Real Estate 2024 Comparisons

Legislation

The primary source of real estate law is legislation. The most significant pieces of legislation include:

• the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch – ABGB);
• the Tenancy Law (Mietrechtsgesetz – MRG);
• the Condominium Act (Wohnungseigentumsgesetz – WEG); and
• the Land Register Act (Grundbuchsgesetz).

In addition, each federal state has its own building and land transfer laws.

Other Sources

Other sources of law/regulation include:

• case law (especially the Austrian Supreme Court (Oberster Gerichtshof));
• administrative regulations;
• European Union law; and
• contracts and agreements.

Main Trends

The key market trends in Austria over the last 12 months are the following:

• A decline in the number of transactions and investment volume due to the weak economy, stricter financing requirements for private apartment purchases, and investments to meet the future ESG taxonomy criteria and the ECB’s interest rate policy.
• A shift in asset class preferences, with offices becoming the most popular asset class, followed by retail, while residential properties, in particular, suffered a heavy decline.
• An increase in distressed transactions, insolvency and reorganisation proceedings, especially in the construction and development sector, as a result of rising construction costs and interest rates, and falling prices and demand.
• A recovery of the hotel sector after the COVID–19 crisis, with tourism back and serviced apartments becoming more and more popular.
• A surge of logistics and data centres as new and strong asset classes, driven by the increased demand for modern logistics properties close to large cities and the interest of international investors in data centre projects.

Generally, the higher interest rates have put a stop to the previously rising property prices and caused a significant drop in new financing activities, as well as waiver and standstill negotiations, covenant resets and hedging instruments for existing projects. The higher inflation rates have tarnished the positive developments in the real estate sector, as well as increased the costs of construction materials and labour, leading to reluctance in fixed price contracts and a decrease in construction demand. The higher interest rates and inflation rates have also affected the profitability and feasibility of new developments, as developers have to factor in the higher costs into their sales prices and require a higher equity share to cover cost overruns.

The emergence of blockchain, defi, proptech and other disruptive technologies has led to more digitalisation and innovation in the construction industry, such as Building Information Modelling (BIM), which may soon be mandatory for public projects, and digitalised permitting procedures, such as in Vienna. The trends in financing sources and alternatives to traditional bank financing in the current environment have included mezzanine financing, direct lending, green finance and loans, and renovation subsidies from the government, as well as accelerated depreciation for wear for buildings that meet ecological standards.

Significant Deals

The most important real estate deals completed over the last 12 months in Austria include:

• the sale of Wienerberg Office Properties from Immofinanz to S–Immo;
• the sale of Vienna office complex “Space 2 Move” from Union Investment to Raiffeisen–Holding NÖ–Wien;
• the sale of “City Tower Vienna” from Immofinanz to Wilhelm von Finck family office; and
• the sale of “Saturn Tower” from GENO EuropaFonds to Amisola Immobilien AG.

The regulatory framework governing property dealings is characterised by its consistency. At the moment, there are no major legislative changes under consideration that could notably influence property investment activities.

The main variants of property rights in Austria are as follows:

• (Co–)ownership ((Mit–)Eigentum).
• Condominium ownership (Wohnungseigentum).
• Building rights (Baurecht).
• Superstructure (Superädifikat), ie, a building whose owner differs from the owner of the property.
• Usufructuary rights (Nutzungsrechte).

Other Property Rights

Less common forms of property right in Austria include:

• lease and rental rights (Mietrecht und Pachtrecht);
• habitation rights (Wohnrecht);
• mortgage rights (Pfandrechte);
• easements (Dienstbarkeiten); and
• pre–emption rights (Vorkaufsrechte).

The transfer of title of real estate is governed by a combination of civil law, tax law and specific real estate transfer regulations.

The primary legal framework for the transfer of property is found in the Austrian Civil Code. Additionally, the Land Register Act (Grundbuchsgesetz) provides the specifics on the registration of property rights.

Specific types of properties (also depending on the location of the property) may be subject to additional regulations (eg, transfer of agricultural land may be subject to certain land transfer restrictions).

The acquisition of ownership requires title (eg, a purchase agreement) and mode (eg, registration in the land register).

In Austria, all land is registered in the (electronic) national land registry (Grundbuch) which is administered by the competent district courts and available to the public. The ownership of real property and easements, etc is acquired by the entry of the right into the land register. For the registration it is necessary that the purchase agreement contains an explicit declaration made by the seller in which he consents to the registration of the agreement in the land register. Further, the signatures of the parties must be notarised by a notary public (online notarisations are becoming more and more common since the coronavirus pandemic). The execution is followed by the entry of the new owner in the land register (Grundbuch), which is the official record confirming the transfer of title and establishing the new owner’s rights to the property.

Title insurance is rather uncommon due to the title guarantee resulting from the so–called “public belief” in the land register. Its accuracy is protected by law and, therefore, a buyer can acquire ownership in good faith (bona fide) even if the property is purchased from an unauthorised person registered in the land register.

Buyers typically conduct legal, financial/commercial and technical/environmental due diligence (particularly by reviewing the land register for title clarity, encumbrances and easements, review of lease agreements, assessing the property’s condition through inspections, and ensuring compliance with zoning and building regulations). Financial due diligence includes analysing the property’s profitability, potential rental income and any tax implications associated with the purchase.

In case of a share deal, the target company is also subject to due diligence.

The representations and warranties in commercial real estate transactions typically cover (although the scope heavily depends on the market climate and the transaction structure):

• capacity;
• no insolvency;
• title to property/shares;
• existing leases;
• permits;
• tax;
• proceedings;
• insurance; and
• technical condition (normal wear and tear in case of used buildings).

