Guide of Commercial Property in Austria

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.

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.

There are guarantees that the seller must give to the buyer when selling corporate real estate. Real estate guarantees include:

• The seller has the necessary rights to sign the contract.
• The object of the contract is free from all encumbrances.
• The property is free from significant defects and has all conditions for proper use.
• All permissions required to use the facility are in place.
• There are no land use violations.
• The seller has identified all claims to the property.
• No one other than the specified tenants have the authority to occupy the property.
• There are no violations related to environmental pollution.
• All rental documents provided to the purchaser are complete and clear.

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.

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

Security is divided into 2 types:

• Personal collateral is characterized by the fact that a specific person can be held liable, in which the repayment is borne by the borrower, co-debtor or guarantor. The chosen form is determined by the assets and solvency of the participants.
• Physical collateral represents a possible condition in relation to a specified tangible asset. This type of collateral can be used by the bank in case of default to repay the debt. The collateral can be cars, real estate, insurance, bank accounts or even salary.

In the jurisdiction of Austria, there are other methods of real estate financing such as:

• The ability to buy and rent, with a real estate finance specialist buying property from a third party and renting it out to an interested party.
• Sale with the option of leaseback, in which the property is sold and returned to the seller.
• Finance lease.
• Housing subvention.
• Government subvention.
• Private equity funds.
• Silent partnership, in which any person who provides financing to a business as their only contribution.
• Crowdfunding (in accordance with the Crowdfunding Act).

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.

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.