COVID-19 and tenancy

COVID-19 and tenancy

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

Download econova April 2020

The COVID-19 Measures Act and the federal and state ordinances issued in connection therewith massively affect existing contracts such as, in particular, business premises rents, company leases, leases of leisure apartments and residential leases. Serious legal questions may arise for both the party providing the property and the party renting it.

Does rent have to be paid for a blocked business premises?

In contrast to business closures under the Epidemic Law 1950, the COVID-19 measures do not provide for compensation. However, there are bans on entering premises that are not necessary for the provision of basic services. These must keep their business premises closed. In this case, the obligation to pay rent under civil law can be waived in whole or in part (§ 1104 ABGB). If the business premises may no longer be used for the agreed purpose (e.g. restaurant, flower shop), the 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, the rent is only payable proportionally.

Can a tenant also stop paying the rent?

The tenant is only entitled to a total or partial reduction of the rent if the lease is concluded for a maximum of one year (§ 1105 ABGB). The legislator believed that losses due to force majeure, such as in the case of an epidemic, compensate for themselves in the case of longer leases. However, it is possible that the contract referred to as a lease agreement does not contain a lease at all, but is to be considered a operating lease commitment. Such lease typically requires the transfer of a living business. If, on the other hand, only one property has been left for use, then rent is deemed to be present and the 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 leisure residences?

After the Tyrolean quarantine has expired, holiday homes, apartments etc. may only be entered for immediate danger prevention due to the measures applicable throughout Austria to prevent the spread of the coronavirus. If such objects are rented, they can no longer be used or occupied in accordance with § 1104 ABGB. 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 only be finally decided by the courts. Anyone who still has money should therefore pay with reservation. Losing in court could be expensive and possibly even result in the eviction of the existing property. The reservation regarding payment is important: continuing to pay the rent without comment could be interpreted as a tacit waiver of the plea of unusability.

What does dispositive law say?

The right to moderate interest rates can be contractually excluded – it is up to the parties to the contract to provide for a different regulation for the crisis than the law. In all the cases mentioned so far, the contract must therefore be reviewed to see whether it contains a concrete regulation deviating from the law for extraordinary coincidences, such as fire, war or epidemic, major floods, weather shocks, etc. As a rule, this applies and can lead to the exclusion of the right to moderate interest.

Is there help for apartment tenants?

A termination of the tenancy 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 a termination of the lease agreement or an action for termination of the agreement on this arrears. Accordingly, the landlord’s right to make a failure to pay rent the basis for a termination of the contract is not completely eliminated, but postponed for two years. Ongoing eviction executions 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.