COVID-19 and Tenancy

Norbert Rinderer explains the effects of COVID-19 measures on rental agreements in the business magazine econova.

Download econova April 2020

The COVID-19 Measures Act and federal and state regulations issued in connection with it massively affect existing contracts such as those for renting business premises, company leases, leasing holiday homes and residential leases. Serious legal questions may arise for both the party letting the property and the party renting it.

Does rent have to be paid for a off-limits business premises?

Contrary to business closures under the Epidemic Law 1950, the COVID-19 measures do not provide for compensation. However, there is a ban on entering premises that are not essential for the provision of basic services. These businesses have to keep their premises closed. In such cases, the obligation to pay rent under civil law can be waived in whole or in part (§ 1104 Austrian Civil Code). If the business premises cannot be used for the agreed purpose (e.g. restaurant, flower shop), rent does not have to be paid. If the rented property remains partially usable, e.g. as an office or as storage space for the goods, rent is payable proportionally.

Can a leaseholder (“Pächter“) also stop paying rent?

A leaseholder is only entitled to a total or partial reduction of rent if the lease was concluded for a maximum of one year (§ 1105 Austrian Civil Code). The legislator felt that losses due to force majeure, such as in the case of an epidemic, balance themselves out in the case of longer leases. However, it is possible that the contract referred to as a lease agreement (“Pachtvertrag”) does not actually contain a lease, but is to be considered a rental agreement. A lease agreement  typically requires the transfer of an active business. But if  only a property is being used, then payment is deemed to be rent and a rent reduction can be claimed even if the lease is for more than one year.

What applies with regard to operating costs?

In principle, the right to reduce the rent applies to the entire rent, i.e. also to the proportionate operating costs and public charges. If the rent is reduced, these incidental costs are reduced to the same extent. However, the relevant case law is controversial.

How do the restrictions affect holiday homes?

After the Tyrolean quarantine has expired, according to the measures applicable throughout Austria to prevent the spread of the coronavirus holiday homes, apartments etc. can only be entered to avert immediate danger. If the objects are rented, they can no longer be used or occupied in accordance with § 1104 Austrian Civil Code. The tenant will therefore probably be exempt from paying the rent and operating costs.

Stop paying interest or reserve the right to reclaim?

The above questions will be decided by the courts. Anyone who has the money should therefore pay with reservation. Losing in court could be expensive and possibly even result in eviction from the property. Payment being subject to reservation is important: continuing to pay the rent without comment could be interpreted as a tacit waiver of the plea of non-usability.

Non-mandatory law

The right to reduce rent can be contractually excluded – it is up to the parties to the contract to provide for different provisions for crisis situations. In all the cases mentioned so far, the contract therefore must be reviewed to see whether it contains a specific regulation deviating from the law for extraordinary situtions, such as fire, war or epidemic, flooding, etc. As a rule, the provision in the contract will apply and may lead to the exclusion of the right to reduce rent.

Is there any help for apartment tenants?

Termination of a rental agreement due to rent arrears from the months of April, May and June 2020 as a result of the pandemic is provisionally excluded. Landlords will not be able to claim the arrears in court until 31 December 2020 or cover them from a deposit provided by the tenant. The arrears must be paid by mid 2022 at the latest. Then the landlord has the right to base the termination of the rent agreement or an action for dissolution of the contract on the arrears. This means that the landlord’s right to make a failure to pay rent the basis for the termination of the contract is not completely eliminated, but postponed for two years. Ongoing evictions will be postponed for three months if the tenant submits a request to this effect, thus giving tenants time to find new housing. Notwithstanding Section 29 MRG, tenancies expiring after 30 March 2020 and before 1 July 2020 may be extended until the end of the year.