Consequences of the current situation regarding Covid-19 for tenants and landlords

Date: 
Wednesday, 18 November 2020

Since 13 March 2020, the Austrian government has announced a comprehensive package of measures to combat COVID-19 ("Corona-Virus"). These measures include in particular the ordered closure of shops and restaurants. With the COVID-19 Liberalization Regulation (which was changed multiple times in the meantime), many measures were gradually eased again as of May 2020 and then tightened up again from September 2020. Starting on November 3, 2020, the measures were tightened again and the so-called "lockdown light" was imposed. On 17 November 2020, the lockdown was tightened again, which is comparable with the first period in March except for some minor details. The following overview deals with the main questions that have arisen for tenants and landlords since March 2020 due to the current legal situation and in consideration of the applicable regulations.

Overview

Questions and answers:

1. Which regulations are currently in place?

Since 17 November 2020, the COVID-19 Emergency Measures Regulation (COVID-19-NotMV) has specified which stores and restaurants are to be kept closed and when and under what conditions public places may be entered (restrictions on entering public space); the regulation previously issued for the "lockdown light" was repealed. The COVID-19 Emergency Measures Regulation applies for a period up to and including 6 December 2020.

1.1. COVID-19 Emergency Measures Regulation (BGBl II No 479/2020)

As of 17 November 2020, the government measures to prevent the spread of COVID-19 have been intensified considerably. In particular, there is a general obligation to maintain a distance of one meter between persons not living in the same household and to wear MNS protective masks. The MNS-obligation applies when entering all public places in closed rooms.

In office areas, a distance of one meter must be maintained between persons or the risk of infection must be minimized by other appropriate protective measures. In public transport, MNS masks are mandatory and - if possible - a distance of at least one meter must be maintained.

A new addition are restrictions on entering public space. This stipulates that leaving one's own private living area and staying outside is only permitted:

  • to avert an immediate danger (life, physical health, property);
  • for the care of and assistance to persons in need of support as well as the practice of family rights and the fulfillment of family obligations;
  • to cover the necessary basic needs of daily life;
  • for professional and educational purposes, if necessary,
  • to stay outdoors for physical and mental recovery;
  • for the perception of administrative or judicial procedures that cannot be postponed;
  • to participate in elections provided for by law and to use the instruments of direct democracy provided for by law;
  • to participate in certain events defined by law, and
  • for the purpose of permitted access to customer areas of business premises and certain defined locations.

The private living area can be left regardless of when the permitted activities are carried out. Therefore, outdoor sports activities are permitted at any time. However, the practice of sports that involve physical contact is prohibited.

The existence of one of the exceptions to the restrictions on entering public space in accordance with § 2 must be made credible to the police and the authorities, as well as the operators of public transport, upon request. This can be done, for example, in the case of entry for professional purposes by a confirmation from the employer.

As in the "lockdown" in spring 2020, the entry to restaurants, stores, recreational facilities and body near service companies is prohibited. This is explicitly permitted:

  • entering restaurants by delivery services and customers to collect food and beverages.
    It should be noted that customers may only collect food and beverages from 6:00 a.m. to 7:00 p.m.; this restriction does not apply to delivery services.
  • Entering customer areas of pharmacies, food stores, drugstores, health and care services, pet food stores, safety and emergency products, gas stations, tobacconists, as well as car and bicycle repair stores and other businesses defined by the regulation.

Closed are therefore especially hairdressers, masseurs, chiropodists, swimming pools, betting offices, theaters, movie theaters and concert halls, museums, libraries and animal parks.

Customer areas of facilities authorized for opening - thus in particular the commercial enterprises marked above as permissible, but also customer areas of (non-body-near) service providers - may only be entered in the time between 6:00 a.m. and 7:00 p.m.; a distance of one meter must be maintained and a MNS mask must be worn. As in spring, a customer area of 10 m² must be available per customer; in the case of smaller stores or premises, only one customer may enter the store at one time. If possible, all permitted services should be offered electronically.

Entering hotels is again prohibited. Excluded from this is the accommodation of tourist guests who have already rented a room (but may not be extended) as well as the accommodation of guests who, for professional reasons that cannot be postponed, have to use such accommodation. Furthermore, accommodation is permitted for the purpose of entering and assisting persons in need of support, for educational purposes and to satisfy an urgent need for accommodation. In addition to the above-mentioned exceptions, short-term rentals via platforms or similar are still permitted; in particular, short-term rentals to satisfy urgent housing needs are permitted, which may be relevant above all for employees who require temporary accommodation due to quarantine measures in individual regions and general travel restrictions, as well as for the purpose of providing care and assistance to persons in need of support.