The customary buyer’s remedies are either compensation in cash or actual repair of the damages. Possible securities for the enforcement of those remedies would be paying a hold back of a certain amount of the purchase price, escrow account mechanism, bank guarantees or comfort letter by a parent company. It is rather unusual to insure the seller’s guarantees via a W&I insurance.

The general statutory period for expiration of claims of three years is often contractually limited to 12 or 18 months. Other typical limitations are a cap amount, a de minimis amount and/or a basket. The amounts for the cap, de–minimis and basket heavily depend on the deal structure and asset class. It remains to be seen how the changed market environment influences these values in favour of purchasers.

In addition to the provisions mentioned in 1.1 Main Sources of Law, the provisions contained in anti–money laundering (AML) laws and regulations are particularly important for investors and the mandatory KYC procedures can lead to unforeseen administrative obstacles.

For the purposes of preventing money laundering and terrorist financing, legal entities must report their ultimate beneficial owner to the register of beneficial owners (Register der wirtschaftlichen Eigentümer). An ultimate beneficial owner is understood as the natural person to whom a company, a foundation, or a trust can ultimately be economically attributed. Checks and notifications not only have to be carried out by providers of financial services, but also to a certain extent by brokers, law firms and notaries.

The applicable Austrian laws follow the “polluter–pays principle”. The person/entity causing soil pollution or environmental contamination is responsible for removing such pollution or contamination. If the polluter cannot be determined or cannot remedy the situation, then the authorities can request that respective measures are taken by the owner of the land.

However, it is typical to allocate existing pollution that was introduced prior to the sale to the seller (at least to the seller’s best knowledge).

A zoning plan (Flächenwidmungsplan) determines the land usage categories, such as building areas, for the entire territory of a municipality. Since zoning plans are published ordinances, a buyer can review them (eg, via the internet or at a municipality office).

A project may be facilitated by concluding a contract with a municipality, thereby committing to carrying out certain uses of a parcel or to construct a building within a certain period.

Under certain very strict requirements, expropriation is generally (although rather rarely) possible under Austrian law (eg, for the building of roads or railways or the protection of nature). A fundamental prerequisite for any act of expropriation is public interest and the absence of alternative methods that are less intrusive, thereby making expropriation the sole viable option. In case of an expropriation, the government usually has to pay appropriate compensation.

If real estate is transferred as part of an asset deal, the purchase price plus VAT (if opted for VAT) and any other ancillary obligation is subject to real estate transfer tax (“RETT”) at a rate of 3.5% and land register registration fee of 1.1%. Which party bears the costs is generally specified in the contract; usually the purchaser bears the registration fees and the RETT. Lawyers’ costs are regularly split between the parties.

In the case of a share deal, if the target company is (directly) the owner of Austrian real estate, a acquisition of shares (a merger of at least 95% of the shares held by one person) results in a real estate transfer tax obligation at a rate of 0.5% of a special – to be determined for RETT purposes – property value (which is generally lower than the fair market value). In addition, companies belonging to a tax group pursuant to §9 of the Corporation Tax Act will be treated as one person with respect to the unification of at least 95% of all shares in one corporation. Shares belonging to a trustee will be calculated for the benefit of the trustor.

In case of a real estate holding corporation, RETT may be mitigated by having two purchasers with a split of, for example, 90/10.

In addition, there is a special rule for partnerships: in the event that at least 95% of the interest in the partnership is transferred to new partners within five years, RETT may be triggered.

Under the applicable land transfer regulations, the transfer of property rights to foreign investors may require approval. All nine Austrian federal states have different land transfer regulations. If the necessary approval is not obtained, a transfer of ownership cannot be registered in the respective land register and the contemplated transaction cannot be carried out. This approval requirement generally only applies to purchasers that are not citizens of the EU or EEA member states.

Financing acquisitions of commercial real estate in Austria typically involves a combination of equity and debt financing.

Equity financing generally takes the form of a direct equity investment. Investors may use their own funds to finance a portion of the real estate purchase. This could come from individual savings, contributions from business partners, or from a group of investors pooling their resources.

Debt financing generally takes the form of secured loans or mezzanine financing:

• Senior (secured) loans –The most common form of debt financing is a mortgage loan from a bank or financial institution. The terms of the loan, including the interest rate, amortisation period, and loan–to–value ratio, will depend on the lender’s assessment of the risk associated with the property.
• Mezzanine financing – This is a form of financing that is subordinate to the primary mortgage but has a higher priority than equity. It is often used to bridge a gap between the senior debt and the equity investment. Although existing, it is not as commonly used as in other jurisdictions of the region (eg, Germany).

Financing for Large Real Estate Portfolios or Companies Holding Real Estate

When it comes to larger transactions, such as the acquisition of significant real estate portfolios or companies that hold real estate, the financing structures can become more complex. Here are some additional options that may be considered:

• Syndicated (Club) Loans– For larger transactions, a syndicate of banks may come together to provide the necessary debt financing. This spreads the risk among multiple lenders and allows for larger loan amounts. In Austria, it is more common that a club of banks (usually involving the HQ in Vienna and their (regional) banks) provide the facility for the acquisition.
• Private Equity–Private equity firms may provide capital for large real estate transactions.

In case of debt financing, lenders must also factor in that lending directly to an Austrian borrower would require a banking licence (Austrian licence or passported licence), as lending is a licensed banking activity in Austria. Austrian law specifically provides for an exemption from banking licence requirements for alternative investment funds/fund managers acting within the scope of their Alternative Investment Fund Managers Directive licence.

Real estate financing is usually granted on a secured basis. The following security is common and standard:

Mortgage

Due to uncommonly high registration costs (see 3.4Taxes or Fees Relating to the Granting and Enforcement of Security) it is usually granted up to a maximum amount, which in turn can be transferred to a new lender upon refinancing.

