Real Estate 2021

Last Updated April 13, 2021

Austria

Law and Practice

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BLS Rechtsanwälte Boller Langhammer Schubert GmbH is one of the leading medium-sized law firms in Austria, with more than 45 years of experience and about 50 employees. In 2013, the independent certification body TÜV Austria Cert GmbH certified the business law firm’s quality management system, attesting to its practice and client orientation; BLS was the first Austrian law firm to undergo this examination. It is the sole Austrian member of the international AVRIO Advocati European Law Firms Association, representing many clients internationally, and providing advice in almost all areas of law, especially in connection with real estate matters. The team handles all kinds of real estate transactions, including providing legal advice on the purchase or sale of realties of any size, and providing legal support with a view to the optimisation of rental income and other questions arising in connection with building projects. The firm provides permanent legal representation for various real estate developers and building administration companies in respect of all matters concerning real estate law.

The main source of Austrian real estate law is the General Civil Code (Allgemeines Bürgerliches Gesetzbuch). There are also various laws that regulate certain aspects of real estate, such as the Land Register Act (Grundbuchsgesetz), the Act on the Right to Build (Baurechtsgesetz), the Act on Development Contracts (Bauträgervertragsgesetz) and state legislation on zoning and construction.

According to the latest figures, the COVID-19 pandemic does not seem to have caused a noticeable growth drop in the housing market, but its negative impact on the commercial real estate market, particularly regarding office space and retail premises, was very significant. In addition to the multiple lockdowns imposed in 2020, the increased use of remote working options is seen as one of the driving forces behind this development. Due to the uncertainties caused by the first lockdown in early 2020, many projects and transactions were delayed during that time.

Nevertheless, persistently low interest rates and – in most regions – a high demand for new developments are attracting international developers and investors alike. Freehold apartments have moved more into focus of late, especially in Vienna, where the demand has grown and developers are bringing more housing space onto the market.

Although emerging technologies have not yet had a major impact on the Austrian real estate sector, the influence of such new technologies continues to grow. In particular, machine learning and artificial intelligence keep moving more into focus, as they are expected to significantly increase the efficiency of traditional processes. For example, data-based predictive analytics might soon be able to make valid predictions as to which defects could arise in a building in the near future and thereby enable the owner or building administration to take the necessary precautions in due time.

Furthermore, in addition to existing software solutions for the networked planning, execution and management of buildings (Building Information Modelling), new digital solutions for urban planning, building design and management, as well as the maintenance of real estate, are increasingly being created.

Currently there are no proposals for reform that would significantly impact real estate investment, ownership or development in Austria.

Austrian law provides for different types of real rights, with the most comprehensive one being ownership (Eigentum). Other forms of real rights include servitudes (Dienstbarkeiten), pledges (Pfandrechte) and the right to build on another’s land (Baurecht).

Ownership of a certain piece of real estate essentially includes ownership of the buildings and other structures connected to it. Exceptions are possible in respect of buildings erected on another’s land. Austrian law also provides for the possibility of co-ownership in real estate, which can be further divided into ordinary co-ownership, granting the right holders a non-material share in the real estate, and so-called flat-ownership, granting the right holders a non-material share in the real estate that is inextricably linked to a specific unit (eg, flat, parking lot or basement compartment).

The transfer of ownership and other real rights is regulated by the Austrian General Civil Code, the Austrian Land Register Act and various specific federal laws on the transfer of real estate. No other laws apply to the transfer of different types of real estate.

The transfer of ownership requires a valid title (eg, notarised purchase agreement) as well as an act of transfer. Since all real estate in Austria is registered in the public Austrian Land Register (Grundbuch), the transfer of ownership and most other real rights requires the registration of such rights in the Austrian Land Register. The registration itself constitutes the necessary act of transfer referred to above.

Since the legal fate of a building generally follows the legal fate of the land on which it is erected, ownership of the two cannot usually be separated. However, in some exceptional cases, ownership of a building or structure on another’s land (Superädifikat; Baurecht) is possible. The ownership of some of these structures (ie, Superädifikat) is transferred by depositing the title deed (eg, notarised purchase agreement) with the court within whose jurisdiction the real estate is situated.

Due to the existing registration system, title insurance is not a common instrument in real estate transactions in Austria.

The level of scrutiny involved in real estate due diligence processes can vary, depending on the real estate involved and the purpose of the respective transaction. Typically, one would first access the Land Register and assess the rights and encumbrances registered in respect of the real estate. Certain environmental information – in particular whether the real estate is registered as a contaminated or possibly contaminated site – can also be accessed through the relevant public registers. In some transactions, potential purchasers commission experts to prepare a report on the real estate and the existence of possible contaminations, which usually includes on-site inspections and the taking of soil samples.

If buildings or other structures exist on the real estate, the building permits are assessed as to whether any applicable zoning prescripts or conditions have been violated by the current owner. Furthermore, it is of utmost importance to review all contracts relating to the real estate, in order to assess the full usage of it and identify any restrictions and/or encumbrances that are not registered in the Land Register.

As a result of the lockdowns in 2020, the risk of a lessee defaulting on his or her rent payments rose significantly in respect of certain types of commercial premises (eg, restaurants, hairdressers, etc). Potential buyers of commercial real estate have thus begun to pay greater attention to the type of business any existing lessees pursue.

The General Civil Code provides certain statutory warranty rights for purchasers, which are essentially intended to protect them against any deviation from the agreed features of the object of the sale. The statutory remedies for misrepresentations are warranty claims, which comprise the right to repair or replace the defective object (primary remedies) and the reduction of the purchase price or, in some instances, withdrawal from the contract (secondary remedies). A purchaser may also claim any additional damages suffered if they were intentionally or negligently caused by the seller.

However, in practice, parties to real estate transactions typically deviate from the statutory warranty rules and agree on an exhaustive catalogue of assurances for which the seller will be liable. Depending on the strength of the respective parties’ bargaining positions, these catalogues may vary greatly from one transaction to another.

The assurances to be found in almost any real estate transaction are that the real estate is free from both registered encumbrances and any encumbrances not registered in the Land Register, and that, at the time of handover, there are no outstanding payments with respect to all prescribed operating costs, contributions to the fund for repairs and maintenance, running public charges and any other costs related to the object. Furthermore, there should be assurances as to the non-existence of construction orders or any other orders concerning any unlawful constructions on the real estate, and that the seller has no positive knowledge of any kind of contamination.

The different laws that should be considered by real estate investors largely depend on the type of investment that is contemplated. Typically, the most important laws are those concerning regional and local zoning, the acquisition of building permits and plant licences, and rental housing.

Several Austrian laws, such as the Water Rights Act (Wasserrechtsgesetz) and the Waste Management Act (Abfallwirtschaftsgesetz), prescribe the statutory liability of real estate owners for soil pollution or environmental contamination on or originating from their land. The owner’s statutory liability to either remove such contamination or reimburse the public authorities for procuring the removal of such contamination is typically subordinate to the liability of the person or entity who initially caused the contamination.