Furthermore, the holding of events (both indoor and outdoor) is again prohibited; even events already planned with an (approved) hygiene concept may not be held. Only individual, precisely designated events, such as professional meetings that cannot be postponed, funerals or meetings under corporate law (shareholders' meeting) are still permitted.

Special precautions apply to old people's and nursing homes along with homes for the disabled as well as hospitals and health resorts, both for residents and for employees and visitors. It should be noted that employees may only be admitted to such old-age, nursing and disabled homes and hospitals if a molecular biological test for COVID-19 infection or an anti-gene test is performed at least once a week and the result is negative. Visitors may only be admitted if they can present a negative anti-gene test (maximum from the past 24h) or PCR test (maximum from the past 48h). If no test result is available, the visitor has to wear a mask according to CPA standard. Depending on the degree of need for support, the number of visitors allowed varies; generally one visitor per resident / patient per week.

The COVID-19 Emergency Measures Regulation - (in the version valid as of 17 November 2020) will expire at the end of 6 December 2020, except for the restrictions on entering public space which already expire on 26 November 2020. At present it is not yet known which regulations will apply from 27 November 2020 or 7 December 2020.

2. Overview of tightening and easing regulations

Of particular relevance for the assessment of the legal situation and the impact on tenancies were the 96th Regulation of the Federal Minister of Social Affairs, Health, Care and Consumer Protection concerning interim measures to prevent the spread of COVID-19 ("Regulation No 96") and the 98th Regulation of the Federal Minister of Social Affairs, Health, Care and Consumer Protection according to § 2 Z 1 of the COVID-19-Maßnahmengesetz ("Regulation No 98"), which were issued on 15 March 2020 and regulated in particular the period of the lockdown and the prohibition of entry. It should be noted that parts of these regulations were retroactively repealed by the Constitutional Court. With the COVID-19-Lockerungsverordnung, ("Relaxation Regulation"), Regulation No 96 and No 98 were repealed without replacement and from May 2020 the measures were successively eased or suspended.

For the current phase since 3 November 2020 and 17 November 2020 respectively, the effects are to be assessed on the basis of the COVID-19 Protection Measures Regulation and the COVID-19 Emergency Measures Regulation.

3. Which regulations has the Constitutional Court repealed as inadmissible? What are the consequences of these decisions?

The Constitutional Court has ruled that the prohibition to entering public places under the Regulation No 98 was unlawful. Accordingly, the prohibition of representation for all "public places" was too broad and therefore inadmissible. Furthermore, the Constitutional Court found that the prohibition of opening business premises with customer areas inside of more than 400 m², as laid down in Regulation No 96 was contrary the law.

The parts of the regulation that had been repealed by the Constitutional Court as unlawful (prohibition to entering public places and customer areas < 400 m²) were retroactively repealed.

For tenants, this means that they cannot (any longer) formally invoke the restrictions imposed by regulation in the context of their claim for rent reduction, because these restrictions never existed in law. However, it should be noted that the restrictions were legally binding at the time they took effect and therefore, from the perspective of the time, there was still a restriction on use. It cannot be assessed how the civil courts will ultimately distribute the risk of unlawfulness of these regulations between tenant and landlord.

It should be noted that the decision of the Constitutional Court has no effect on those tenancies which were not affected by the repealed restrictions anyway. These are, among others, tenants with rental properties with customer areas within the scope of application of Regulation No 96, in particular those which were always excluded from its application according to this regulation (food trade, pharmacies, banks, delivery services, etc) and which were therefore allowed to keep open at all times.

The regulation that there must be a distance of at least one meter between the individual tables in the gastronomy sector was also repealed by the Constitutional Court in the meantime. The requirement regarding the minimum distance was judged by the Constitutional Court to be unlawful in the meantime. The Ministry has until 31 December 2020 to tighten up the regulation.

The currently applicable COVID-19 Emergency Measures Regulation again provides for a prohibition to entering public places through the restrictions on entering public space. For the time beeing, it cannot be judged how the Constitutional Court will judge the regulation.

4. How did the lockdown effect commercial leases?

a. Rent reduction

Due to the prohibition of entry imposed in the lockdown under Regulation No 96 and No 98 and the official order to close down certain (business) premises, business operations and accommodation facilities completely, it can be assumed from today's perspective that the obligation to pay rent - depending on the further usability and use of the property - will also be waived or reduced for the period of closure. This applies on the basis of the COVID-19 Protection Measures Regulation from 3 November 2020 also again in particular for restaurants and lodging establishments as well as recreational businesses and from 17 November 2020 by the COVID-19 Emergency Measures Regulation for certain stores and body near service businesses.