Pledge Over Shares

The share of the PropCo (including dividends and ancillary rights) is commonly subject to pledge. In standard transactions the pledge also includes the delivery of Voting Rights Proxy and power of attorney to the benefit of the pledgee (ie, security agent or lender) to facilitate the sale of the pledged share during out–of–court enforcement.

Pledge Over Receivables

Commonly, the PropCo’s receivables in connection with the operation and holding of the real estate are pledged to the benefit of the lender (or in case of a syndicate (club) of lenders to the security agent). In case of rental income, Austrian stamp duty (payable for lease) will require stamp duty structuring (prior entering into the respective lease agreements).

Pledge Over Bank Accounts

The PropCo’s bank accounts are commonly subject to pledge. DSRA and Cure Account are also blocked (ie, any withdrawal is feasible only with the consent of the lender).

Subordination and Receivable Pledge (Intra–Group Receivables)

Intra–group receivables (ie, own funds provided by sponsor to the PropCo) are subordinated to the receivables of the lenders under the senior financing and are also pledged (the latter is commercially required to facilitate the sale of the shares of the PropCo during enforcement).

Guarantee

Shareholders of the PropCo/sponsors are often required to provide abstract (first demand) guarantee in the facility agreement. The guarantee can be limited to a maximum amount or cover only certain events (eg, cost overrun, interest payment).

Austrian rules are rigorously strict on capital maintenance and financial assistance. Please see 3.6Formalities When a Borrower is in Default.

Austria is a federal state where the nine federal regions have particular rules to govern real estate ownership and transfers. Granting security interest to and acquisition of ownership by foreign nationals can be subject to administrative consent in certain federal regions. EU nationals equal to Austrian nationals and are exempt from such administrative consent. Currently there is no withholding tax applicable for any interest payment to non–Austrian residents.

The valid establishment of mortgage over real estate requires notarisation of signatures and registration of the mortgage in the relevant land registry. The registration fee is uncommonly high (1.2% of the secured amount). If the mortgage over real estate will also secure hedging receivables additional ad valorem, stamp duty will be payable (1.0% of the secured amount). If securing hedging is required, it is a common to establish a subsequent ranking (small) mortgage to trigger the additional stamp duty with respect to this lower amount securing the hedging only (the registration fee will apply also to this second mortgage).

Due to rigorously strict Austrian capital maintenance rules and restrictions on financial assistance, upstream and sidestream collateralisation (eg, when subsidiary secures the loan obligations of its shareholder/sister company) as well as providing security to facilitate the acquisition of its own shares (financial assistance) are heavily restricted.

Under Austrian law, all assets of a company are protected; accordingly, shareholders are directly and indirectly entitled only to distributions out of distributable profits (dividends) or liquidation proceeds but must not receive any other monetary or other benefits having a monetary value without any adequate, arm’s–length consideration. The purpose of Austrian capital maintenance hence goes far beyond supporting capital formation rules but prescribes an all–encompassing asset protection for Austrian companies.

A violation of the Austrian capital maintenance rules renders the transaction (partially) null and void, which may also apply vis–à–vis third parties.

Careful structuring and extensive corporate benefit analysis are strongly advised in such cases.

Austrian real estate mortgage can be enforced per in–court enforcement or out–of–court enforcement.

Court enforcement is subject to the mandatorily applicable rules of the Austrian Execution Order (Exekutionsordnung). The opening of court enforcement requires an enforceable title, which can be (i) a court judgment regarding payment of the secured obligations; (ii) an Austrian notarial deed (vollstreckbarer Notariatsakt) granted during the creation of the mortgage, which allows immediate initiation of enforcement proceedings (the latter is not standard practice); or (iii) non–payment of such secured obligations when due and payable.

The enforcement is conducted by the court appointed bailiff. Court enforcement foreclosures on the real estate and pledgee are mandatorily required to lodge their claim within the court enforcement (as failure will result in forfeit of the security interest).

Court enforcement is a lengthy procedure measured in months (and, in extreme cases, years).

Out–of–court enforcement is less customary for real estate mortgages but is also subject to mandatorily applicable Austrian law (stemming from the Austrian Civil Code). The opening of such procedure requires that:

• the secured obligations are due and payable but unpaid; and
• the pledgee has effectively warned the pledgor providing a notice period of at least seven days (in B2C cases, a notice period of at least one month) noting that the secured obligations are due and payable and explaining the consequences of non–payment; and
• the lapse of such notice period without payment of the secured obligations.

Out–of–court enforcement methods include (i) public auction or (ii) private sale. The public auction is not regulated in detail but requires involvement of a licensed auctioneer. The private sale restricts the sale of the real estate below market value. The mortgagee must inform the mortgagor about offers of potential buyers. The mortgagor can name bona fide buyers.

Both methods require determination of market value by the parties and/or an independent court certified expert. Excess proceeds must be returned to the mortgagor.

Out–of–court enforcement is largely depending on the willingness of the mortgagor to cooperate. Thus, it is hard to estimate any typical timing (ranging between a couple of months to a year).

Subordination of existing debt to newly created debt is feasible by contractual agreement (ie, subordination agreement) between senior lender, junior lender and debtor. Subordination can be either a “simple” contractual subordination or a “qualified” subordination pursuant to section 67 para 3 of the Austrian Insolvency Act (Insolvenzordnung). A qualified subordination includes the junior creditor declaring that they seek satisfaction only after the elimination of negative equity or in the event of liquidation after all (other) creditors have been satisfied, and that no insolvency proceedings need to be initiated because of these liabilities.

