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

Friday, 7 August 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. The following overview addresses a number of key issues that arise for tenants and landlords as a result of the current situation.


Questions and answers:

Is rent still payable when a shop or restaurant has/had to close?

If, as in the present case, certain (business) premises and accommodation facilities had to be closed down completely due to a pandemic and official orders, it can be assumed from today's perspective that the obligation to pay rent is partially or completely suspended for the period of closure - depending on the further usability and use of the premises.

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 the specific measures taken by the government and parliament. Unlike Germany, Austria has not yet issued specific provisions for commercial leases due to the corona crisis. The time factor must also be taken into account, as well as the extent to which an impairment may continue under the Covid-19 Liberalization Regulation (Austrian Federal Gazette BGBl II Nr. 197/2020).

In contrast to Germany no special regulations for commercial leases due to the Corona crisis were issued in Austria.

Residential leases are not and have not been affected by the current measures; therefore, tenants of residential leases have no right to reduce rent from the current perspective.

May a lease agreement for a shop or business premises be terminated if the premises cannot or may not be used due to the measures taken against Covid-19 (or could not/was not allowed to be used)?

Since the measures were only temporary and are already being loosened, premature terminations because of measures against Covid-19 are not possible. Nevertheless, a right to reduce rent exists (see above). However, unlike for tenants of residential properties (see below), no special protection against termination and eviction due to the Corona crisis for tenants of commercial premises was instituted.

What kind of shops can re-open? What shall be observed when reopneing?

With effect as of 1 May 2020, the Covid-19 Liberalization Regulation has generally repealed the prohibitions on entering customer areas and public places and has newly regulated the matter: Public places were only to be entered if a distance of at least one meter (1m) was kept from others and in closed rooms a protective device covering the mouth and nose area had to be worn (face mask, a cloth or scarf).

In customer areas of business premises both employees and customers had to wear a face mask and had to keep the minimum distance of at least one meter at all times. Additionally, until 2 June 2020, only one costumer per 10 sqm was permitted.

Also in typical office premises, a distance of one meter between persons had to be maintained or the risk of infection must be minimized by other suitable protective measures. The wearing of a face mask had to be agreed between the employee and employer.

With effect as of 15 May 2020, restaurants were allowed to re-open, however, certain restrictions had to be respected: (1) There had to be a distance of at least one meter between groups of visitors, (2) a maximum of four adults were allowed at a table (except for groups living in a shared household), (3) mandatory wearing of an face mask for guests until placed at the table, (4) mandatory wearing of an face mask for personnel with customer contact, and (5) maximum opening hours until 23:00. With the 5th amendment of the COVID 19 Liberalization Regulation (BGBl II Nr. 266/2020) as of 15 June 2020, the obligation to wear a face mask and the limitation of group sizes were lifted and the opening hours were extended to 1 o'clock).

In addition, since 15 May 2020, museums, exhibitions and libraries may again be entered (here, too, similar protective regulations applied as in customer areas of business premises).

Hotels are allowed to be re-opened for the purpose of recreation and leisure with effect as of 29 May 2020 (for more details see below under point 7. and in our briefing on public measures).

Sports facilities may be re-entered since 29 May 2020, however a distance of at least one meter had to be maintained and a face mask had to be worn.

Which regulations are currently in place?

The Covid-19 Liberalization Regulation was amended for the ninth time on 29 July 2020 (BGBl II No. 342/2020). The government's measures to prevent the spread of COVID-19 continued to be gradually liberalized, but were also tightened up again by the eighth amendment to the Covid-19 Liberalization Regulation with the partial reintroduction of the requirement to wear a facemask.

With the newest amendment, the general minimum distance of one meter ("when entering public places") from persons not belonging to the household was lifted.

In customer areas (and similarly in closed rooms of religious institutions and open-air markets), a minimum distance of one meter shall be maintained from persons not living in the same household. In addition, facemask shall be worn in public pharmacies, food shops (including bakeries and petrol stations), banks, and the post office and when visiting nursing homes, hospitals and health resorts as well as places where health care services are provided.

