Over the past few days, the new ruling on G 170/2024, G 37-38/2025 by the Constitutional Court (VfGH) on value protection clauses in rental agreements has been a dominant topic in the media. Headlines such as "Landlords in panic" or "Tenancy law on the brink of upheaval" suggested that the Austrian legal landscape had been turned upside down. However, a closer look reveals that the finding does not bring any fundamentally new legal standards, but essentially only confirms the previous case law and legal situation.

What did the Constitutional Court rule on?

The Constitutional Court has ruled on the constitutionality of Section 6 para. 2 no. 4 of the Consumer Protection Act (KSchG). Pursuant to Section 6 (2) no. 4 KSchG, contractual provisions are invalid vis-à-vis consumers if they provide for an adjustment of the fee within two months of the conclusion of the contract. Specifically, the case concerned value adjustment clauses in rental agreements that allow the rent to be increased shortly after the contract is concluded. Such clauses are only valid according to Section 6 Para. 2 No. 4 of the Consumer Protection Act (KSchG) if they have been individually negotiated with the tenant. Otherwise they are null and void, which may mean that the entire clause is cancelled, not just the invalid part.

The Constitutional Court has now confirmed the constitutionality of Section 6 para. 2 no. 4 KSchG and emphasised that the interference with landlords' property rights is justified by legitimate consumer protection objectives and is proportionate. This means that the complete removal of the clause that is ineffective under the KSchG is constitutional. The ruling thus strengthens consumer protection, but does not change the previous understanding of the legal situation. The Supreme Court (OGH) had previously clarified on several occasions that such clauses are not permitted without an individual agreement and are completely invalid (most recently in its decision OGH 2 Ob 36/23t of 24 May 2023). This risk of the complete invalidity of such a value protection clause therefore continues to exist, but only affects tenancy agreements with consumers.

Why the fuss?

The media coverage gave the impression that landlords would no longer be allowed to use value protection clauses in future and was therefore misleading. Value protection clauses remain permissible - they just have to be drafted correctly. In concrete terms, this means that rent increases within the first two months may only take place if this increase is expressly agreed on a case-by-case basis. If no individual agreement is made, the statutory protective provision of the KSchG applies and the entire clause is cancelled. § However, Section 6 KSchG, the constitutionality of which has now been confirmed by the Constitutional Court, only applies to consumers and is not applicable to tenancy agreements with entrepreneurs. Tenants are thus protected from unannounced short-term rent increases - a principle that has been in place for years.

It is therefore not so much the finding itself that is remarkable, but rather the fact that the Constitutional Court's decision on the constitutionality of Section 6 para. 2 no. 4 KSchG (which in itself is not a surprise) was presented as a sensation in the public debate. In reality, the finding corresponds to the case law that has been established for over two years.

What does this mean for existing value protection clauses?

Value protection clauses in rental agreements are still permissible.

In recent years, the Supreme Court (OGH) has opened up a number of points of attack for value protection clauses in rental agreements and rejected a reduction in the validity of value protection clauses in consumer contracts that are inadmissible under Section 6 KSchG, meaning that in such a case the entire value protection clause is null and void. However, it should not be overlooked that the Supreme Court recently ruled in its decision 10 Ob 54/24z of 17 December 2024 that agreements on value protection based on the consumer price index (CPI) are generally permissible in rental agreements and that such an agreement does not per se contradict the principle of objectivity. (Further information on this decision by the Supreme Court can be found in this blog post).

Value adjustment clauses can therefore also continue to be used vis-à-vis consumers, provided that they do not provide for an initial adjustment of the rent until two months after conclusion of the contract or have been negotiated individually in each case. Only index clauses that refer to points in time prior to the conclusion of the contract or lead to an increase within the first two months are not permitted and are invalid in their entirety.

What about tenants' claims for repayment?

Inadmissibly worded capitalisation clauses are a risk for landlords and can result in claims for repayment by tenants, but this is nothing new. Nothing has changed for tenants as a result of the Constitutional Court's judgement - the chances of challenging value protection clauses in their tenancy agreements have neither improved nor deteriorated as a result.

With regard to any claims for repayment by tenants, landlords are advised to use the line of argument of "clause divisibility", which was confirmed by the Supreme Court. Whether tenants' claims for repayment are actually justified will be decided in civil proceedings by the ordinary courts, always taking into account the circumstances of the individual case. The question of the limitation period will be an interesting one.

Landlords are (still) advised to review and - if necessary - adapt existing sample contracts and evaluate the risks from the past.

Conclusion

The Constitutional Court's judgement merely confirms that the current legal situation is constitutional and that no fundamental changes to the law are necessary. However, this may very well be urgently required in the case of rental agreements, as may an analysis of the portfolio and the resulting risks.