Under Austrian law, the primary responsibility for environmental damage typically rests with the operator of the facility or the owner of the contaminated property. However, there are circumstances under which a lender could potentially be held liable:

• Direct Involvement – If a lender becomes directly involved in the management of a property, for example, by exercising decision–making powers that influence the environmental conduct of the business, the lender could be deemed an operator and thus be held liable for any environmental damage.
• Foreclosure – In the event that a lender forecloses on a property and becomes the owner or operator, the lender may inherit the liabilities associated with the property, including those for environmental clean-up.
• Securitisation of Contaminated Properties – If a lender has security over a property that is known to be contaminated and enforcement of the security leads to possession or control over the property, the lender could potentially be exposed to liability for environmental damage.

The lender’s liability (by holding security over real estate) is not automatically triggered for any pollution or other environmental damage. However, such liability may arise if lenders become actively involved in the management of the property or take control of a contaminated property through foreclosure.

In insolvency proceedings, the insolvency administrator can void and reverse legal actions and legal transactions concerning the debtor’s assets that have taken place within certain suspect periods prior to the opening of insolvency proceedings. Such reversal of legal transactions is referred to as “avoidance”.

General requirements for avoidance are:

• the avoidance must result in an increase of the insolvent’s estate (Befriedigungstauglichkeit);
• the challenged legal action or challenged legal transaction must have caused a direct or indirect discrimination of the other creditors (Gläubigerbenachteiligung); and
• the avoidance claim must be filed by the insolvency administrator within one year after the opening of the insolvency proceedings; the insolvency administrator and the relevant creditor may agree to extend such period for three months.

The Austrian Insolvency Act (Insolvenzordnung) sets forth several grounds for avoidance:

Avoidance Due to Intent to Discriminate (Anfechtung wegen Benachteiligungsabsicht)

The intention to discriminate requires knowledge as well as intention on behalf of the debtor to discriminate against any creditor by concluding the legal act. The statute of limitation varies based on the other parties’ knowledge:

• if the other party knew, the transaction may be challenged if it was entered into within a period of ten years prior to the opening of insolvency proceedings; and
• if the other party was not aware but should have been aware (slight negligence already suffices) of the debtor’s intention to discriminate against its creditors, the period is shortened to two years prior to the opening of the insolvency proceedings.

Avoidance Due to Squandering of Assets (Anfechtung wegen Vermögens–verschleuderung)

Transactions carried out not earlier than one year prior to the opening of insolvency proceedings can be challenged based on this ground.

Avoidance of Dispositions with no Considerations and Analogous Transactions (Anfechtung unentgeltlicher Verfügungen und ihnen gleichgestellter Verfügungen)

Transactions carried out not earlier than two years prior to the opening of insolvency proceedings can be challenged based on this ground.

Avoidance Due to Preferential Treatment (Anfechtung wegen Begünstigung)

Transactions carried out not earlier than one year prior to the opening of insolvency proceedings can be challenged based on this ground.

Avoidance Due to Knowledge of Insolvency (Anfechtung wegen Kenntnis der Zahlungsunfähigkeit)

Transactions carried out not earlier than six months prior to the opening of insolvency proceedings can be challenged based on this ground.

Austrian law does not impose any taxes for recording or granting loans related to real estate. Mortgage registration fees and stamp duty are not covered by this paragraph.

Planning and zoning law is divided into hierarchical legal acts at both the provincial and municipal level. Each province has its own Spatial Planning Act (Raumordnungsgesetz). The Provincial Spatial Planning Acts typically outline objectives and principles for the systematic and forward–looking organisation of a territory. These objectives and principles determine the subsequent planning and zoning acts at the municipal level. On the municipal level, a zoning plan (Flächenwidmungsplan) and a site plan (Bebauungsplan) are issued by the municipalities.

The construction of a new building or the refurbishment of an existing building is subject to technical regulations as defined in provincial Construction Acts (Bautechnikgesetze), provincial Building Codes (Bauordnungen) and standards, issued by European and Austrian standard organisations (ÖNORMEN). Furthermore, provisions regarding distances, fire prevention, hygiene, health, environmental protection or energy saving regularly apply. Additionally, the construction or refurbishment of buildings located in protected areas must coincide with the overall appearance of the locality (Ortsbildschutz), as frequently described in Townscape Acts (Ortsbildgesetze) and corresponding ordinances.

The provincial legislator issues Spatial Planning Acts (Raumordnungsgesetze) which outline objectives and principles for the systematic and forward–looking organisation of a territory.

The municipal council adopts zoning plans (Flächenwidmungsplan) and site plans (Bebauungsplan). A zoning plan determines the land usage categories, such as building areas or traffic areas, for the entire territory of a municipality. A site plan, among other details, may define the border between a building and a traffic area.

A building permit is only issued if the parcel of land to be built on is classified as building area by the respective zoning plans.

The construction or major refurbishment of a building generally requires a permit under a provincial Building Code (Bauordnung). The process for obtaining a building permit starts with a written application, submitted to the competent authority. Usually, the competent authority is the mayor. Further on, a hearing takes place, where neighbours can participate and make objections. If a project meets all requirements laid down in the Building Code, the competent authority grants a building permit.

Decisions issued in a building procedure are subject to appeal. In certain provinces, a complainant has the right to lodge an appeal with the municipal council. If the applicant wishes to challenge the municipal council’s decision, an appeal to the Provincial Administrative Court (Landesverwaltungsgericht) may be submitted. In some provinces, the complainant must lodge its appeal directly to the Provincial Administrative Court.

The decision of the Provincial Administrative Court may be further appealed to the Administrative Court (Verwaltungsgerichtshof) or the Constitutional Court (Verfassungsgerichtshof).

Ordinances issued by the municipal council, such as zoning plans (Flächenwidmungspläne) or site plans (Bebauungspläne) can only be contested before the Constitutional Court.

Generally, it is not necessary to enter into agreements with local or governmental authorities to facilitate a development project. However, some provincial Spatial Planning Acts (Raumordnungsgesetze) provide for the possibility to enter into agreements with municipalities concerning the utilisation of a parcel. The purpose of such agreements is to ensure the timely and dedicated use of parcels.