In order to ascertain the permitted uses of a parcel of real estate under the applicable zoning or planning law, a prospective investor can access the various state databases on zoning, which are mostly available online. However, such databases do not necessarily reflect the latest state of zoning, which is why it is advisable to engage the local authorities directly and access the up-to-date zoning plans on-site. It is also possible to request a statement on the zoning of a particular parcel of real estate. In some federal states of Austria, developers can enter into urban development agreements (städtebaulicher Vertrag) with municipalities, which usually facilitate a project.

The right to property is a fundamental right protected by the Austrian Constitution. Accordingly, the state may only deprive a person or entity of their property in terms of laws of general application, and when the expropriation serves the public interest. Furthermore, adequate compensation must generally be paid to the expropriated owner.

Currently, there are several federal and state laws enabling expropriation. Typical examples for cases in which expropriation may occur are land acquisitions for public railways or public housing. The usual process followed by the expropriating (governmental) body will be to engage the land owner and negotiate the sale of the real estate in consideration for fair compensation. If no agreement can be reached and the specific legislative requirements are met, the real estate can be expropriated for adequate compensation.

The transfer of real estate is subject to a land transfer tax of 3.5% and a registration fee of 1.1% of the purchase price including value added tax, if applicable. These costs are typically borne in full by the purchaser. Land transfer tax, but not a registration fee, also applies if an entity acquires (or otherwise holds) more than 95% of the shares in a company that holds real estate, irrespective of when and how this threshold is exceeded. Exemptions may apply in some instances – for example, in different restructuring scenarios (mergers, demergers, etc).

Furthermore, profits generated from the sale of real estate are subject to real estate income tax (Immobilienertragssteuer) at a rate varying from 25% to 30%, depending on whether an individual or a legal entity that is subject to corporate income tax is the tax subject.

State legislation generally restricts the acquisition of real estate by non-EU nationals. The approval of the competent state authority is required for the transfer of real estate in such cases.

The acquisition of real estate is financed with equity or debt capital. Typical financing options for acquisitions of real estate are senior and subordinated debt, operating and finance leasing, and sale and leaseback transactions.

When borrowing funds to acquire or develop real estate, the borrower will typically grant the creditor a pledge over the real estate in question (Hypothek). The pledge must be registered in the Land Register in order to be valid, even towards third parties, and is accessory to the secured claim. This means that it can only be transferred to a third party together with the secured claim, and will cease to exist once the secured claim has been discharged in full.

A pledge over real estate extends to the buildings and other structures erected on it. However, due to the registration system in place, the real estate pledge is a non-possessory pledge, which means that the owner can continue to use the real estate.

Other common security instruments in real estate financing transactions include guarantees granted by affiliate companies, the pledge of certain receivables (eg, claims generated from leases, future insurance claims, etc), a pledge over bank accounts or a pledge over the shares and interest (dividend payments) in the entity that owns the real estate. Although possible, the assignment of receivables as security (Sicherungsabtretung) is often avoided in bigger transactions, since stamp duty (Rechtsgeschäftsgebühr) at a rate of 0.8% may apply.

There are no restrictions on granting security over real estate to foreign lenders, nor on repayments being made to such under a security document or loan agreement.

A pledge over Austrian real estate requires a notarised pledge agreement as well as the registration of the pledge in the Land Register. Notary fees and a registration fee of 1.2% of the pledge’s value will be payable, in addition to the costs of legal representation. Other forms of security (eg, share pledge, receivables pledge, etc) are usually not subject to such fees as they require neither a notarised agreement nor registration in a public register.

In order to enforce the pledge, judicial enforcement proceedings are usually required. Such proceedings are subject to court fees and possibly fees for an appraiser. The amount of such court fees depends on the value of the secured claim. The creditor may claim reimbursement for such fees, which can be granted by the court in a cost order.

Austrian corporate law incorporates a rigorous system of capital maintenance rules (Kapitalerhaltungsvorschriften), which, inter alia, prohibit the return of equity from a company to its shareholder. A company may not make any payments to the shareholder other than the distribution of profits or in the course of a formal reduction of statutory capital. The provisions on the repayment of capital also include any benefits granted by the company to its shareholders where no “adequate consideration” is received in return. Any agreement between a company and its shareholder and/or any third party granting a benefit to the shareholder which would not have been granted to a third party, or at least not in the same way, is void.

The Austrian courts have interpreted this mandatory principle broadly, and held that the prohibition on the return of equity generally also encompasses the granting of security by a company for a loan extended to its shareholder or any other group company, other than such company’s subsidiaries – for example, up-stream or cross-stream guarantees or pledges of assets. However, what can be drawn from the Austrian Supreme Court’s past decisions is that the granting of security by a company for a loan to its shareholder is permissible if:

  • it is at arm’s length, hence adequate consideration is received in return and, after due investigation by the company, no doubts towards the reliability and solvency of the borrower (ie, the shareholder) are established that could give reason to believe that potential recourse claims might fail; or
  • the granting of security is for the operational benefit of the company.

In addition to these capital maintenance rules, directors of companies must act with the diligence of a prudent businessperson at all times. In many cases, internal corporate governance rules exist, which outline the directors’ responsibilities in more detail.

Furthermore, with regard to security granted by companies over their real estate assets, Austrian corporate law usually prescribes that such transactions require the approval of the shareholders and/or the supervisory board.

Most loan and security documents contain a detailed procedure for when an event of default occurs. Usually, the creditor will be given written notice of the default and a certain amount of time in which to remedy it. Failure to comply will then typically trigger the enforcement clause in the respective security document, which entitles the creditor to realise the pledge without any other legal court action, either by public auction or by private sale.

With regard to the enforcement of a pledge over real estate, however, such out-of-court realisation has not yet been tested in the higher courts. Therefore, enforcement typically involves judicial proceedings. First, the lender's claim must be established in so-called title proceedings. If successful, the lender can then enforce the pledge in separate execution proceedings. This usually entails a public auction in which the real estate will be auctioned off to the highest bidder. The auction proceeds will then be used to repay the debts. Any excess will be transferred to the debtor.

The rank of various pledges over the same real estate depends on the time of registration (principle of priority) – ie, older pledges will have priority over younger ones.

In general, existing secured debt can only be subordinated by agreement and by law. If an existing land pledge should be subordinated to a newly created land pledge, the registration of such subordination in the Land Register is required in order for it to become effective. Before that, the consent of the pledgee must be obtained.

A lender who holds a pledge over real estate is not liable for soil pollution or any other environmental damage.

In principle, security rights (particularly pledges) are not affected by the debtor’s insolvency, and the beneficiaries of such rights have a right of segregation. However, there are a few exceptions to this principle, depending on the type of pledge and the time the pledge is acquired.

For example, if the pledge was created within the two years before the opening of insolvency proceedings and is to disadvantage other existing creditors, the insolvency administrator may challenge it in court if he or she can prove that the beneficiary knew or should have known the debtor’s intention to disadvantage other creditors. In another example, a pledge that is newly created within 60 days before the opening of the insolvency proceedings by judicial order (richterliches Pfandrecht) would automatically expire.

