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Constitutional Court's Recent Judgments on Rent in Austria

August 2017 - Real Estate & Property. Legal Developments by Dorda.

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The Constitutional Court has recently provided two judgments on 28 June 2017 on the rent control legislation in Austria ruling that the current system for flats complies with Austrian Constitutional Law and the European Convention on Human Rights. The Constitutional Court visibly failed to take the opportunity to initiate a change to the current legislation. Further appeals to the Constitutional Court are likely and worthwhile with the Austrian parties currently involved in their campaigns for the general election in October 2017.

Background

The Tenancy Act (Mietrechtsgesetz) contains a range of restrictions for leases depending on whether the Tenancy Act applies in full (mainly for buildings with construction permits dated prior to 30 June 1953; "old buildings"), in part (construction permits dated after 30 June 1953) or not at all. Depending on the degree of applicability, the following types of rent can currently be agreed on in Austria:

  • Free Rent: no restrictions on the amount of rent apart from general limitations under the Civil Code; free rent applies if the Tenancy Act applies in part or not at all.
  • Adequate Rent: rent needs to reflect the market and is under review by the District Courts; free rent applies if the Tenancy Act applies in full under certain conditions.
  • Standard Rent: rent must be equal to the amounts set out in the Standard Rent Act (Richtwertgesetz) with certain increases and decreases being possible depending on the position, condition, facilities, etc of the property; standard rent applies if the Tenancy Act applies in full.

Austrian courts and – in major cities – some public authorities have the right to review adequate and standard rent and, if necessary, to adjust it.

The major cities in Austria, in particular its capital Vienna, consist of an abundant number of old buildings which contribute to the cities' fascinating architectural charm protected by UNESCO. The refurbishment of the buildings requires capital which investors are loath to give if the return on investment is not sufficient. Due to strict rent control legislations, some historic buildings may soon crumble and vanish. Some landlords did not accept this fate and launched appeals to the Constitutional Court in order to fight the standard rent system and to achieve a more flexible system for investors.

Judgments of the Constitutional Court

The Constitutional Court referred to previous case law, in particular the Mellacher judgment by the European Court of Human Rights, and held that the standard rent system was in line with the Austrian constitution including the European Convention on Human Rights. The Court also confirmed the lawfulness of the low standard rent for Vienna (currently EUR 5.39) compared to other regions (Vorarlberg: EUR 8.28; Salzburg: EUR 7.45), despite the fact that Vienna was the capital creating more than a quarter of the national GDP. While appreciating that the current system interferes with constitutional laws, the Court held that such interference was not strong enough to require the Constitutional Court to intervene in legislation. The appeals were rejected.

>Comments

Austria's standard rent is very restrictive not allowing to adequately raise rent if the landlord makes investments to the property. Many investors have been deterred from necessary refurbishments. It would have been most welcome if the Constitutional Court had accepted that the system (dating back to 1981) was outdated and set aside some of the provisions for standard rent. With the general elections to be held in October 2017, the Constitutional Court feared that there was no government to fill the legislative void (the Constitutional Court can only set aside laws but not enact new ones).

Under the current legislation, owners of new (but shabby) buildings could contract freely while owners of old (but refurbished) buildings are restricted under the standard rent with very low ceilings applying. A flexible system would be the fairest and most efficient solution to this discrimination as it would allow increases in rent for new leases if the landlord proved refurbishment.

The only way to make this leap forward is to prepare new appeals to the Constitutional Court to review other provisions of the Tenancy Act. The current system is simply not acceptable.

Author: Klaus Pfeiffer, Attorney / Expert on Real Estate and Construction Law  / DORDA Attorneys at Law