When a building is constructed without the required permit, the competent authority can impose a subsequent approval. If a building permit is not subsequently granted, for reasons including that the parcel in question is not dedicated as a building area, or if the order is not complied with, the building must be removed.

The available types of entities in Austria for real estate assets are typically (i) limited liability companies (Gesellschaft mit beschränkter Haftung), (ii) stock corporations (Aktiengesellschaft), (iii) open partnerships (Offene Gesellschaft), (iv) limited partnerships (Kommanditgesellschaft) and (v) the newly introduced flexible capital company (Flexible Kapitalgesellschaft). However, the acquisition of real estate is not limited to these types, all Austrian entities (eg, foundations) can acquire real estate.

The most common types of entities are the limited liability company and the limited partnership with the unlimited partner being a limited liability company. They both offer reasonable flexibility in terms of investing and divesting (ie, share transfers, shareholder agreements, etc.) as well as their management, with the partnership being the more flexible with less formal requirements (ie, notarial deeds).

The newly introduced flexible capital company has not had an impact in the area of real estate investments so far but is also more flexible than the existing limited liability company and offers different share classes. It is expected that there will be an influx in the next few years; however, it is not expected to take over the number one spot.

In order to establish either a stock corporation or a limited liability company, it is required to conclude the articles of association as a notarial deed. For the foundation of a partnership, no notarial deed is required. The establishment typically takes between two to four weeks (depending on external factors as opening a bank account or KYC–clearance). Alternatively, it is quite easily possible to acquire a shelf company in Austria from a law firm or service provider. The share transfer is immediately effective.

The limited liability company is legally independent from its shareholders; however, the shareholders can give binding instructions to the management. The articles of association have to include certain minimum terms (eg, business year, share capital) and have to be disclosed to the registered court; however, it is common to have separate shareholder agreements that do not need to be disclosed (but are only binding between the parties of the agreement). The limited liability company requires at least one shareholder and one managing director (which could be the same natural person). If the company reaches certain thresholds, the establishment of a supervisory board might become obligatory.

On the contrary, partnerships have to have at least two partners. The shareholders are quite free in the terms of the partnership agreement, which they are not obligated to disclose to the registered court.

With a limited liability company, the liability of the company is limited to the respective capital contribution.

In case of a limited partnership, the limited partner’s liability is limited to their contribution amount, whereas the unlimited partner's liability includes their entire assets. However, a limited liability company will typically be used as an unlimited partner that therefore factually limits the liability to the capital contribution of the limited liability company.

From a tax perspective, the partnerships are transparent and allow for a pass–through to the respective partners. Limited liability companies are “non–transparent”. The taxation of income is subject to the provisions applicable to the respective partner.

The limited liability company has to pay 23% CIT on the annual profit.

There is no real estate investment trust in Austria. In Austria, the real estate investment market is characterised by other types of investment vehicles. These may include real estate funds and real estate companies, which can be publicly traded or privately held. These vehicles offer investors exposure to real estate markets, but they may not have the same tax advantages or regulatory structure as REITs in other jurisdictions.

The following minimum capital is required to establish the respective entity type:

• Limited Liability Company: a share capital of EUR10,000, whereby only EUR5,000 has to be paid in.
• Stock Corporation: a share capital of EUR70,000.
• Open Partnerships: EUR0.
• Limited Partnerships: EUR0 for the unlimited partner, EUR1 for the limited partner.
• Flexible capital company: a share capital of EUR10,000, whereby only EUR5,000 have to be paid in.

Firstly, there are no special governance requirements in connection with real estate investments, to the extent the investment is not subject to provisions applicable to investment funds.

All entities are required to prepare annual financial statements that – depending on the specific company – must be audited externally. For limited liability companies, the annual financial statements must be agreed in a shareholder’s meeting.

Further, an annual filing – or in case of the change of the shareholders or the ultimate beneficial owner – must be made to the Austrian transparency register (“WiEReG”) within four weeks of the change.

The annual costs for entity maintenance and accounting compliance heavily depend on the required services and the property itself.

The Austrian legal framework provides for different types of arrangements that allow the occupancy and usage of real estate without its acquisition. Most commonly, commercial parties opt for a lease agreement, for which Austrian law offers two different forms (see 6.2 Types of Commercial Leases). Besides lease agreements, the right to use a property can also be established through servitudes (Dienstbarkeiten). Additionally, usage rights can also be derived from the acquisition of a building alone without the acquisition of the underlying land plot, which is possible under certain conditions in the form of a superstructure (Superädifikat) or a building right (Baurecht).

Commercial leases can be concluded in two different forms: either as a lease (Miete) which focuses on the mere use of a commercial premise and gives the tenant the right to use the property (eg, an empty premise for a shop to be fitted out and equipped by the tenant) in exchange for rent which is typically fixed and paid periodically; or as a leasehold (Pacht) which includes not only the letting of a real property but of a viable business venture (eg, a fully equipped hotel) allowing the tenant to profit from its operation in exchange for a turnover–based rent.

In Austria, the applicable regulations regarding rent and lease terms heavily depend on the factual circumstances of the property (eg, the number of lettable premises in the building; the construction date of the building; and the use of public funds in the course of construction). Depending on the applicable law, the parties may be free to negotiate both the rent and the term largely freely, or may have to abide by certain minimum terms for leases for definitive periods (three years – however for residential leases only), which have to be concluded in writing (see 6.20 Registration Requirements), as well as rent restrictions which require the rent to be appropriate in terms of size, condition, location and other factors of the leased property. Most Coronavirus–related regulations regarding lease agreements were enacted only as temporary measures, and as of May 2024, no such material regulations are in force any more.

