All about commercial property in Austria - corporate real estate market, laws and investment. How to buy commercial property in Austria
Austria is one of the most attractive countries in the world for living and investing in real estate. The country is characterized by a stable economy, a high standard of living, many vacation resorts and an affordable real estate market.
The real estate in the largest cities of the country can generate an annual rental income of 3-5% and the value of real estate in Austria is growing by 2.5-5% per year, depending on the region. This article discusses, in detail the issue of commercial real estate
From analyzing the real estate market in Austria, there are certain trends such as:
Investors in commercial real estate in Austria use 4 basic structures:
The positive aspect is that the risks are shared among several people. However, the disadvantages are characterized by liability for private assets and the tax burden.
The pros include aspects such as limiting risks, saving on taxes, and flexibility. The disadvantages include the payment of any profit from the business that requires the decision of all shareholders.
A favorable aspect is the likelihood of a large profit, but a negative aspect is characterized by the fact that the participation is shareholding, which does not allow direct management of the company and possible loss of capital.
Foundations are characterized by savings in taxes and the preservation of the benefits of ownership. However, there is no flexibility, and it is also necessary to define a guaranteed purpose of the foundation.
REITs (Real Estate Investment Trusts) REITs are collective investment funds that pool funds from real estate or equity investors. Despite the fact that internationally REIT is considered a common structure, in Austria this form of investment practise has not yet entered the legal system. Indirect investments in real estate are carried out with the help of a real estate company, as well as open-ended and closed-ended investment funds in the real estate sector.
Institutional investors include: closed-ended funds, open-ended funds or joint stock companies that deal with real estate. Joint stock real estate companies are subject to income tax and capital gains tax. Closed-ended funds are created as limited liability partnerships. The investor is a taxable subject of the fund who must pay capital gains tax on any profits.
Private investors can invest directly or indirectly. Taking into account the fact that indirect investment allows you to invest small amounts, while direct investments require large amounts of money.
The jurisdiction of Austria includes the main types of investors such as institutional investors, private investors and foreign investors. There are no specific government incentives for overseas investment in real estate.
All nine federal Austrian states follow their own real estate legislation.
According to Austrian law, EU citizens can purchase real estate under the same conditions as Austrian citizens. Consequently, any restrictions on purchases in individual federal states apply equally to both.
Each state has specific rules for non-EU citizens. For details, see the State Regulated Land Transfer Act (Grundverkehrsgesetz). Following on from this, citizens of countries outside the EU must obtain the consent of the competent authority of the federal state before concluding a sales contract. The permit must be presented to the Land Registry prior to the final transfer of ownership.
Under Austrian jurisdiction, ownership is not only acquired by the signing of a purchase agreement, by taking ownership and paying the purchase price; it is actually carried out by entering into the Land Register as a new owner.
The Austrian Land Registry (Grundbuch) contains information on residential and non-residential real estate, land ownership and everything related to property rights. For example, if a company owns several real estate properties, then they must be registered in the corresponding land registers, but not for the same type of title.
Ownership of real estate is recorded in the Land Register, as all data on property and financial expenses, as well as other property issues, are stored in the same system. The information centers and portal of the Federal Office for Metrology and Geodesy are online, where you can send inquiries related to the official database. The request for information can be made by a lawyer. A public act on behalf of the state for a submission of the Land Register authority can be obtained from the district court or from a notary.
The Land Registry is a systematic collection of documented data relating to property, which provides up-to-date information on all legal issues. The main task of the Land Register is to create security around any legal relations or issues related to land. It should be noted that when registering in the Land Register, ownership and participants must be clearly defined, and the rights related to property must be set out in a specific and understandable manner. The content of the Land Register is always correct, as the content and all the rights listed are registered according to the jurisdiction of Austria, and there are no unregistered rights.
Confidential information cannot be protected from disclosure in the state land register, therefore it is necessary to send only important information.
There are circumstances in which the cancellation of an entry in the register is permitted, such as an incorrect entry that contradicts the substantive position.
HOWEVER: Only a claim under the contract can interfere with the right to file a cancellation claim. In the Austrian jurisdiction, there is no state guarantee of ownership, therefore liability for errors is regulated by the State Liability Act (Amtshaftungsgesetz). Austria has no title insurance.
Considering the issue of real estate, it should be noted that there are different types of ownership such as sole proprietorship, joint ownership and condominium.
The buyer makes a mandatory statement of intent to purchase the property when the purchase offer is made. In which basic conditions are defined, such as price, information about burdens, as well as delivery time.