If it jeopardises the possible continuation of an insolvent company, the fulfilment of a pledge cannot be demanded before the expiry of six months from the opening of the insolvency proceedings.

One of the key consequences of the expiry of the London Interbank Offered Rate (LIBOR) index by the end of 2021 is the necessary transition to new reference rates, unless banks continue to submit the underlying data and Intercontinental Exchange (the LIBOR administrator) continues to publish LIBOR. When replacing LIBOR with other rates, issues may arise from the fact that the new rates could be structurally different from LIBOR. In such cases, borrowers may be required to renegotiate the terms of their loan agreements, which may have an impact on their funding. Mechanisms to manage such risks include contract reviews, more conservative project planning and renegotiating a different reference rate before the expiry of LIBOR takes effect.

Strategic planning and zoning across regions and in localities in Austria are governed by federal legislation (Bundesgesetze), the legislation of the nine Austrian federal states (Landesraumordnungsgesetze), and regional and local development and zoning plans enacted through municipal by-laws (Flächenwidmungs- und Bebauungspläne). The federal competence to enact legislation with regard to zoning is limited to specific sectors, such as railways, federal roads, aviation, etc.

The design, appearance and method of construction of new buildings or the refurbishment of existing buildings, as well as the safety of such buildings, are generally governed by the applicable state legislation on construction (Bauordnungen).

Municipalities are responsible for regulating the development and use of individual parcels of real estate; they also issue local development and zoning plans through municipal by-laws. The general zoning principles and guidelines for such plans are outlined in the relevant state legislation on zoning (Raumordnungsgesetze).

In order to obtain entitlements to develop a new project or complete a major refurbishment, the developer (or owner) must submit an application to the competent municipality, outlining in detail the intended use of the real estate and the planned development. If a particular project affects areas other than technical and safety standards or compliance with zoning (eg, the use as business premises, landmark protection or possible environmental implications), the applicant may be required to file the necessary application with the relevant authorities.

Furthermore, the owners of adjacent properties are typically parties to proceedings concerning the issuance of building permits, so must be granted the right to be heard. The relevant state legislation usually awards specific rights to such neighbours, which may not be violated by the planned development.

If a development project complies with the relevant planning, zoning and building legislation, a building permit will be issued. In most cases, building permits are subject to a specific catalogue of conditions that must be fulfilled by the owner of the real estate and – if the condition is a permanent one – also by every subsequent owner.

If the existing zoning plan needs to be changed in order to realise a particular development project, the developer can file an application for rezoning (Umwidmung) with the competent municipality. However, there is no guarantee that the application will be granted, as rezoning may not divert from applicable zoning principles and guidelines. In such cases, it is advisable to co-operate with the local authorities as closely as possible to achieve the desired rezoning.

If the competent municipality dismisses an application for the issuance of a building permit or subjects it to unreasonable or unnecessary conditions, legal action can be taken against the municipality's decision.

Neighbours may institute proceedings to fight the issuance of a building permit if the decision to grant it infringes upon their rights as provided by the relevant state legislation. Unlawful decisions that do not affect their specific rights cannot be appealed by a neighbour.

In some federal states of Austria, including Vienna, it is permissible for municipalities to enter into private law agreements with real estate owners, also called urban development agreements (städtebaulicher Vertrag). The aim of such agreements is to support the realisation of planning objectives and, in particular, to involve the real estate owners in the infrastructure costs resulting from the rezoning of their land.

If a certain development project or the subsequent use thereof does not adhere to the building permit, and particularly to the conditions it contains, the competent authorities can issue an order requiring the owner to reinstate the (previous) lawful state or cease the unlawful use. Such orders may even require the owner to demolish an unlawfully erected building.

Under Austrian law, any legal entity that possesses the necessary legal capacity can acquire ownership in real estate. Various types of companies are available to investors in Austrian, with the most common ones being:

  • the stock company (Aktiengesellschaft – AG);
  • the limited liability company (Gesellschaft mit beschränkter Haftung – GmbH);
  • the open commercial partnership (offene Gesellschaft – OG); and
  • the limited commercial partnership (Kommanditgesellschaft – KG)

Austrian law also grants partial legal capacity to real estate funds within the meaning of the Austrian Act on Real Estate Investment Funds (Immobilien-Investmentfondsgesetz).

The entity most commonly used for the acquisition and development of real estate is the limited liability company. However, stock companies or limited partnerships are usually used for the management of larger portfolios of real estate, particularly real estate investment funds.

The incorporation of a limited liability company requires a notarial deed and registration with the Austrian Companies Register. A limited liability company and its assets are fully independent of its shareholders who, save for certain rights and obligations, are typically not involved in the day-to-day operation of the company. Shareholders are not personally liable to the company’s creditors if their respective capital contributions have been fully paid. Exceptions may apply in cases of collusion and qualified under-capitalisation of the company.

The company may have one or more managing directors who are responsible for the day-to-day operation of the company. The managing directors are bound by the shareholders’ instructions, which may also take the form of a corporate governance code. Limited liability companies can have a voluntary supervisory and/or advisory board. However, in some instances – for example, when a company has on average more than 300 employees or its share capital exceeds EUR70,000 – the establishment of a supervisory board is mandatory. In practice, it is rather unusual for limited liability companies in the real estate sector to have a supervisory board.

The minimum capital for incorporating a limited liability company is EUR35,000, half of which must be paid in cash. A contribution in kind is also possible but can be subject to certain limitations. It is possible to make use of a so-called founding privilege, which reduces the minimum capital to EUR10,000 for the first ten years of incorporation. After the expiry of the privileged ten years, the capital must be increased to EUR35,000. In practice, it is rather unusual to make use of the founding privilege when investing in real estate, since shareholders could expose themselves to liability for qualified under-capitalisation of the company.

Generally speaking, Austrian law does not prescribe any specific governance requirements for (private) companies in respect of real estate investments, apart from the general principle that managing directors must always act with the diligence of a prudent businessperson.

However, if real estate assets qualify as real estate funds pursuant to the Austrian Act on Real Estate Investment Funds, a statutory regulatory framework applies to them. The assets of such funds are owned by a specific real estate investment company, which holds them in trust for the investors and manages them. The investment company requires a licence under the Austrian Banking Act, and its management is regulated by the Austrian Alternative Investment Fund Manager Act, which implemented Directive 2011/61/EU into Austrian law.

Real estate investment funds and alternative investment fund managers are subject to supervision by the Austrian Financial Markets Supervisory Authority (Finanzmarktsaufsichtsbehörde).

The annual entity maintenance and accounting compliance costs can vary depending on the type of company used and the real estate it holds. A general estimate is not possible – an assessment must take place on a case-by-case basis.

Austrian law distinguishes between two main categories of leases:

  • Miete, which entitles the lessee to use the lease object (eg, for housing purposes or as commercial premises); and
  • Pacht, which entitles the lessee to use the lease object and generate profits from it.