• Lease agreements can be concluded for a definitive period or indefinitely. Depending on the applicable law, a minimum term of three years (for residential leases only) may apply, and the landlord may only be allowed to terminate the lease for cause (in such cases, landlords typically will only conclude leases for definitive periods of time). Terms vary, depending on the type of building and specific commercial usage, but typically run for five to ten years, and leases concluded for longer definitive periods of time frequently contain break options for the tenant.
• The responsibilities for maintenance and repair are usually allocated in the lease agreement; typically, the tenant is responsible for the maintenance and repair of the interior of the premises, including fixtures and fittings, whereas the landlord is responsible for structural repairs and maintenance of common areas.
• Rent payments are usually to be paid monthly in advance.
• Austrian tenancy law stipulates that a tenant is generally not obligated to pay rent if and to the extent that the leased premise become unusable for reasons not attributable to the tenant. Although it is generally permissible to agree on deviating provisions in the lease agreement, general civil law restrictions apply and a general transfer of force majeure–like risks to the tenant is prohibited by case law.

Most commercial lease agreements contain indexation clauses whereas any fixed rent or rent components are adjusted in line with the Austrian consumer price index (Verbraucherpreisindex, VPI) or another agreed–upon index. In cases where the tenant expects the business to grow, the parties may also agree on a gradual increase of rent (Staffelmietzins) over certain periods of time, or combinations of fixed base rent and additional turnover rent if certain turnover thresholds are met.

Any adjustments or increase of rent during the term must be agreed in, and are governed by, the lease agreement and the respective conditions and modalities outlined in it. Generally, any adjustment must be subject to objective criteria and not the mere decision of one of the parties. Indexation clauses typically stipulate thresholds and detailed modalities in how adjustments are to be calculated, including when they become effective. It is noteworthy that due to the recent rise in inflation rates, indexation clauses have been, and continue to be, subject to detailed court review, and various formal criteria have been established by case law that need to be met for indexation adjustments to be enforceable.

Generally, the letting of a property for commercial purposes is VAT exempted. Under certain conditions, the landlord can opt for VAT taxation allowing him to recover VAT from construction costs and other related expenses. Such opting–in is, however, only permissible if the tenant uses to leased property almost exclusively (at least 95%) for VAT taxable activities. Because the landlord’s ability to opt for VAT directly depends on the usage of the leased object by the tenant, commercial lease agreements frequently contain respective obligations of the tenant to only use the premises for VAT taxable activities, inform the landlord of any changes in usage, and respective indemnities.

Costs payable by a tenant at the start of a lease vary depending on the type and terms of the lease agreement, but typically include the following:

• A security deposit, which is usually equivalent to three to six gross monthly rents and can be provided in the form of a cash deposit or a bank guarantee.
• Stamp duty – which is considerable – is a tax levied on written commercial lease agreements based on the rent (and other monetary obligations undertaken by the tenant) and term of the lease. The stamp duty rate is 1% of the total rent for the entire lease term (with a maximum of 1% of the rent for 18 years) or, if the lease term is indefinite, 1% of the rent for three years.
• Brokerage fees, which are payable by the tenant if the lease agreement is concluded with the assistance of a real estate broker. The brokerage fees are regulated by law and amount to up to three gross monthly rents plus 20% VAT.
• Legal fees, which are payable by the tenant if the lease agreement is drafted or reviewed by a lawyer. The legal fees depend on the complexity and value of the lease agreement and are usually subject to negotiation between the parties.

The maintenance and repair of common areas in a property, such as parking lots and gardens, are typically the responsibility of the property owner and are handled by the property management.

The costs for such maintenance and repairs are usually passed on to the tenants through operating costs or service charges (Betriebskosten), which need to be outlined in the lease agreement (unless the Austrian Tenancy Act is fully applicable to the lease agreement, in which case the operating costs and services charges are regulated by law). The allocation of these costs is typically proportional to the size of the leased premises compared to the total lettable area on the property.

Utilities such as water, heating, cooling and electricity can be handled in different ways:

• Individual meters - If individual meters are installed for each unit, tenants pay according to their actual consumption. This is often the case for electricity and sometimes for heating/cooling and water, depending on the property’s infrastructure.
• Shared Meters - In cases where there are shared meters for utilities (typically – if at all – water and heating), the costs are usually divided among the tenants. The allocation of these costs is typically proportional to the size of the leased premises compared to the total lettable area on the property.

Telecommunications services, including internet, telephone and (cable) TV, are usually handled separately from other utilities. Tenants are typically obligated to conclude individual contracts with the relevant service providers.

It is standard market practice for the landlord to procure an all–risk insurance policy for the building, usually covering the risks of fire, storm, hail, water damage (including damages to the water pipes and damages from the water in such pipes), glass breakage and other natural disasters. The landlord’s insurance policies, however, do not cover any personal property of the tenant. The tenant should (or – if stipulated in the lease agreement – must) cover possible damages with liability insurance.

The cost of this insurance is often passed on to the tenant through the service charge or operating costs; based on the size of the leased premises compared to the total lettable area on the property.

The specific use of the leased premises is usually specified in the lease agreement and thus agreed on by the parties. Any change of use is usually subject to approval by the landlord.

In addition, public building law and the respective zoning plan also impose restrictions on the allowed use. Furthermore, the building permit for the property is issued for a specific use based on the aforementioned regulations. If the tenant intends to deviate from the use granted in the building permit, a change–of–use permit must be obtained from the responsible building authority. Such permit might list additional building requirements to be adhered to. Depending on the business, a facility operating permit (Betriebsanlagenbewilligung) might be necessary, which could impose further restrictions.

A landlord may restrict the tenant with regards to subletting the leased premises. Sometimes, despite a general ban in the lease agreement, subletting (without the landlord’s prior written consent) is allowed regarding the tenant’s subsidiaries.