The property is not yet considered officially purchased, even after the submission of a binding offer. It is necessary to wait until the seller accepts the agreement, only then the buyer can legally purchase the property. For example, where a buyer withdraws from a transaction after signing a binding offer, the seller is compensated in accordance with national civil law.
Other preliminary agreements include: Preliminary Agreement, Letter of Intent, and Statement of Commitment. These documents are still not yet legally binding.
The contract is called Kaufvertrag and is drawn up by the attorney or notary. The main subjects of negotiations are the duration and conditions of the corporate real estate purchase and the sale agreement. In order to protect the interests of the seller and the buyer, there are provisions that are usually included in most contracts for the sale of corporate real estate. This position must be well understood. The contract is made in German, but when buying in tourist condominiums, it is also allowed in English.
The typical main provisions of the corporate real estate sale and purchase agreement include: definition of the property, purpose of purchase, purchase conditions, purchase price, force majeure of the buyer, statements and guarantees of the seller, obligations of the seller, conditions of confidentiality, term and termination, obligations of the parties, as well as basic provisions.
From analyzing the main provisions of the standard share purchase and sale agreement, it is necessary to highlight the following: definitions, purpose, definition of the acquired share capital, conditions, right of withdrawal, corporate governance, meeting decisions, transfer of shares, revocation options, liability and basic provisions.
Before purchasing real estate, due diligence must be carried out, which should cover the following areas:
Financial due diligence encompasses real estate appraisal analysis that performs risk assessments as well as the creation of planning and appraisal tools.
Starts with checking the date in the Land Register. The next step is the analysis of the lease (including guarantees), analysis of insurance contracts, as well as other contracts and obligations. The last step is collecting government fees.
Consists of examining the tax position over the past three years, during which tax risks will be determined.
Starts with checking the technical condition of the facility. At the same time, all necessary maintenance costs are analyzed and improved. Based on this, any contaminated areas in the foundations, water or building are checked. Accordingly, it is necessary to take into account the issues of environmental protection
In July 2018, the Fifth Anti-Money Laundering Directive (EU) 2018/843 entered into force. Based on this, a capital risk analysis is required that will be applied to the purchase. In the same year, the Sixth Anti-Money Laundering Directive (EU) 2018/1673 entered into force. Member States were required to transpose this Directive by 2020.
NOTE! The experts needed during this process usually include tax consultants, real estate appraisers and surveyors. In addition, an obligatory aspect is the receipt of environmental reports.
There are guarantees that the seller must give to the buyer when selling corporate real estate. Real estate guarantees include:
IMPORTANT! The main limitations of the guarantees include: visible defects, as well as circumstances that are generally known or obvious in the Land Register.
The seller is legally liable to the buyer in accordance with the Austrian Civil Code (section 922) to ensure that the purchased property is free from defects. Purchased units are identified as defective if it was not handed over to the buyer in the agreed condition, or it lacks the expected criteria.
Providing environmental insurance, surveying and sourcing should not be an ongoing process. However, in some cases it may be necessary.
The federal states of Austria are responsible for the conservation of nature and landscape. There is a Conservation Act in every federal state, as well as specific principles for the conservation and protection of species, and special rules for issuing permits for specific projects.
One of the most important environmental laws in Austria is the Industrial Code, which coordinates the construction, operation, routine inspection and decommissioning of active facilities.
In addition, it is necessary to take into account other administrative and legal areas to which environmental and water legislation applies. The required environmental impact assessment is mandatory for some new projects.
Environmental liability can be coordinated by an indemnity clause. In addition, a precedent condition may be agreed upon at the time the contract enters into force.
The owner or tenant may inherit liability for other matters related to the property if the purchase agreement does not provide a relevant clause, such as an indemnification clause.
The main standard agreements and the main documents required to complete the sale of property include a real estate sale and purchase agreement, notarized agreement, application for cancellation of the pledge rights, confirmation of payment for real estate transfer tax and court fees, as well as an entry in the Land Registry.
It takes time between the exchange of contracts and completion to obtain a mortgage or priority sale notice. If there was a registration in the Land Register, then the ownership is transferred. To cancel ownership in the Land Register requires a notarized real estate purchase and sale agreement as well as an application for the cancellation of the pledge right
In accordance with the Austrian jurisdiction, a mandatory requirement for the purchase of real estate is the payment of the real estate transfer tax to the amount of 3.5% of the purchase price (there are exceptions) as well as a court fee of 1.1%, again of the purchase price. The seller undertakes the payment of tax on real estate transactions to the amount of 30% of the profits. However, there are exceptions. If the property has been the seller's primary residence for the last five out of ten years or for two years prior to the sale. The purchase of real estate that is owned by a company, is also subject to real estate transfer tax at a rate of 0.5%. Income from the sale is also taxable. The condition for obtaining a mortgage is the payment of 1.2% tax of the total amount.