A typical example of Pacht would be the lease of an already established medical practice. Whether a lease agreement is considered Miete or Pacht depends on the contents of the agreement. In many respects, however, similar statutory rules apply to both.

Apart from the differentiation between Miete and Pacht, Austrian law does not provide for further categories of commercial leases.

Lease agreements are mainly regulated by the General Civil Code, which contains certain rights and obligations for the parties in respect of the lease. These default rules apply unless the parties agree otherwise. In general, the amount of rent chargeable is subject only to the limitations that it may not be against good morals (contra bonos mores) nor exceed an adequate market rate by more than 50% and the lessee had no knowledge of the amount that would be considered an adequate market rate (laesio enormis). Within these bounds, the amount of rent can be freely negotiated. The term of lease agreements is not regulated by law and may also be freely agreed by the parties.

Mandatory rules apply in respect of lease objects that fall into the (full) ambit of the Austrian Tenancy Act (this particularly concerns lease objects situated in buildings erected before 1945) regarding, among others, the lessor’s maintenance responsibilities, the lessee’s rights in respect of the lease object, the maximum rent chargeable, the (minimum) term, and the grounds on which the lease agreement may be terminated.

It is also possible for lease objects to not fall into the ambit of the Austrian Tenancy Act, or to do so only partially, in which case the lessor is subject to fewer mandatory obligations, and lessees typically have fewer rights. Whether a lease object falls into the full or partial ambit of the Austrian Tenancy Act, or is not subject to it at all, must always be assessed on a case-by-case basis.

The 2nd COVID-19 Justice Accompanying Act afforded special protection against termination to lessees whose economic productivity was significantly impaired by the COVID-19 crisis and who were, as a result thereof, unable to pay the full rent in the period from 1 April 2020 to 30 June 2020. In such cases, the lease agreement cannot be terminated by the lessor until the end of 2022 solely due to an arrears that stems from this period. Furthermore, there is also a moratorium on the possibility of judicial recovery or covering the arrears from the lessee’s deposit until 31 March 2021. This applies regardless of whether the lease agreement is subject to the Austrian Tenancy Act or not. However, the protection does not apply to leases of commercial premises.

The term of a lease typically varies between three and ten years, although it is possible to agree on longer terms.

In general, the lessor is obliged by law to maintain the lease object in the same condition as agreed by the parties, and to bear the costs for the repairs necessary in this respect. It is common practice to deviate from this default rule and agree on a transfer of the maintenance obligations from the lessor to the lessee; the lessor will then no longer be responsible for maintaining the lease object. However, with regard to the structure of the building and the common spaces thereof, the transfer of the lessor’s maintenance obligations can in some instances be unlawful.

The Austrian Consumer Protection Act and the Austrian Tenancy Act further restrict the possibility to shift maintenance and repair obligations from the lessor to the lessee. The Austrian Tenancy Act, for example, contains a catalogue of mandatory maintenance obligations and grants the lessee the right to enforce such obligations in court if the lessor fails to fulfil them.

If the term of the lease exceeds one year, the rent is payable every six months; in leases with shorter terms the rent is payable at the end of the term. It is common market standard to deviate from these rules and agree on monthly payments in advance.

Pursuant to Austrian law, a lessee is not required to pay rent if the lease object cannot be used or occupied due to extraordinary circumstances (eg, a pandemic). For certain types of commercial leases, this applies only if the rent agreement was concluded for one year. Since parties to a lease agreement may legally deviate from these statutory regulations, it can be assumed that lease agreements for business premises that are drawn up in the future will increasingly contain provisions to that effect.

Unless agreed otherwise by the parties (eg, turnover-linked rent), the rent payable to the lessor will usually remain the same throughout the term of the lease. The use of indexation clauses in lease agreements is common practice and allows the lessor to adjust the rent in accordance with the current Consumer Price Index (Verbraucherpreisindex).

With regard to lease objects that fall into the full ambit of the Austrian Tenancy Act (and serve housing purposes), the rent chargeable is strictly regulated by law. Rent that exceeds the maximum amount permissible, which is typically calculated with a view to factors such as area, building facilities, green spaces, etc, would be unlawful. However, indexation of the rent would be possible.

As there is no statutory right to increase rent after the passing of a certain amount of time, there are no standard procedures for how to determine new rent. If a gradual increase of the rent or a turnover-linked rent is (validly) agreed upon by the parties, the lease agreement usually determines the way in which the rent and any increase thereof is to be determined. Turnover-linked lease agreements often contain a fixed minimum amount of rent to address the risk of weak economic performance.

Agreed indexation of the rent must be announced to the lessee in order to be valid, and may be claimed for up to three years in retrospect. Indexation clauses usually contain a certain threshold (5% to 10%), and stipulate that an indexation may only take place once the respective threshold has been exceeded. Within the ambit of the Austrian Tenancy Act, an indexation must be announced in writing and may not take place retroactively.

The lease of an object for housing purposes is subject to 10% VAT in Austria. The lease of business premises is generally exempt from VAT. However, the lessor may opt to subject the rent to VAT, in which case a tax rate of 20% will apply.

Cash deposits or a bank guarantee in the amount of three to five months’ rent are common securities agreed upon in lease agreements, and are typically demanded before the beginning of the lease. An administration fee for drafting the lease agreement may also be payable to the lessor.

Stamp duty applies to lease objects for commercial purposes, usually in the amount of 1% of three times the annual rent for unlimited term leases, or 1% of the annual rent multiplied by the term of the duration in years (maximum of 18 years) for limited term leases. This is usually paid by the lessee, but both parties are jointly liable to the tax authorities for the full amount.

The maintenance and repair of common areas is the obligation of the lessor, unless otherwise agreed on by the parties. Lease agreements concerning entire buildings used for commercial purposes typically contain provisions that require the lessee to perform such maintenance and repair duties at its own cost. However, such deviations can be unlawful if the lease object falls into the ambit of the Austrian Tenancy Act or if the lessor is an entrepreneur and the lessee a consumer.

In leases that are considered Pacht, the lessee has to bear the costs for utilities and telecommunications. Other agreements are of course possible. In lease agreements that are considered Miete, it is the lessor’s responsibility to shoulder such costs, unless otherwise agreed on by the parties.

The operating costs for utilities and telecommunications may be billed in accordance with actual consumption or a flat-rate model. In practice, the flat-rate model is usually used, pursuant to which each lessee pays a proportional amount of the expenses for the entire building (based on the actual expenditure for the previous calendar year).

The lessee’s proportional share of these costs depends on the size of the lease object in comparison to the entire building. If an increase of the operating expenses is required due to increased expenditure in the previous year, the lump sum may be increased by a maximum of 10% compared to the total of the previous year.

It is common practice for owners to insure buildings against risks such as fire, personal liability, water damage, glass breakage and storm damage. This task is usually entrusted to the building administration, which, incidentally, can conclude a corresponding insurance policy even without instructions. Lessees can be charged with the costs for such insurances. It is possible to insure further risks and pass on such costs to the lessee, unless the lease object falls into the ambit of the Austrian Tenancy Act.

