Property law aspects (rent [Miete] and lease [Pacht])

Property law aspects (rent [Miete] and lease [Pacht])

First and second lockdown in Austria: effects on lease agreements

In the first so-called “Lockdown” the customer areas of certain commercial premises were closed by decree on 16 March 2020 until (partly) 1 May 2020. Now there has been a second lockdown, during which customer areas have also been closed by decree from 17 November 2020 until 3 December 2020. During the second lockdown these closures are somewhat restricted – e.g. services that are not “close body”-services can still be provided in the necessary commercial premises (for further see under “COVID-19 Act on Measures”).

For lessees of commercial premises, the question posed itself, if they had to pay (full) rent during this time (of closures). For rents (Miete) and leases (Pacht) during times of COVID-19 and relating closures of businesses, the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch – ABGB) already contains provisions on rent reductions.  In any case usable and therefore unaffected by rent reductions are rental units not affected by the official closures (e.g. offices). According to press releases there has already been a decision by a court of first instance relating to this topic; the court ruled that the lessee (a hairdresser) was right in claiming rent reduction – he was not able to use his salon at all.

  1. Payment of rent during the time of commercial premise closure

In this regard we generally are of the opinion that Sections 1104 seq. ABGB (pursuant to which rent can be reduced in case of extraordinary circumstances, which explicitly includes an “epidemic”) govern that lessors of commercial premises who can no longer use this commercial premises due to such closure of their commercial premises do not have to pay rent. In the case of COVID-19, the two necessary elements of the facts of Sections 1104 seq. ABGB are (i) the epidemic and (ii) the inusability of the rental unit. Many lessees neglect point (ii) and they argue that the existence of an epidemic (i.e. COVID-19 exists) could already lead to a reduction in rent, because they cannot use their properties due to fear of the virus spreading.

However, the legal situation is not clear, because in practice there are many individual cases in which certain aspects are unclear: (i) the differentiation between rent (Miete) and lease (Pacht) under Austrian law, (ii) the possibility of a reduction of rent down to zero, (iii) how can the consequences be contractually excluded from Sections 1104 seq. ABGB?

1. Whether rent (Miete) or lease (Pacht) provisions are applicable must be clarified in each individual case, for this purpose a multitude of criteria must be examined and evaluated. The denotation of the respective contract is irrelevant.

2. Regarding the amount of the rent reduction, a differentiation must be made:

a. if regulations for rent (Miete) apply, a reduction of the rent to zero is possible only in the case of complete uselessness of the rented object. If the commercial premises can still be used for other (non-diverted) purposes, the rent may only be reduced accordingly. However, a partial usability will be hard to argue, e.g. in cases of storage rooms of stores, since storage rooms, in which products (that cannot be sold) are stored, will not provide any use for the lessee.

b. The situation is completely different in the case of a lease (Pacht); in this case (without regard to contractual agreements) a distinction is to be made as follows:

(i) if the leased property cannot be used at all no lease payment is due (as with rent);

(ii) in the case of partial usability, there is a legal provision in Section 1105 ABGB, according to which a reduction in interest is only possible in exceptional cases. These are (a) if the leased property has been leased for a maximum of one year AND (b) the income has fallen by more than half due to the impairment; otherwise (except in the case of complete unusability, see point (i) no reduction of the rent is possible.

3. Sections 1104 seq. ABGB can be excluded by contract and are therefore dispositive. A contract review in individual cases is therefore indispensable.

In practice, the following must be considered relating to rent of commercial premises

Whether the rent (if the tenant assumes in principle the right to a reduction of the rent) is paid with reservations or not at all and how the rent (often) already paid for March and April as well as November 2020 is paid back pro-rata is to be decided on a case-by-case basis. For this purpose, it must be considered whether a (bank) guarantee exists and whether and under what circumstances it can be drawn by the landlord. Relating to residential property rent the legislator has provided for provisions regarding deposits: these cannot be used to cover outstanding payments due in a certain period. An equivalent provision would be sensible for commercial premises, however in the legislative notes it is explained that no need was seen for provisions regarding commercial rent due to Sections 1104 seq. ABGB that cover a lot of ground. Complex issues occurring in practice have obviously not been considered by the legislator. In case of bank guarantees and deposits it is a matter of how to avoid the role of plaintiff (which means, amongst other things, that the court fee must be pre-financed). Furthermore, it is necessary to think carefully about how to avoid a termination by the landlord, as such a termination is usually not in the tenant's interest; for this purpose, we recommend keeping the unpaid rent as a reserve fund in order to be able to react in terms of liquidity if necessary.