There is a possibility to avoid transfer tax when purchasing real estate in accordance with the Austrian legal regulations. The need to pay tax can arise in two situations, for example, in the instance of acquiring a company that owns real estate, or in the case of a postponement of the landowner's shares as part of a reorganization within a group of companies. This combination of shares applies to both corporations and partnerships. There is also the advantage of legal and complete legal evasion of real estate transfer tax that applies to the planned acquisition of shares in land holding companies.
Because the indirect ownership of shares outside a group of companies does not lead to a consolidation of shares, there is no taxation on the transfer of real estate. There are options to avoid paying tax on the transfer of real estate, these include: transfer of less than 95% of the shares of the corporation, an indirect purchase of a minority shareholder and direct purchase of a controlling stake. The sale of real estate is generally not subject to VAT, but the seller may charge 20% VAT.
NOTE: Object tax is a municipal tax that is paid on salaries. Property tax (Grundsteuer) is collected once a year or quarterly, while municipal tax is assessed based on the assessed value of the property.
The legal principles of a climate strategy for the construction sector are described in an agreement between the state and federal governments. The agreement contains detailed information on the thermal insulation standards for housing subsidies for the construction of new builds and completed projects, as well as a set of rules encouraging the use of renewable energy sources.
There is an opportunity to obtain environmental support to reduce the amount of greenhouse gas emissions into the environment. Environmental support is characterized by funding from the federal ministries of agriculture, forestry, water and the environment.
The amount of the grant depends on the following aspects such as: legal conditions, conditions of the grant related to the use of alternative fuels or raw materials, the amount of government funding, and the impact of the project on the environment.
Taking into account the provisions related to the energy efficiency of buildings does not require its inclusion into the sales contracts, however, the law requires the transfer of an energy passport. An energy passport consists of the details of the property.
Security is divided into 2 types:
A MORTGAGE is a variant of real estate mortgage, in which the real estate remains in the possession and use of the debtor, where the real estate is mortgaged to secure the loan amount. It is necessary to pay a court fee of 1.2% of the loan amount, as well as certification costs for the procedure for registering a mortgage in the Land Register.
Other measures related to real estate that lenders take to protect themselves from default by the borrower, are loan provisions (which include preconditions, real estate covenants and financial covenants), guarantors, various additional credit enhancements (such as deposits, valuation, and cash reserves) and additional concepts for renting property.
In Austria, the creditors have no environmental or shared responsibility. In the event of missed installment payments or additional claims, the creditor has the right to demand the immediate payment of all outstanding debt after a repayment period has been established. Pursuant to the Consumer Credit Act (section 14), the borrower undertakes to repay his debt.
Lenders have the option to sell property out of court. In accordance with the right of pledge, creditors are primarily satisfied with the sale of the pledged object.
The lender has the right to segregate the insolvency of the borrower with a pledge. The claim related to the right to segregation must be paid in full or in accordance with the right to segregation. In the event that the claim does not fully cover the existing segregation right, an unsecured residual claim may be filed in the context of insolvency proceedings.
Important additional aspects for lenders in connection with construction and development projects include project appraisal, legal due diligence, cost accounting, collateral rating, financing of payments in installments in accordance with the Austrian development law and patronage.
In the jurisdiction of Austria, there are other methods of real estate financing such as:
The terms of the lease are free to negotiate, but they must not violate the standards of public decency. In addition, the lease must comply with the following: Based on the Austrian Rental Law (Mietrechtsgesetz) and the Austrian Civil Code, all the terms of the rental agreement are openly discussed, however, there are requirements for which it is prohibited to violate the standards of public decency. Rental issues include the Austrian Rental Housing Act, the Austrian Civil Code or both of them.
The principle of freedom prevails with a few exceptions. The contract is concluded in writing or orally. There are no differences in the rules of execution of a company or partnership in comparison with individuals. Indefinite leases can be concluded verbally, but must be concluded in proof of writing. There are times when the conclusion of a written contract is mandatory. In accordance with the Lease Act, the limitation of the term of the lease is legally enforceable if it is concluded in writing. However, outside the scope of the Lease Act, the use of writing is irrelevant in ensuring an effective term.
