through a mortgage, which involved the transfer of an interest in land as security for a loan or other obligation. A mortgage loan is usually repaid in instalments of both interest and principal, although different repayment structures are also found. Payment defaults allow for the foreclosure of the mortgage loan, and in this instance the enforcement of acceleration clauses is common practice. Once foreclosure of the land occurs, a default to pay the mortgage debt leads to seizure of the mortgaged property subject to the transaction and its realization to pay for any outstanding mortgage debt. To create the mortgage it must be registered in the land register (modus). The priority of more than one security on the same property is determined by law. The legal title to the mortgaged property is held by the mortgagor.

2. To what extent does stamp duty (or the equivalent in your jurisdiction) affect the cost and method of financing real estate transactions?
Deeds relating to credits and mortgages are subject to 0.8% stamp duty and to a land register registration fee of 1.2% of the principal amount. To avoid the latter, depending on the financial standing of the debtor, the registration of the mortgage in the land register is sometimes entirely or partially substituted by other personal securities and guarantees.

3. To what extent are the parties obliged to disclose the terms of financing on the formal registry (eg the land registry) in your jurisdiction?
Parties are not obliged to disclose the terms and conditions of financing deals to a competent authority such as the land registry, but they have to disclose the deed creating the mortgage itself.

Conveyancing

The relevant legal provisions are set forth under the ABGB, the Austrian Land Register Law (Allgemeines Grundbuchsgesetz or GBG), the Austrian Condominium Act (Wohnungseigentumsgesetz or WEG) and the Austrian Building Developer Act (Bauträgervertragsgesetz or BTVG).

1. What are the various forms of property ownership in your jurisdiction?
In Austria the predominant form of property ownership is freehold ownership.

Under Austrian law, one or more legal entities or natural persons can own both developed and undeveloped land under the principles of co-ownership. In urban areas, co-ownership in residential buildings has become more and more common over the past 25 years using the condominium (Wohnungseigentum) ownership structure. The condominium grants to each co-owner a share of the property and the exclusive right to use that property as an apartment, office or retail unit, as well as the right to use the car parking lots, cellars and similar communal areas. A condominium structure can be created in existing buildings as well as in newly constructed ones. The WEG governs the rights and obligations between the organizer, the applicants and any subsequent owners, as well as the relationship between the owners and the administrator of the building. The sections of the WEG regulating the relationship between the organizer and the owners partly conflict with the BTVG; the latter one has a broader field of application as it applies to buildings in construction that are to be rented out to the subsequent users).

Acquisition of real estate requires evidence of legal title, usually a valid, signed sale and purchase agreement with certified signatories, and the registration of the title in the land registry.

The land registry consists of three sections. Section A describes the plot itself, detailing the size and location; section B sets forth ownership information, including the ownership history; and section C provides for information regarding encumbrances such as mortgages and other securities regarding the property. Pursuant to Austrian law a bona fide purchaser (not having knowledge of unregistered securities) acquires full and unencumbered title to the property.

The land registry is supplemented by its collection of deeds (Urkundensammmlung) where the relevant legal documents are kept which constitute the title for registrations in sections B and C.

The provincial Land Transfer Control Acts apply to the acquisition of real estate by foreigners (Ausländer-Grundverkehr) and to the acquisition of certain protected categories of land (for example, agricultural land and forested areas) as well as to transactions concerning second homes in tourist areas. Foreign entities or individuals (other than those from the EU) are obliged to seek approval for the transfer of legal title and certain other property rights. Approval is based on economic, social or other criteria and is generally granted.

The Property Transfer Tax (Grunderwerbsteuergesetz) amounts of 3.5% of the purchase price (§ 7/3 Grunderwerbsteuergesetz). Payment of this tax is a precondition of registration with the land register. Registration is subject to a registration tax of 1% of the purchase price.

2. How significant is e-conveyancing in your jurisdiction?
Although it is possible to access the land registry online, e-conveyancing is neither possible nor expected in the near future.

3. How has the legislation and recent case law in your jurisdiction addressed the issue of adverse possession?
Adverse possession is defined as the acquisition of title to real property through the continued possession over 30 years. It applies to ownership rights and other rights in immovable properties such as easements.

Future developments

It is expected that under the new Austrian government that came into power in March 2003, an Immovable Properties Fund Act will be passed which will allow the setting up of Austrian Real Estate Funds. The Act is necessary because the current Austrian Investment Fund Act does not regulate funds of real estate assets. Legislative preparation has been done under the last government as a result of strong petitioning from market participants. After the implementation of this new Act Austria will be equipped with the full spectrum of laws and regulations necessary for a prosperous real estate market.


Saxinger Chalupsky Weber & Partners
Rathausplatz 4
Vienna A - 1010
Austria
Tel: +43 1 427 2000
Fax: +431 427 2010