The Austrian Commercial Developers Act (Bauträgervertragsgesetz, BTVG) provides for a number of instruments to protect purchasers, in particular in the event of developer insolvency. Loss or damage, and consequent liabilities, may arise if such instruments are not, or not sufficiently, taken into account when drawing up the relevant agreement. In this context, the Austrian Supreme Court (OGH) recently found that the registration of simple, that is unspecific, co-ownership in a property does not constitute sufficient title within the meaning of the BTVG. This is why choosing the right trustee and contract drafter is crucial in making real estate development projects as secure as possible.

Facts of the case

In the specific case to be assessed by the Supreme Court, the defending attorney-at-law was both contract drafter and trustee of an agreement for the purchase of a condominium which concerned only the sale of unspecific co-ownership shares. After registration of these shares in the land register, the entire purchase price was paid to the seller, who subsequently became insolvent. In the view of the Supreme Court, it was indisputable that the BTVG was applicable to the agreement at hand. However, neither the protective instruments required under the BTVG, in particular the annotation pursuant to section 40 (2) Residential Property Act (Wohnungseigentumsgesetz, WEG), nor payment by instalments had been provided for in the agreement.

Under the BTVG, unspecific co-ownership does not constitute sufficient title

In its decision 6 Ob 171/19v, the Supreme Court had to assess whether the agreement drawn up by the trustee and the provisions contained therein ensured sufficient protection for the purchaser under the BTVG. In the case at hand, at least the purchasers’ unspecific co-ownership title to the shares acquired by them was registered in the land register. However, the commitment to transfer title to a specific property unit to the claimant had not been registered.

Hence, the Supreme Court found that the title protection requirements under the BTVG had not been sufficiently ensured. In the case of a real estate development contract for the acquisition of condominium ownership, however, an annotation on the granting of title to a specific property unit pursuant to section 40 (2) 2002 WEG (cf. section 9 (2) BTVG) offers protection to the purchaser in terms of land register registration. Based on the fortiori argument, the transfer of such title must, in any case, be acknowledged as sufficient protection.

However, in the view of the Supreme Court, this title annotation in the land register was just one of several instruments for affording protection to the purchaser. According to the Supreme Court, the trustee also had to check and comply with a number of further requirements. In this context, the Supreme Court stated in its decision that, when choosing a model for securing title in the land register, the trustee would have been obligated to include payment by instalments in the real estate development agreement, with the last of such instalment payments serving as retention for warranty claims.

Conclusion: Choosing the right trustee is crucial for the success of a real estate development project

The developer is obligated to protect purchasers against loss of payments already made. This is why the real estate development agreement must, in any case, specify the manner in which the purchaser’s title is protected. Hence, diligence and expertise in drawing up an agreement are essential for the successful implementation of a real estate project.

The role of the trustee is very demanding and comprises not only drawing up the agreement, but also many other important tasks which enable the developer to make faster use of the purchase price:

• The trustee plays a key role both before and during the conclusion of the agreement. For example, the trustee must inform the purchaser about the available options for securing title to the property.
• If, for instance, land register registration is the chosen option, the trustee must ensure that payment of the purchase price by instalments is provided for in the real estate development agreement. Pursuant to such instalment plan, the individual instalments of the purchase price can be paid out to the seller only after an expert has confirmed that the respective construction stages have been completed. In this context, it is important that the trustee thoroughly verifies that the requirements for the payment of the individual instalments to the seller have been met.
• The trustee must ensure that in addition to the proper approval of the individual construction stages, further prerequisites for the payment of the purchase price instalments have also been met: The trustee must in particular verify that the property is free of any and all encumbrances.
• To ensure that the relevant agreement is in conformity with the requirements of the BTVG, it is recommended to choose an experienced trustee who has the required expert knowledge and who ideally has already successfully handled multiple real estate development projects. This is the only way to ensure that the legal position of the purchaser is sufficiently protected, and that the payment of the purchase price also takes place in conformity with the provisions of the BTVG.