The purpose for which a lease object may be used is usually agreed on between the parties in the lease agreement and is also subject to the respective building permit, the latter of which considers relevant state legislation on construction and zoning. Furthermore, in many instances the lessor and the lessee agree on certain house rules that regulate the use of the lease object as well as common spaces. The lessor may also prohibit the subletting of the lease object. However, within the ambit of the Austrian Tenancy Act this may only be done for certain reasons (eg, when the entire lease object is sublet or the rent charged by the lessee is unreasonably high).

Neither the lessor nor the lessee may unilaterally change this purpose without the approval of the respective other party. If the lessee wishes to use the lease object for a different purpose than agreed on with the lessor and it is permissible under the respective building permit, the lessee will have to acquire a permit from the responsible local authority to change the purpose of use. The costs for such a change and any construction measures that may be necessary or required by the authorities must generally be borne by the tenant.

Unless otherwise agreed, the lessee is generally not entitled to alter the lease object without the lessor’s prior consent. In certain circumstances, necessary or useful improvements may be permissible without the lessor’s consent and the lessee may claim reimbursement of its costs. Unless the lease object falls into the ambit of the Austrian Tenancy Act or the alterations are considered necessary (eg, the lease object poses a risk to the lessee’s health) and the lessor is unable or unwilling to make such alterations, the parties may generally exclude the right to make such alterations and claim compensation.

The Austrian Tenancy Act prescribes mandatory rules for certain lease objects in respect of a minimum term, maximum rent chargeable and specific grounds for termination, among others.

The Austrian Tenancy Act may apply fully or partially to a certain lease object if the lease agreement is considered Miete. It does not apply to Pacht. Whether an object falls (fully, partially or not at all) into its ambit will generally be determined by the amount of lease objects in the building, the age of the building, the length and purpose of the lease, or whether public funds were used to build or renovate the building. It must therefore always be assessed on a case-by-case basis.

When a lessee becomes insolvent, an insolvency administrator will usually be appointed to manage the lessee’s remaining assets. The lessor must submit any claims it has against the lessee to the insolvency administrator for assessment. The latter may then either acknowledge or challenge these claims.

Without prejudice to the right to compensation for the damage caused, the insolvency administrator may alsoterminate the lease agreement in accordance with the statutory or agreed notice period. Lessors do not have an extraordinary right to termination in the case of a lessee’s insolvency; any agreement granting such rights to a lessor would be unlawful.

Furthermore, in some instances the insolvency administrator may also apply to hold eviction proceedings for a certain period of time.

The form of security provided to a lessor to protect against a failure by the lessee to meet its obligations usually varies depending on whether the lease object is used for commercial or housing purposes. Typical securities for residential leases include a cash deposit or a bank guarantee. With regard to commercial leases, other forms of security are sometimes agreed on by the parties, such as sureties or guarantees from shareholders.

By law, the lessor also has a pledge over any movable property that was moved into the lease object by the lessee or one of its close family members living in the lease object together with the lessee (Vermieterpfandrecht).

Generally speaking, the lessee is not entitled to occupy the lease object after the expiry of the lease or after a valid termination took effect. However, if the lessee continues to use the lease object after the termination date and the lessor does not object to such use within a reasonable amount of time (usually 14 days), the lease agreement may extend by implication under the same conditions and usually for the same term that applied to the expired lease. Pacht typically only extends for one year in this manner.

The lease agreement may explicitly exclude the legal presumption on implicit extension. The Austrian courts, however, hold the view that such an exclusion does not automatically rebut this presumption.

If the lessee fails to vacate the lease object after the termination date, the lessor must file an eviction suit. A judgment granting the eviction may then be enforced through the courts. The lessor may also claim appropriate compensation for the extended use of the lease object as well as other damages suffered.

In general, Austrian law does not permit a tenant to assign its leasehold interest in the lease to a third party without the landlord’s prior consent. Such consent can be given either upfront (ie, in the lease agreement) or upon the tenant’s request. An exception exists in regard to lease objects that fall into the ambit of the Austrian Tenancy Act. The leasehold interest in such lease objects can be assigned among close relatives if they (together) resided in the same lease object for an uninterrupted period of two years.

The subletting of lease objects is generally permitted in Austria, unless the lease agreement stipulates otherwise. However, if the lease object falls into the ambit of the Austrian Tenancy Act, the landlord may only invoke a contractual prohibition of subletting for important reasons, such as the subletting of the entire lease object or in the event that the sub-rent is disproportionately high in comparison to the rent payable by the sub-lessor.

The events upon which a lessor may terminate the lease agreement firstly depend on whether it is a fixed term or an unlimited term lease. Only in respect of the latter, the lessor has a statutory right to termination upon three months' prior written notice (in case of Pacht, the notice period would be six months). Permissible termination dates may vary from case to case, depending on the type of lease.

This right to ordinary termination may be varied or even excluded by the parties in the lease agreement, at least between entrepreneurs. In this case, the lease agreement may be terminated for important reasons, which are generally circumstances in which one party cannot be reasonably expected to continue the lease with the respective other party.

Furthermore, it is common practice for the parties to a lease agreement to agree on further extraordinary termination rights in favour of the lessor. Within the (full and partial) ambit of the Austrian Tenancy Act, however, an exhaustive catalogue of grounds for termination applies.

Although it is standard market practice in Austria to enter into written lease agreements, Austrian law does not require lease agreements to comply with any specific formal or registration requirements. Apart from that, it is possible to register a lease in the Austrian Land Register with the landlord’s consent. For tenants whose lease objects do not fall into the ambit of the Austrian Tenancy Act, this would have the benefit of securing them against premature termination of their lease agreements in case the property transferred to a new owner. If the lease agreement is registered in the Austrian Land Register, a one-off registration fee must be paid upfront. Typically, the registration fee and the costs for notarisation of the relevant documents are borne by the tenant. Furthermore, stamp duties may be payable in the case of commercial leases (see 6.8 Costs Payable by a Tenant at the Start of a Lease).

Failure to pay rent on two consecutive due dates usually constitutes an important reason that allows for extraordinary termination. The lessor can terminate the lease agreement and – should the lessee fail to vacate the lease object – after the termination date the lessor must file an eviction suit. As each court proceeding involves a unique set of facts and circumstances, it is not possible to make a general statement on the length of an eviction process. However, one year seems to be a reasonable duration for the proceedings in the first instance, if the lessee files any objections.

According to the 2nd COVID-19 Justice Accompanying Act, eviction proceedings must be deferred at the lessee's request without the imposition of a security deposit if the lease object is indispensable to satisfy the lessee's urgent residential needs and provided that eviction is not indispensable to avert serious personal or economic disadvantages to the lessor. The proceedings may be continued at the lessor's request six months after the granting of such deferral. The respective provision will be in force until 30 June 2021.

In the case of insolvency, the administrator appointed by the court may terminate lease agreements in respect of the insolvent company.

