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COVID-19 – Loss or reduction of rent for business premises due to COVID-19

05/10/2020 - Reading time: 4 minutes

Author

Wolfgang Gabler

Attorney at Law

1.    Loss or reduction of rent for business premises

Pursuant to section 1104 Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch, ABGB), a lessee/tenant is not obligated to pay rent if the lease object cannot be used or put to good account at all, due to extraordinary incidents such as an epidemic.

The inability to use the lease object for the stipulated purpose at all must be attributable to an extraordinary incident. According to the opinion of legal scholars and to case law, an extraordinary incident (außerordentlicher Zufall) is a natural disaster incapable of being managed or controlled by Man, which, by its very nature and due to its magnitude and lack of definability is outside the ordinary patterns of regular processes, massively affects a large number of persons, and for the impact of which, in general, no compensation based on general legal regulations is expected from anyone.

Section 1104 Austrian Civil Code provides only a non-exhaustive list of potential ex-traordinary incidents. As the World Health Organisation classified COVID-19 as a pandemic on 11 March 2020, in our opinion, it can be subsumed under extraordinary incidents. Also, the impossibility to work in shops and companies, caused by statutory or official instructions, is to be regarded to be covered by “extraordinary incident”. This will apply to business establishments for which entry to customer areas for business purposes is prohibited by way of statutory or official regulations and no other business activities can be carried out in the lease object.

During the period while the lease object cannot be used at all for its stipulated purpose, the lessee/tenant is fully exempted from paying the rent. The inability to use the object as such does not cause the expiry of the lease or tenancy agreement nor can the lessee/tenant be assumed to have tacitly waived their lease/tenancy right.

However, the lessee/tenant is entitled under section 1117 ABGB to terminate the lease/tenancy agreement with immediate effect provided that the lease object cannot be used for its stipulated purpose for an unforeseeable period of time.

In all other respects, on the one hand, the relevant factor will be the extent of impairment of the stipulated use of the lease object, and on the other hand, how long the impairment, in particular due to the legal or official regulations will continue. Section 1105 ABGB provides for a prorated reduction of the rent in the event of an extraordinary incident causing restrictions to the stipulated use of the lease object. In contrast, in the case of a usufructuary lease (usufructuary lease of an active enterprise (Unternehmenspacht)), the rent will be reduced only in cases where the term of the lease is limited to one year or less and where the fruits derived have diminished by more than half of the usual yield.

In any case, it needs to be considered that sections 1104, 1105 and 1117 ABGB are, in principle, non-mandatory law which means that contractual provisions take precedence over legal provisions if the former provide otherwise for the current extraordinary circumstances.

In order to be able to claim the exemption from the obligation to pay rent, lessees/tenants should pay their rent subject to repayment (unter Vorbehalt); otherwise, their rent payment could be taken as a waiver of the rent reduction. In contrast, if no rent or less than the amount of rent owed is paid, there is a possibility that the lessor/landlord will bring action for payment of rent and eviction against the lessee/tenant. Therefore, it is advisable, in any case, to contact the lessor/landlord to find a mutually acceptable solution. 
 

2.    Consequences for flat rents

Due to the fact that there are generally no impairments to the contractually agreed use of flats, rent payments for flats may not be reduced or interrupted pursuant to sections 1104 and 1105 ABGB during the COVID-19 pandemic.

2.1.    Defaults in payment as a consequence of the COVID-19 pandemic

If, however, the tennant does not pay the rent which is due between 1 April 2020 and 30 June 2020 in full or in part due to his/her economic capacity being significantly impaired on account of the COVID-19 pandemic, this can entail two legal consequences pursuant to section 1 Second COVID-19 Justice Accompanying Act (2. COVID-19-Justiz-Begleitgesetz, 2. COVID-19-JuBG):

  •  Until expiry of 30 June 2022, the landlord may neither terminate the rental agreement nor request its revocation solely on the grounds of default in rent payment pursuant to section 1118 ABGB; and
  •  the landlord is not entitled to assert the outstanding rent payments in court until the end of 31 December 2020 or to use a deposit provided by the tenant to cover the outstanding payments.

Irrespective of the above, the landlord is entitled to assert claims for default interest as of the due date of the rent, with the default interest rate, however, being limited to 4% p.a. pursuant to section 3 2.COVID-19-JuBG. The tenant, however, is not obligated to reimburse costs incurred due to out-of-court debt collection. If the tenant pays the outstanding rent in full until expiry of 30 June 2022, the landlord’s right to terminate and/or dissolve the rental agreement becomes obsolete.

The landlord’s rights are not cancelled by this regulation, only deferred in time. The landlord’s right to terminate the rental agreement based on other reasons than default in rent payment or the right to bring action for eviction still remains in place. The same applies to cases where the tenant defaults in rent payment in months other than April to June 2020.

The described regulations apply to all types of flat rents, i.e. to objects subject to the scope of application of the Rent Act (Mietrechtsgesetz, MRG) or parts thereof, as well as to objects excluded from the MRG’s scope of application. These provisions constitute compulsory law and thus cannot be waived within the scope of an agreement.

2.2.    Extension of expiring rental agreements

Another measure is provided for in section 5 of the 2. COVID-19-JuBG which stipulates that rental agreements concerning flats subject to the MRG and expiring in April, May or June 2020 can be extended until 31 December 2020 or for a shorter period of time by way of a written agreement. Pursuant to section 29 MRG, in all other cases, a minimum rent period of three years is required for a fixed limitation to be valid. If after the extension of the rental agreement until 31 December 2020, or an earlier date, the rental agreement is neither extended nor terminated by way of an agreement, such rental agreements become subject to a one-time renewal for a period of three years pursuant to section 29 (3) (b) MRG.

2.3.    Postponing enforcement of evictions

To prevent individuals from becoming homeless due to eviction in the current situation, a special form of postponement is provided for: 
Pursuant to section 6 2.COVID-19-JuBG, an eviction under section 349 Enforcement Code (Exekutionsordnung, EO) is to be postponed, without collateral being imposed, on the basis of a relevant application filed by the obligated party insofar as the flat is essential for meeting the urgent housing need of the obligated party and the persons living with him/her in the shared household, unless the eviction is imperative for the petitioning creditor to ward off personal or economic disadvantages.

In such case, the interests of the creditor and of the obligated party must be carefully weighed. Pursuant to the explanatory notes to the relevant act, the creditor would suffer a personal disadvantage if his/her need or his/her family’s need to use the flat is not met; whereas a relevant economic disadvantage would be suffered by the creditor if he/she had to refrain from subletting the flat, which had already been agreed, and thus lose urgently required rental income.

Before deciding on the postponement, the creditor shall be given the opportunity to submit a written statement. Upon request of the creditor, the procedure shall be continued as soon as the measures taken to prevent the spread of COVID-19 and restricting the freedom of movement or social interactions are revoked or six months after the postponement has been granted at the latest.

Furthermore, the procedure is to be continued within three months following the granting of the postponement only in cases where the flat is no longer indispensable for meeting the urgent housing need of the obligated party and the persons living in the shared household.

3.    Extension of the time limit for making use of a ranking order indicated in the land register

Section 12 2.COVID-19-JuBG stipulates that the period from 22 March 2020 to 30 April 2020 is not to be included in the calculation of the time limit within which a request for entry or cancellation of a right for which a ranking order was indicated must be filed with the court. Such suspension of time limits may be extended by way of a statutory order issued by the Federal Minister of Justice.

Author

Wolfgang Gabler

Attorney at Law