Furthermore, it is completely unclear how landlords should deal with the situation of not receiving rental payments but having to repay their loans.

No termination of residential lease agreements in case of COVID-19 aftermath

Residential lease agreements: lease agreements of lessees affected by COVID-19 can not be terminated by the lessor due to outstanding rental payments due between 1 April 2020 and 30 June 2020. Furthermore, an eviction can be postponed upon request until 31 December 2020.

Regarding the effects of COVID-19 on tenancy law, a distinction between residential rents and commercial rents (Miete)/leases (Pacht) must be made. In case of residential leases, the legislator has put the main focus on the impact of the lessee's economic capacity, since apartments can (naturally) still be used (unlike commercial premises). With the Second Federal Act on accompanying measures to COVID-19 in the judiciary system (2. Bundesgesetz betreffend Begleitmaßnahmen zu COVID-19 in der Justiz - Second COVID-19-JuBG), which has been amended several times, Section 1 of the Second COVID-19-JuBG was introduced, pursuant to which the lessor generally cannot terminate a lease agreement with a non-paying lessee affected by COVID-19.

If rental payments, that are due between 1 April 2020 and 30 June 2020, are not or not fully paid by the lessee, and if the rented property is a residential property, the lessor cannot terminate the respective lease agreement solely on the basis of these outstanding payments. Termination due to other reasons and termination due to other outstanding payments than those due in the aforementioned period are allowed. Furthermore, Section 1 of the Second COVID-19-JuBG only applies if the lessee's economic performance is also significantly impaired as a result of the COVID-19 pandemic. In addition, the lessor cannot have the contract terminated pursuant to Section 1118 Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch – ABGB). According to Section 17 para. 2 of the Second COVID-19-JuBG, these provisions will expire at the end of 30 June 2022. This means that the outstanding payments that have been due and unpaid during 1 April 2020 and 30 June 2020 must be paid in full by the lessee until the expiry date, otherwise the lessor can terminate the lease agreement as of 1 July 2022 or bring an action for termination of the agreement due to the outstanding payments. Furthermore, the outstanding payments may not be claimed in court or be covered by a security deposit until 31 December 2020. Irrespective of differing contractual provisions, pursuant to Section 3 of the Second COVID-19-JuBG, a maximum interest rate of 4 % pursuant to § 1000 para. 1 ABGB is applied to the outstanding payments. The lessee shall not be liable for any extrajudicial enforcement or collection measures.

These COVID-19 measurements are notwithstanding Section 33 para. 2 and 3 of the Austrian Tenancy Act (Mietrechtsgesetz - MRG), which governs the right of a defaulting lessee without gross negligence to prevent a termination by paying the outstanding amounts.

The new provisions apply to property in the MRG’s full/partial/no scope of application as long as it is a residential lease (i.e. no lease of commercial premises (Pacht) or rent of commercial premises (Miete)). The new provisions are mandatory.

Evictions can be, upon application by the obligated party, postponed pursuant to Section 6 of the Second COVID-19-JuBG without any security deposit, if the property is indispensable to satisfy the urgent housing needs of the obligated party or people living in the same household as them. This does not apply, if the eviction is indispensable in avoiding serious personal or economic disadvantages for the creditor; the legislative notes also mention the condition of “urgent need of the creditor” (this is probably understood by indispensable). The proceedings must be continued at the request of the creditor six months after authorization of the eviction at the latest, or earlier if the measures taken to prevent the spread of COVID-19 (concerning restrictions on freedom of movement and interpersonal contacts) have been lifted.

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Important note

The information provided here is only general information and assistance. The information provided is not to be understood as legal advice from Kunz Wallentin Rechtsanwälte GmbH and cannot replace individual legal advice.

Furthermore, Kunz Wallentin Rechtsanwälte GmbH assumes no liability whatsoever for the content and accuracy of this information.