The most common price structures in construction agreements are either a unit price or a fixed lump sum for the entire construction project. If a per unit price is agreed upon, the contractor may separately charge all services performed in order to complete the construction project. The final cost of construction will therefore only be determined after its conclusion. The construction agreement typically contains a non-binding cost estimate.

The assignment of responsibility for the design and construction of a project may vary depending on the respective project. Usually, it is divided between an architect, who is responsible for planning the project, and a contractor, who is responsible for construction. Another option would be to contract a general contractor for all construction and planning services. The general contractor would then instruct an architect with the necessary planning as sub-contractor.

Architect’s and contractor’s fees are not strictly regulated. However, the performance and remuneration models published by the chamber of architects (Leistungs- und Vergütungsmodelle 2014) contain detailed guidelines as to the services usually rendered by architects in average-sized projects (divided into basic and optional services) and a range of compensation models.

Generally speaking, Austrian private law provides for a comprehensive liability system that generally applies to all contracts, including contracts concerning the planning and execution of a construction project. The liability of a contractor is not limited under statutory liability. However, parties often enter into construction agreements based on a standardised term published by the Austrian Standardisation Body (ÖNORM B 2110), which offers a deviation from the statutory liability system, providing for a limitation of liability, among other things. constructors usually conclude a general liability insurance to mitigate the risks involved in a construction project.

Under statutory liability, the contractor is liable for any delay in the performance of the construction work, if it is at fault (negligence or intent). Apart from that, the parties to a construction agreement often agree on contractual penalties (Vertragsstrafe) for delays in hitting contractual milestones; typically, a certain amount is payable by the contractor for each day's delay. However, contractual penalties may be subject to adequate reduction by the court. Furthermore, the contractual penalties have to be deducted from any further damages claimed in respect of the delay of performance. Also, in the case of performance delays related to the COVID-19 pandemic, contractors whose ability to perform their obligations was severely hampered during that time may not be liable to pay contractual penalties under certain circumstances.

It is common practice to agree on a performance bond (Haftrücklass) as security for the due performance of the contractor’s obligations, and these are often partly retained until the end of the warranty period. The amount of such performance bonds varies on a case-by-case basis, but usually lies between 5% and 10% of the contractor’s net fees. In many instances, it is possible for the contractor to alternatively present a bank guarantee.

Contractors and architects do not have a statutory right to lien or otherwise encumber real estate in the event of non-payment. However, if their principal is also the owner of the relevant real estate and the outstanding payments were successfully claimed in court, a judiciary lien can be acquired in the enforcement proceedings. Furthermore, the contractors and architects have a right of retention in regard to movable items or securities of their principal that came into their possession as a result of the work commissioned.

Building permits must be obtained before construction commences, and the completion thereof must be notified to the competent local authorities. During the process of acquiring the building permit, the applicant must typically show that the necessary fire safety and other technical standards are met, and must produce the necessary certificates to the issuing authority. If the intended use of a certain building or structure is commercial in nature, a specific licence may also be necessary (Betriebsanlagengenehmigung).

The transfer of real estate is subject to land transfer tax, which is to be paid by the seller, but is usually covered by the buyer. Sales of real estate are generally exempt from VAT but it is possible for the seller to opt into it in order to retain the right to deduct input tax (Vorsteuerabzug). However, this will usually only be the case if a subsequent purchaser is equally entitled to deduct input tax.

If an entrepreneur erects a building or carries out major repairs and deducts input tax, the input tax must be adjusted if the building is sold within ten years (20 years for new buildings).

Land transfer tax at a rate of 3.5% applies to almost any act of transferring real estate, so it is usually not possible to avoid this tax in asset deals. In share deals, however, land transfer tax only applies if 95% of the shares of the company are held by one owner. For this reason, it is common practice in large transactions to transfer only 94.9% of the shares in the company, with the remaining 5.1% being held by a third party.

Ownership of real estate and certain other limited real rights are subject to property tax, which is levied by the municipalities on the basis of federal legislation (Grundsteuergesetz 1955). The tax authorities determine a “basic value" (Einheitswert), which is usually far below the market value, and use it as a basis for calculating this tax. The tax rate varies between 0.5% and 2%, depending on the type of real estate and its basic value. There are certain exemptions from property tax, but they are generally limited to non-profit or religious organisations and governmental institutions.

Foreign investors whose seat or domicile is located outside Austria have restricted tax liability in respect of income tax in Austria – only their income generated in Austria will be taxable. Individuals are subject to income tax at progressive rates, while legal entities are generally subject to corporate income tax at a rate of 25%.

Profits generated from the sale of real estate are generally subject to real estate income tax at 30%. However, companies that are subject to corporate income tax at a rate of 25% are exempt from real estate income tax. The sale of homes that have served as the seller’s main residence for a minimum of either two consecutive years or five out of ten consecutive years are exempt from real estate income tax.

The basis for assessing real estate income tax is usually the difference between the purchase price and the selling price of real estate – ie, the profit made on the sale. Investments made in terms of the real estate (erecting a building) may be deducted. Real estate income tax is a self-assessment tax, which means that the seller must calculate the amount himself, notify the tax authorities and transfer the tax.

Insofar as a building constitutes a necessary business asset, it must be included in the list of assets and valued at either the purchase price or the costs of construction. The loss of value resulting from the building’s depreciation may be considered as operating expenses. In order to calculate the depreciation rates, the value allocated to the building must be distributed evenly over its remaining lifespan. The depreciation rate pursuant to the Austrian Income Tax Act is 2.5 % (1.5 % when the building is used for housing). Increased depreciation rates can be applied in the first two years for buildings acquired/built after 30 June 2020 (expedited depreciation).

BLS Rechtsanwälte Boller Langhammer Schubert GmbH

Kärntner Straße 10
1010 Vienna
Austria

+43 1 512 14 27

+43 1 513 86 04

office@bls4law.com www.bls4law.com
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Trends and Developments


Authors



Schoenherr is a leading full-service law firm in Central Europe. Operating in a rapidly evolving environment, Schoenherr is a dynamic and innovative firm with an effective blend of experienced lawyers and young talents. As one of the first international law firms to move into CEE/SEE, Schoenherr has grown to be one of the largest firms in the region. With 14 offices and several country desks, its comprehensive coverage of the region means Schoenherr offers solutions that perfectly fit the given industry, jurisdiction and company. Schoenherr's real estate team advises clients active in real estate investment and development and management on the full range of real estate services and sectors: commercial, office, industrial, hotel and leisure, health, mixed-use projects, agriculture and forestry.

Real Estate Investments

After several years of growth climaxing in a record-breaking year 2019, the Austrian institutional real estate investment market saw new challenges arising from the COVID-19 pandemic and the ensuing crisis (COVID-19).

While one might assume that the overall economic downturn as well as the general decrease in investment volume would affect all asset classes in the same negative way, a closer look reveals that the impact of COVID-19 actually varies widely. This article will examine the development of the various asset classes over the past year and give an outlook on what might be expected from the market in 2021.