However, the exact scope of a possible rent reduction claim must always be examined on a case-by-case basis and depends both on the specific circumstances and on the concrete measures taken by the government and parliament. Concretely also the temporal component is to be considered, and to what extent an impairment was given in the respective period also after the conditions in each case temporally and materially applicable regulation and the concrete despite COVID-19 Emergency Measures Regulation further possible use.

In the assessment of the second lockdown in the fall of 2020, it must be additionally taken into account in the assessment of a rent reduction claim that financial measures will replace a certain percentage of sales with state aid and thus provide economic cushioning for the restricted usability of a business property.

In contrast to Germany, Austria has not adopted any special regulations for commercial rental agreements as a result of the corona crisis. Residential rental agreements, by contrast, were not affected by these measures at any time, which is why there are currently no claims to rent reductions.

b. Termination

As the measures are not definitive but temporary measures and were and are being progressively eased or tightened, it cannot be assumed that lease contracts could be terminated prior to their expiry. Independent of this is a possible rent reduction right (see above). However, no special protection against termination and eviction, such as for apartment tenants, was enacted due to the Corona crisis.

c. Operation obligation & penalty

Many lease contracts, especially in the retail sector, often contain extensive provisions on the operating obligation of the tenant or lessee. However, since the closures ordered by the authorities or by law as a result of the Covid-19 measures, such contractual provisions on the duty to operate do not apply because the tenant or lessee has a statutory duty that takes precedence over his contractual duty. A penalty contractually agreed upon due to the violation of the duty to operate is not to be paid. Claims for compensation for loss of income due to business closures?

The legal basis for the measures imposed by the Federal Government before 15 March 2020 is the Epidemic Law of 1913 (re-adopted in 1950), which is intended to combat certain infectious diseases, Covid-19 being one of them. However, the Covid-19 Measures Act, passed by the National Council on 15 March 2020, created a new legal basis for certain measures. Accordingly, business closures are no longer covered by the Epidemics Act (and the compensation for lost profits provided for there).

The legal basis for business closures is the Covid-19 Measures Act, under which the Minister of Health can order a ban on "entering premises for the purpose of purchasing goods and services". The Minister of Health has made use of this authorization and on 15 March 2020 by means of a regulation prohibited the entering of the customer areas of stores and premises from 16 March 2020 onwards. Initially, only a few areas that served the provision of basic services, such as pharmacies or grocery stores, were exempt from this prohibition. After initial loosening, the COVID-19 Liberalization Regulation lifted the closure of many customer areas and only imposed certain restrictions, such as in particular a minimum distance, the limitation of the number of customers in the sales area and the obligation to wear mouth and nose protection (MNP). These restrictions have been progressively eased or tightened in view of the Corona situation.

There is no entitlement to compensation under the Epidemics Act. In accordance with the Covid-19 Measures Act, the Epidemic Act does not apply to the prohibition to enter the premises imposed by regulation.

In order to reduce the economic disadvantages caused by the corona pandemic, the federal government has set up the Covid-19 Crisis Management Fund, whose resources can be used, among other things, to cushion the loss of revenue as a result of the crisis. In addition, various different measures are planned, such as a hardship fund for micro-enterprises, tax deferrals, direct loans and bridging guarantees. You can find more details in our briefing on subsidies and state aid law. In any case, we advise you to keep accurate records of the periods of loss of income and the amount of lost income so that these can be attached to any later claims.

5. Where short-term rentals such as those via airbnb and other platforms possible during the imposed measures?

Due to the restrictions imposed by the regulation issued on 2 April 2020 on accommodation establishments (see above) and the COVID 19 Liberalization Regulation, new rentals for the purpose of recreation and leisure were prohibited. However, the accommodation of tourist guests who had already commenced their stay at an accommodation remained permitted (but could not be extended). Short-term rentals for purposes other than tourism were also still possible. In particular, short-term letting for residential purposes could be considered here, which could be relevant mainly for employees who required temporary accommodation due to quarantine measures in individual regions and general travel restrictions. The same applied to persons who needed a place to stay because, for instance, they had to take up another accommodation due to a COVID-19 case in the family.

At the moment, accommodations are severely limited due to the recent lockdown. There are no special regulations for short term rentals, analogously, the regulations for lodging establishments apply as far as applicable. As mentioned above under point 1.1, a rental to satisfy an urgent housing need is also permitted during the validity period of the COVID-19 Emergency Measures Regulation.