Typically, the tenant’s right to alter or improve the leased premises is based on the specific agreements in the lease agreement. The lease agreement may allow for certain changes without the landlord’s consent, require the landlord’s approval for specific alterations or prohibit changes altogether. Even with the landlord’s consent, any alterations must comply with statutory regulations, such as building codes, zoning laws and safety standards. Typically, the tenant is responsible for ensuring that all necessary permits and approvals are obtained from the relevant authorities at its own cost.

Regarding conditions, a landlord typically retains the right to require the tenant to restore the original condition of the leased premises (as it was handed over), impose conditions regarding the quality of the work, the materials used or the firms allowed to carry out the works.

The tenant’s right to request compensation for the investments at the end of the lease are typically excluded.

The Austrian Tenancy Act (Mietrechtsgesetz) distinguishes between residential and commercial leases, as some provisions are only applicable (and mandatory) to residential leases but not to commercial leases.

During the Coronavirus pandemic, any restrictions to enter premises were imposed only on business premises (shops, hotels, etc). However, there were no restrictions to enter residential premises (such restrictions were imposed via a general ban on leaving one’s home).

Under Austrian law, a lease agreement does not automatically terminate if a tenant becomes insolvent. Rather, the insolvency administrator (Insolvenzverwalter), appointed as part of the insolvency proceedings, has the right to decide whether to continue or extraordinarily terminate the lease agreement. This decision must be made within a reasonable period. Any security deposit provided by the tenant may be used to cover outstanding claims in accordance with the specific arrangements made in the lease agreement.

If the lease continues, any outstanding rent claims of the landlord up until the opening of the insolvency proceedings are insolvency claims; as such, they are satisfied only after the claims of secured creditors and claims with priority have been settled, and thus only with a (typically low) insolvency quota. Rent claims for periods after opening of the insolvency proceedings are treated as masse claims (Masseforderung) and as such, must be fulfilled with priority in full over insolvency claims.

If the insolvency administrator terminates the lease, the landlord is entitled to claim damages. However, these damages, as well as any outstanding rent claims up until the opening of the insolvency proceedings, are insolvency claims and thus will typically only be fulfilled with the insolvency quota.

Most commercial lease agreements contain an obligation of the tenant to make a security deposit. As there are only few specific regulations for rental deposits under Austrian law, the parties of a commercial lease are generally free to stipulate the details of the provided security. Most commonly, the tenant either makes a cash deposit or provides a bank guarantee in the amount of three to six months’ gross rent. Depending on the credit standing of the tenant’s group, a guarantee or letter of comfort (Patronatserklärung) of the tenant’s holding company or letter of comfort may also be used as rental security to avoid tying up liquidity or incurring additional costs for bank guarantees for the tenant.

Beside a contractually agreed rental deposit, the landlord also has a legal lien (gesetzliches Pfandrecht) on all movable assets owned by the tenant that the tenant brings into the leased property. This lien, however, ends automatically when the assets are removed from the leased property, so in case a default of the tenant is foreseeable, the landlord must apply for a court order before the removal.

Under Austrian law, a tenant generally does not have a right to continue occupying a leased property after the expiry or termination of a commercial lease. However, if the tenant continues to use the leased property after the end of the lease and the landlord does not expressly demand its return and take appropriate steps, this may result in a tacit extension of the lease agreement or, under certain conditions and depending on the applicable law, an automatic (ex lege) prolongation of the lease.

In case of commercial lease agreements that have been concluded for a definitive period, the landlord can apply for a court order (Übergabeauftrag) before the expiry of the lease, ordering the tenant to return the leased property at the end of the lease or to raise objections to this order with the court within four weeks. Alternatively, the parties can conclude an eviction agreement (Räumungsvergleich) in front of the court or a public notary, which constitutes an enforceable title for the eviction.

Generally, the tenant under a commercial lease agreement needs the landlord’s consent to assign its lease interest. Often, the parties of a commercial lease agreement stipulate that the landlord will only withhold its consent for cause (eg, reasonable doubts about the solvency of the new tenant) and may permit certain assignments (eg, intra–group) in advance. Another frequently seen agreement in commercial lease agreements in Austria is that the tenant is entitled to present a new tenant, and the landlord undertakes to enter into a new lease agreement with the new tenant if certain criteria (eg, solvency) are met (Präsentationsrecht).

A commercial tenant is generally entitled to sublease the leased property in whole or in part unless it is contractually prohibited. Depending on the applicable law, the landlord may only be allowed to restrict the tenant’s right to sublet for cause.

Lease agreements concluded for indefinite periods may be terminated ordinarily without any special events. However, depending on the applicable law, the landlord’s right to terminate may generally be limited to cause.

Lease agreements for definitive periods can – in addition to any break options that may be agreed upon at the beginning of the lease – typically be terminated in case of non–payment of rent (after issuance of a reminder with a grace period); material breach of contract; significantly detrimental use of the lease property by the tenant; or if an event agreed in writing in the lease agreement as a reason for termination occurs which corresponds in importance to the aforementioned events.

Generally, there are no strict requirement for leases to be registered with a government or other authority in Austria, and leases can be concluded both in writing and orally. However, depending on the applicable laws, agreement in writing is required to enforce certain provisions, most notably the end date of leases concluded for definitive periods. Lease agreements can be registered with the land registry, in which case they are transferred to any person who acquires the leased property without triggering a termination right for the purchaser; however, typically only important lease agreements for long periods are registered with the land registry. The fees are generally low (currently EUR47 for the application).

Written commercial lease agreements are subject to considerable stamp duty (depending on the rent and term of the lease).