Hotels

Unsurprisingly, the hotel sector was (or rather is) hit disproportionately hard by COVID-19, suffering from the government-ordered lockdown for roughly 4.5 months in 2020 (and ongoing until at least Easter 2021) and from the massive and continuing worldwide travel restrictions. The number of transactions and the investment volume declined significantly in the past year, and the market has almost come to a halt.

On the one hand, the governmental aid programmes and measures as well as standstill agreements with financing banks have prevented impending fire sales and/or insolvencies. On the other hand, potential investors bailed out of hotel development projects, which therefore had to be postponed or converted into residential and/or long-stay concepts.

The recovery of the market will likely gain momentum once the lockdowns end, as travelling will once again be possible based on sufficient immunisation rates and/or rigorous testing, and hotels will be allowed to reopen. Meanwhile, several investors are on the lookout for fire sales, which are expected to occur once governmental aid runs out and/or financing banks call in loans over the course of 2021.

The speed of recovery in the market is projected to vary within the sector. While the demand for travel for leisure purposes is expected to skyrocket after the lockdowns (which also significantly fosters the realisation of leisure buy-to-let concepts in Austria), business travel might recover at a slower pace as businesses have to cut expenses and COVID-19 has proven that video conferences can be a viable substitute, at least to some extent.

Residential

In comparison, the residential real estate sector in Austria has proven to be highly resilient. Despite a short halt in construction at the beginning of the first lockdown in March 2020 and some difficulties with cross-border traffic relating to foreign construction workers, developers quickly adapted and implemented the required measures. The number of completed residential units peaked in 2020, encountering a high demand from institutional as well as private investors, which led to a further increase in purchase prices.

More than ever, residential real estate is considered to be a very secure and stable investment, as institutional (as well as private) investors need to place their funds and financing is available at low cost. While the completion of new projects is expected to decrease slightly in 2021, the broad investor base and the high overall demand will likely lead to a further increase in purchase prices.

Institutional

In 2020 the institutional investment volume in Austria amounted to around EUR3.3 billion in total, with the office sector holding a share of about 33%, proving that office space is a crisis-resistant asset class. About 121,000 sq m of office space were completed in Vienna in 2020, about 75% of which had already been pre-let. Rents for office buildings in Vienna have also not been heavily affected by the COVID-19 crisis so far. The low completion output in the office asset class, however, will hinder a strong investment increase in 2021.

Retail

Like hotels, the lockdown measures enacted in Austria resulted in heavy collapse in turnover in the retail sector, with the exceptions of food and online retail. The clothing sector was hit especially hard. As a result of the situation, comparatively little new space was rented out in 2020. Due to the capping of state aid payments and the expiry of other tenant supporting measures, a wave of insolvencies is expected for 2021.

The completion level of around 48,000 sq m of new retail space in shopping centres and retail parks was similar to 2019. The largest opening in 2020 was the 21,000 sq m Pado Gallerien in Parndorf, Burgenland. Insolvencies, declining rents and higher vacancy rates are expected to lead to lower property values for retail properties.

Logistics

With an investment volume of about EUR450 million, industrial and logistics were the third strongest asset classes in 2020, with German investors taking the major share. For example, DEKA acquired two further construction phases of the Industrial Campus Vienna East.

From an investor's perspective, the legal ramifications of the governmental measures to combat COVID-19 (business closures, restrictions on entering, etc) on already concluded lease agreements are of particular importance. The Austrian Civil Code already includes provisions governing precisely these situations, granting the tenant the right to withhold rent payments (including service charges) if the leased object cannot be used for the agreed purpose at all, or (in most instances) the right to reduce rent payments proportionally in case of partial unfitness for the agreed purpose. If this condition lasts for an extended period of time, the tenant is even entitled to terminate the lease agreement for cause. Despite these provisions being more than 100 years old and of a dispositive nature, they received little to no attention before March 2020.

Real Estate Finance

Due to COVID-19, real estate financing varied significantly between asset classes in 2020. While residential real estate performed strongly, new financings of other asset classes, such as retail, hotels and offices, were hit hard. The prices for residential real estate, especially single family houses, continued to rise, with an increase of 9.5% in the 3rd quarter of 2020, which can be attributed partially to the home office trend (Austrian National Bank Real Estate Report Q4). Similarly, the boom in housing loans to private households has not slowed down, but rather showed an increase of 6% in the 3rd quarter of 2020 compared to 2019.

The banks have somewhat tightened their lending requirements for housing loans, yet the average interest rate was 1.28% in September 2020, marking a decrease of 29 basis points compared to 2019. In other asset classes, new finance transactions have slowed down or postponed due to COVID-19, and the origination market almost came to a halt.

Existing debt

For existing projects, especially hotel and retail assets, 2020 was marked by COVID-19-related standstill agreements, covenant resets and state financial support in the form of guarantees, grants and repayable advances. For private debt and loans to micro-enterprises, a statutory moratorium was introduced by the 4th COVID-19 Act and the 2nd COVID-19 Justice-Accompanying Act on repayment of loan agreements concluded before 15 March 2020.

From a legal point of view, the extraordinary termination rights in respect of loan agreements (Article 987 of the Austrian Civil Code) if maintaining the credit relationship becomes unbearable for important cause (aus wichtigen Gründen unzumutbar) for a party came into focus for the first time. This relatively new law was introduced as a consequence of the last financial crisis, and has been relatively untested to date.

Moreover, not only "LMA style" debt documentation but also Austrian "in-house" loan agreements and the general terms and conditions (GTCs) of Austrian banks typically contain material adverse condition (MAC) provisions that entitle a lender to terminate an agreement and cancel commitments. The GTCs also often foresee the right to unilaterally adjust margins or to request the granting of additional collateral in the material deterioration of the financial condition of a borrower or its assets or a significant decrease of the value of the collateral granted (eg, substantial deterioration of stocks held by a borrower). However, the lender's rights under such MAC provisions and GTCs are limited by law, and such provisions could be invalid if not objectively justified. In particular, careful legal assessment is recommended if a MAC event would be based on the occurrence of a crisis event only and thus would not have immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself.

It remains to be seen whether lenders would base a termination of a loan solely on this provision, but given that mandatory closures of assets due to COVID-19 are no longer expected to be the norm, it is believed that discussions around this issue will cease.

On the other hand, no specific statutory "force majeure" provisions exist under Austrian law that would entitle a borrower to prevent a MAC termination by a lender in the case of a crisis.

New debt/debt origination

Article 991 of the Austrian Civil Code entitles a lender to refuse payouts if, after the conclusion of a loan agreement, circumstances arise that result in a deterioration of the financial condition of a borrower or respective collateral, provided that such event endangers the repayment of the loan or the payment of interest (also taking potential enforcement proceeds from collateral into consideration). Article 991 was also passed in the context of the last financial crisis, and has been relatively untested thus far. It is recommendable to contractually address, specify or exclude the application of Article 991 (which is not mandatory law) when entering into a new financing or amending existing financing as a consequence of a crisis.