In the case of renting out a semi-detached house or private home, the General Civil Code of Austria applies. The length of the lease is negotiated freely between the tenant and the landlord, although it is possible to extend a fixed-term contract. The main requirements for the new lease terms are at least three years and must be fixed in writing.
Over the past years, the terms in lease agreements have repeatedly been considered inconsistent with consumer protection law. Therefore, homeowners must be careful not to use ineffective clauses when drafting a contract. For example, no general painting obligation is allowed. In addition, the tenant cannot be obligated to repair serious damage or repair the common parts of the building (for example, the roof).
Austrian rental law sets maximum rental limits that cannot be exceeded, with the exception of a small inflation adjustment. The rent cannot be raised under either the Rent Law or the Civil Code. In addition to the rent, maintenance costs and any special expenses are included.
Apartment lease agreements concluded before November 11, 2017 were subject to payment, but at the moment they are free of charge. The rental deposit is a payment in the form of three-months rent. There is no typical term in lease agreements; the estimated temporary lease should be at least three years. However, the Austrian Civil Code does not set a minimum time limit. Early termination of the contract is possible only in exceptional cases, and ordinary termination is subject to notification.
The lease does not have a typical duration. There are 2 types of leases, such as temporary or unlimited. According to Austrian rental law, the required temporary lease period is at least three years. The Austrian Civil Code does not define a minimum period.
As you know, a temporary lease ends upon the expiration of the term, however, based on the Austrian Lease Act or the Austrian Civil Code, early termination of the contract is possible only in an extraordinary manner. For example, an open-ended lease requires termination under Austrian lease law. There is a possibility of the usual termination of the contract in accordance with the Austrian Civil Code. In the case of an ordinary termination, it is subject to notification, in comparison with an emergency termination, it is required to take effect immediately in the event of serious violations.
The tenant has no right to renew the temporary lease. The tenants' rights are regulated in sections 29 to 36 of the Austrian Tenancy Act.
The tenant can assign or sublet the lease with the landlord's consent. The new owner undertakes to comply with all the terms of the contract, and does not have the right to unilaterally terminate the lease. The new owner must also reimburse the losses incurred by the tenant as a result of the termination of the contract. Despite this, the original agreement entered in the Land Register remains in force. The retention of liability after a transfer is retained if there has been a breach of contract or other legal claims.
The landlord is responsible for the rental of the premises, as well as the insurance of the rented premises. There are no statutory rental clauses in Austria but they can be freely discussed.
The lease agreement can be terminated ahead of schedule only in cases such as: late payment of the lease, unprofitable use of the property, the renter's refusal to provide services and when the lease is leased to third parties.
According to Austrian Rental Law, a lease can only be cancelled by the landlord by court order. The tenant has the right to terminate the lease if the use of the rented premises becomes unacceptable or hazardous to health through no fault of the tenant. In the event that the rented premises are unsuitable for use, the tenant does not need to pay the rent. However, if partial use is possible, the rent will be reduced accordingly.
If public interests prevail over private interests, then local governments can purchase commercial real estate, with the total value being the current market value. These types of sales are exempt from tax (expropriation is a redemption to the treasury or for public needs of private real estate).
Planning controls are governed by state law. The construction planning list includes projects without notification, projects requiring notification, and projects requiring a building permit. There is a list of documents that are important when applying for a building permit. For example, building plans, written descriptions of buildings, proof of land ownership, correct calculations, energy passports, etc. Taking into account that Austria has nine different building codes, additional documents or permits may be required depending on the project and the state laws.
The main procedures for authorizing planning consent include the initial consents, third party rights and appeals.
First and foremost, write an application for construction, and then submit to the competent authority for consideration to obtain permission to carry out the project. The local Mayor will find out the relevant facts by bringing in experts from various departments, such as construction departments, including the District Building Authority, as well as experts in regional planning, conservation, landscape, construction law, agriculture and health issues.
According to Article 73 of the General Administrative Procedure Law, an administrative decision must be made within six months. It is necessary to complete the construction of the building within a certain period of time stipulated by the contract.
The neighbours surrounding the site should be notified about the construction project. During the negotiations of the construction, all interested persons and authorities have the opportunity to defend their rights and interests in the project. An appeal against an administrative decision can be made by any of the parties through an appeal process. The final decision is made by the Supreme Administrative Court or the Constitutional Court.
Austria is not currently planning a comprehensive reform of real estate legislation.