In case of continued non–payment, a commercial lease agreement can be terminated prematurely, and the tenant can subsequently be evicted. The eviction process depends on the specific applicable laws. Generally, the landlord needs to initiate the process by issuing a formal notice to the tenant detailing the default and providing a grace period to remedy the situation. If the tenant fails to comply within the given timeframe, the landlord can file for eviction with the court. Even if the tenant does not materially object to the claim, it can take several months to obtain a binding eviction order of the court, and execution by the court bailiff may take additional time (up to several weeks or months as well). Typically, one must calculate with at least nine months to a year from initiation of proceedings vis–à–vis the tenant to the execution of the eviction.

Lease agreements can generally only be terminated by the parties of the lease itself. However, depending on the applicable, law a lease agreement may be terminated extraordinarily by the acquirer of a property, in which case the tenant is entitled to damages against the former landlord.

In case of an expropriation of the leased property, the lease is not transferred to the acquirer/expropriation beneficiary but ends when the expropriation decision becomes legally binding and the expropriation is executed. In Austria, expropriations must generally only be carried out against compensation, and both the landlord as the owner of the expropriated property as well as the tenant would be entitled to compensation for all disadvantages resulting from the expropriation.

The parties of a commercial lease agreement are expected to mitigate damages. In case of termination of a lease agreement due to a breach by the tenant, the landlords must therefore take steps to re–let the property to a new tenant without undue delay and thereby reduce any financial losses. Damages claimed must generally be a direct consequence of the tenant’s breach and must have been foreseeable at the time the lease was concluded.

Commercial lease agreements in Austria typically include security deposits provided by the tenant in form of a cash deposit of a bank guarantee in the amount of three to six months' gross rent (see 6.16Forms of Security to Protect Against a Failure of the Tenant to Meet Its Obligations) to cover any claims of the landlord against the tenant, including such resulting from a breach and subsequent termination.

This depends on the specific project and on the employer. Real estate investment funds usually only conclude fixed price agreements. This is also the case regarding functional facilities where risks for additional costs are low. When it comes to complex construction projects, in particular tunnels, complex infrastructure projects and the like, the cost of work agreements, where the works are paid based on hourly rates or unit prices, are common in Austria. These agreements are mostly based on the general terms and conditions ÖNORM B 2110, issued by Austrian Standards International. With regard to such complex projects, alliance agreements, where costs and risk as well as benefits are shared, are also slowly gaining ground.

The answer to this question also depends on the particular project. Usually, the responsibility for the general design and the plans required for the building permit is with the architects. The risk for particular designs, for example, HVAC and electricity, is with the company in charge of the respective works. The risks for constructions are usually borne by the construction company as far as such risk can be reasonably foreseen. Therefore, the general ground risk is usually allocated with the employer unless extensive ground examinations (with respect to contaminations and stability) have been undertaken, in which case also this risk can be partially allocated to the construction company. Force majeure related risks are allocated to the construction company in case the construction agreement is subject to the Austrian Civil Code only; if the agreement is subject to the previously mentioned general terms and conditions ÖNORM B 2110, this risk – as well as all other risks being part of the neutral sphere – is allocated to the employer.

Generally, the construction company bears the risk of completing and handing over the works in a completed and defect–free condition. This warranty is usually not limited. With regard to damage claims, damages caused with slight negligence are often excluded, as well as damages for a loss of profit. Liability for personal injury as well as for damages caused with intent cannot be excluded.

It is common to agree on contractual penalties for delays (regardless of fault) which have not been caused by the employer (ie, caused by the constructor or resulting from the neutral sphere). Such penalties must be limited by an absolute amount of between 5% and 10% of the total construction costs to be enforceable. If the employer causes delays, the affected contractors are usually entitled to charge additional costs for prolonging the deadlines.

Performance bonds/guarantees are quite common. These instruments are often combined with advance payments by the employer which are therefore covered by such instruments.

There is no lien for contractors or designers with regard to immovable property without having previously retained a judgment. However, in case of nonpayment, every contractor/designer can sue the employer. After having received a legally binding judgment obliging the employer to make payments and, in case such payments are not made after such judgment has become legally binding and enforceable, such judgment can – inter alia – be enforced by registering a lien on a property.

Yes – depending on the Austrian region where the construction site is located, certificates of occupancy (Benützungsbewilligungen) must be issued before a project can be occupied.

The sale of real estate is generally VAT exempt. However, the seller has the option to subject real estate sales to VAT and of invoicing the buyer with 20% VAT, if it explicitly opted for VAT. The purchase of real estate is generally subject to real estate transfer tax at a rate of 3.5% and la and register registration fee of 1.1% of the purchase price (see 2.11 Legal Restrictions on Foreign Investors).

Depending on the structure, RETT may be avoided (see 2.11 Legal Restrictions on Foreign Investors).

Further, stamp duty on business lease agreement may legally be avoided by applying certain stamp duty avoidance mechanisms.

There is no explicit municipal tax in Austria; however, there is Austrian real estate tax that is collected by the municipalities. The assessment base is 0.1% to 0.2% of the assessed value of the real estate. There are also applicable tax exemptions.

According to the OECD Model Tax Convention on Income and on Capital income derived by real estate (immovable property) as well as gains from the transfer of real estate are subject to limited tax liability in Austria.

Income derived by real estate is subject to the individual progressive income tax rate (between 0%–55%) in case of an individual. In case of a corporation, corporate income tax will apply which is subject to 23% corporate income tax.

Gains from the transfer of real estate are subject to a 30% property income tax in case of an individual and 23% in case of a corporation. The assessment basis for the taxable gain depends on the time the real estate was acquired. Further tax exemptions may apply in case the real estate was used as place of residence or the building was built by the owner.

Depreciation makes it possible to deduct the acquisition or production costs of real estate. Beside the regular deprecation (depending on the use of the building a rate between 1.5% and 2.5% applies) there is also the option since 2020 to apply accelerated depreciation within the first years.