2021 is expected to be marked by large restructuring processes for asset classes that have been heavily affected by COVID-19. Standstill agreements and state support measures will run out and financing will need to be adjusted to new profitability and business plans. On the originator side, there is willingness and ability to invest. Interest rates are expected to remain low, with the trend moving towards fixed interest rates.

However, loan documentation is becoming more lender-friendly, with covenants becoming tighter, especially with respect to the senior debt capability (eg, LTV based financing), and transferability in respect for lenders loosening up. It is likely that this will also cause mezzanine financing to emerge for several asset classes in Austria to fill in the new gap from senior debt. From a legal point of view, this will likely increase the complexity of real estate finance deals, as mezzanine structures and intercreditor relationships with senior lenders are still a relatively new product so no general market standard exists, unlike in many other neighbouring countries (Germany in particular). Moreover, significant ad valorem registration costs for mortgages (1.2% of the amount to be secured) require careful deal structuring when handling several creditor classes for a real estate financing.

Green finance

Apart from COVID-19, green finance for assets is on the rise and is definitely here to stay. The Taxonomy Regulation (EU 2020/852) came into force in July 2020 and tasked the European Commission with establishing an actual list of environmentally sustainable activities by defining technical screening criteria for each environmental objective through delegated acts, which is set to be implemented by 2022.

Green finance is already strong on the debt capital markets and bonded loan (Schuldschein) side, but is not yet widespread for real estate project finance. Currently, "green" real estate loans are predominantly linked to the mere green certification of the asset (following completion) without real covenant or pricing effect for the financing, and thus are treated rather as a marketing tool. This will change soon though, as the European Green Deal is putting pressure on the industry to reduce CO2 emissions and to channel funds into sustainable investments.

Real Estate Construction – Going, Going and Going

COVID-19 and the consequent economic crisis do not seem to have affected the construction industry in Austria. Contractors' order books are as full as they were in previous years, and construction projects keep coming. This is particularly true for residential developments.

In Lower Austria, for example, more apartments were built than ever before in 2020, with 7,900 units completed; Vienna also reached a peak of 18,500 completed units. COVID-19 and the 2020 lockdowns have not significantly delayed the industry's schedules, even though leading Austrian construction firms deliberately let thousands of employees go in March and April 2020 (to only re-employ them shortly after).

However, the future seems bright, given that more than 40,000 additional residential units are currently in the approval process or have already been approved in Vienna alone, keeping the construction companies busy until mid-2022. Furthermore, the EU's Green Deal and the shift to renewables are providing the Austrian construction industry with new and additional opportunities.

The most significant projects currently under way or planned are as follows.

  • Vienna Twentytwo – currently one of the largest residential projects in Vienna. By 2024/25, a mixed-use tower 155 m high and a residential high-rise of 110 m will be built on an area of around 15,000 sq m in the 22nd district in Vienna. The total net floor area will be approximately 80,000 sq m, containing around 600 new apartments and also a hotel and commercial space. The project is being carried out by a joint venture consisting of SIGNA and ARE - Austrian Real Estate.
  • TrIIIple – three towers with a height of around 100 m each will be completed by 2021 directly at the Danube Canal in Vienna's 3rd district. These three towers will contain approximately 500 residential units and 670 apartments for students and young professionals, with a net floor area of around 70,000 sq m. The EUR300 million-plus project is being developed by a co-operation between SORAVIA and ARE - Austrian Real Estate.
  • Althan Quartier – a broad mix of offices, co-working spaces, restaurants/bars, shops and apartments is being created, with a total net area of 130,000 sq m, on the site of the former Franz-Josef railway station. The newly created offices are expected to create around 2,500 jobs in the district. The developer is the Austrian company 6B47. Completion of the entire project is scheduled for 2023.
  • Wohngarten – Viennese real estate developer INVESTER United-Benefits is currently developing 682 apartments with a total usable area of 35,000 sq m. Completion is scheduled for the end of 2021. The project has already been sold to ZBI Zentral Boden Immobiliengruppe and their open investment fund AIF "Unilimmo: Wohnen ZBI".
  • S1 Viennese Outer-ring highway Schwechat–Suessenbrunn – with a total investment volume of around EUR1.9 billion, a new highway will be built between Schwechat and Suessenbrunn from 2021 onwards. This route will likely relieve the busy southeast highway (A 23) and close the ring of motorways and expressways around Vienna. The new highway will be approximately 19 km long, containing more than 8 km of tunnels.
  • Wildgarten – 1,100 residential units on approximately 11 hectares at Rosenhügel in Vienna's 12th district are currently under construction. The entire project has a total floor space of around 82,000 sq m, and will be completed by 2023. Interestingly, this project does not contain any high-rises but will consist of three buildings, each having up to eight floors. 46,000 sq m of the project site will be a green recreational area.
  • Brennerbasistunnel – one of Europe's main infrastructure projects is finally under construction after years of planning. The tunnel will be approximately 55 km long and will establish a new and direct connection between Innsbruck and Franzenfeste through the core of the Alps. When completed, it will be one of the world's longest train tunnels. Completion is currently scheduled for 2028.

Summary

The Austrian real estate industry proved to be crisis-resistant, and one of the stabilising factors of the Austrian economy. Of course, developments vary from asset class to asset class, and some recently hyped asset classes will go through heavy restructurings in the near future. However, this will create new opportunities. If all this is combined with "green" standards, it might even be a chance for the future of the environment.

Schoenherr

Schottenring 19
Vienna
A-1010
Austria

+43 1 534 37 0

+43 1 534 37 66100

office.austria@schoenherr.eu www.schoenherr.eu
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Law and Practice

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BLS Rechtsanwälte Boller Langhammer Schubert GmbH is one of the leading medium-sized law firms in Austria, with more than 45 years of experience and about 50 employees. In 2013, the independent certification body TÜV Austria Cert GmbH certified the business law firm’s quality management system, attesting to its practice and client orientation; BLS was the first Austrian law firm to undergo this examination. It is the sole Austrian member of the international AVRIO Advocati European Law Firms Association, representing many clients internationally, and providing advice in almost all areas of law, especially in connection with real estate matters. The team handles all kinds of real estate transactions, including providing legal advice on the purchase or sale of realties of any size, and providing legal support with a view to the optimisation of rental income and other questions arising in connection with building projects. The firm provides permanent legal representation for various real estate developers and building administration companies in respect of all matters concerning real estate law.

Trends and Development

Authors



Schoenherr is a leading full-service law firm in Central Europe. Operating in a rapidly evolving environment, Schoenherr is a dynamic and innovative firm with an effective blend of experienced lawyers and young talents. As one of the first international law firms to move into CEE/SEE, Schoenherr has grown to be one of the largest firms in the region. With 14 offices and several country desks, its comprehensive coverage of the region means Schoenherr offers solutions that perfectly fit the given industry, jurisdiction and company. Schoenherr's real estate team advises clients active in real estate investment and development and management on the full range of real estate services and sectors: commercial, office, industrial, hotel and leisure, health, mixed-use projects, agriculture and forestry.

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