6. What increased protection against termination and eviction applies to residential leases in the current Corona situation?

a. Protection against termination and eviction

Lease agreements for residential purposes were not affected ny the measures, because people were even encouraged to stay at home. As the situation did not result in any restictions on the use of residential properties, there was in general no possibility for tenants of residential properties to reduce their rent.

With the 4th-COVID-19-Measures-Act passed in the Austrian Government on 3 April 2020, an increased protection against termination and eviction in favor of tenants was decided. Under this provision, a landlord may neither terminate the lease nor demand a cancellation of the lease agreement for good cause (sec 1118 Austrian Civil Code) because of the tenant's rent arrears due in the period from 1 April 2020 to 30 June 2020, provided that the arrears were caused by a significant impairment of the tenant's economic performance as a result of the COVID-19 pandemic. The arrears for the above period can be claimed in court from 1 January 2021 at the earliest. As a reason for termination, the arrears for the months April, May and June 2020 can only be claimed as of 1 July 2022 if no payment has been made by then.

The rent arrears are to be paid by 31 December 2020 at the latest. The due dates for the rent remain unchanged also during the months of April, May and June 2020, however, the legal interest on arrears may not exceed 4 % p.a.. Furthermore, tenants are not obliged to bear the costs of extrajudicial debt collection measures.

As a result, the landlord's right to demand a termination of the agreement for the omitted rent payments is postponed by two years. And there is another major restriction: The landlord is not allowed to offset the deposit paid by the tenant for the arrears of payment in these three months against the rent due. For clarification: For reasons other than rent arrears, as well as for rent arrears beyond these three months, the landlord may still terminate the lease or bring an action for eviction based on such arrears.

b. Caution: Pitfalls when extending residential rental contracts!

The Corona crisis may mean that there is a need for action, particularly with regard to residential lease agreements. If residential leases ended during the "lockdown" due to a limited term, it seemed to be obvious in the current situation to agree on a short-term extension with tenants as a gesture of goodwill (if the property has not already been let to another tenant, this is of course possible). After all, finding a new apartment or moving was difficult with the wide array of restrictions in force.

In this respect, the fourth COVID-19-Measures-Act passed in the Austrian Parliament on 3 April 2020, provides for important facilitations: For fixed-term residential leases subject to the Austrian Tenancy Act (MRG) that ended between 1st April 2020 and 30 June 2020, a special provision now permits a flexible extension of residential leases. By written agreement between landlord and tenant, the lease could be extended until 31 December 2020 or for a shorter period; the otherwise applicable minimum term of 3 (three) years did not apply in these cases.

It is important that the extension is made in writing (online via e-mail is unfortunately not sufficient!), otherwise it is invalid. For example, the tenant could have signed the document by hand and send it to the landlord, who will return it to the tenant after signing it. If the extension was not made in writing (e.g. only via e-mail), this leads to an unlimited lease agreement.

Please note: The lease may only be extended until 31 December 2020 at the longest and only if the original lease agreement has a limitation that falls within the specified period.

This possibility of extension only applies to fixed-term contracts. Therefore, if a notice of termination has already been issued for a lease with indefinite term and the termination date was between 1st April 2020 and 30 June 2020, landlord and tenant cannot make use of the described exemption. In these cases, the statutory minimum period of limitation of 3 (three) years still applies. However, the tenant can make use of the postponement of the eviction execution also introduced by the COVID-19 Measures Act.

7. What applies since 1 July 2020?

The Austrian Tenancy Act (MRG), which provides for a mandatory minimum term for residential lease agreements, will remain in force unchanged. Therefore, a minimum term of at least three (3) years for the initial term, but also for each extension is required. If the landlord does not observe this and only extends the lease until 31 December of this year, for example, this constitutes an invalid fixed term - the landlord therefore runs the risk of converting the lease into a lease with an indefinite term. Again, it is important that the extension is made in writing and not, for instance, online via e-mail, because otherwise it is ineffective.

Your contact persons:

Stefan Artner
Head of the Practice Group Real Estate and Tenancy Law
T +43-1-533 4795-103
stefan.artner@dorda.at

Magdalena Brandstetter
Expert in Real Estate and Landlord and Tenant Law
T +43-1-533 4795-103
magdalena.brandstetter@dorda.at

Marie-Luise Pugl
Expert in Real Estate and Landlord and Tenant Law
T +43-1-533 4795-103
marie-luise.pugl@dorda.at