In typical office premises, a distance of one meter must be maintained between persons or the risk of infection must be minimized by other suitable protective measures.

In public transport, facemasks are mandatory and - if possible - a distance of at least one meter shall be maintained.

For hotels and restaurants, the closing time at 01.00 hours continues to apply. In addition, there must be a distance of at least one meter between the individual tables. A facemask does not have to be worn by guests. If guests are not at their  table, e.g. when entering the restaurant, they must keep a minimum distance of one meter from other people who do not live in the same household. Self-service (buffet) is permitted, if the risk of infection can be minimized by special hygienic precautions.

In generally accessible areas of hotels, guests shall maintain a distance of at least one meter from other persons not living in the common household or not belonging to the group of guests in the common accommodation unit. For hotel restaurants/bars, fitness areas and wellness areas, the rules for catering establishments, sports facilities and swimming pools apply. Overnight stays in a dormitory or in shared sleeping quarters are only permitted if a distance of at least 1.5 meters is maintained from persons not living in the shared household or if the risk of infection can be minimized by suitable protective measures for spatial separation.

In fitness studios and other sports facilities, a minimum distance of one meter must also be kept from other people who do not live in the same household. Exceptions to this rule are sports where physical contact occurs during the specific type of sport, as well as sports practiced in clubs or at non-public sports facilities.

Can my landlord terminate my lease agreement if I breach my duty to operate?

Many lease agreements, especially in the retail sector, contain extensive operating obligations of the tenant. Since the closure of business is/was specifically ordered on the basis of the Covid-19 legal measures, such contractual operating obligations do not apply because the tenant or lessee has a statutory duty that takes precedence over his contractual duty.

What is the situation regarding penalties for breach of the duty to operate?

The statutory obligations and prohibitions take precedence over the tenant's contractual obligations. In fact, the 4th Covid-19 Measures Act passed by the Austrian Parliament on 3 April 2020, implemented a specific provision. Accordingly, if a tenant fails to meet such a duty to operate because, as a consequence of the Covid-19 pandemic, either his economic performance is significantly impaired or he is unable to provide the service due to restrictions on his professional activities, he is not obligated to pay an agreed contractual penalty.

What is the legal basis for business closures? Are there claims for compensation if tenants or landlords have lost income?

The legal basis for the measures imposed by the federal government last week is the Law on Epidemics of 1913 (re-issued in 1950), which aims to control certain communicable diseases, Covid-19 being one of them. However, the Covid-Measures Act passed in the Austrian Parliament on 15 March 2020 created a new legal basis for certain measures. Accordingly, business closures are no longer covered by the Law on Epidemics (and the compensation for loss of profits provided for there).

The legal basis for business closures is the Covid-Measures Act, according to which the Minister of Health can prohibit the "entering of business premises for the purpose of purchasing goods and services". The Minister of Health made use of this authorization and issued a regulation on 15 March 2020 prohibiting access to the customer areas of shops and restaurants from 16 March 2020. Initially, only a few areas serving the provision of basic services, such as pharmacies or grocery stores, were exempt from this prohibition of access. After initial partial liberalization, the Covid-19 Liberalization Regulation lifted the closure of most customer areas and only imposed certain restrictions, such as in particular a minimum distance, a limit on the number of customers in the customer area and the obligation to wear mouth and nose protection (face mask).  These restrictions are now also being progressively eased (see above "May a lease agreement for a shop or business premises be terminated if the premises cannot or may not be used due to the measures taken against Covid-19 (or could not/was not allowed to be used)?" and "What kind of shops can re-open? What shall be observed when reopneing?").

There is no claim for compensation under the Epidemics Act. According to the Covid-19 Measures Act, the Epidemic Act does not apply to the ban on entry 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, the resources of which can be used, among other things, to cushion the loss of revenue as a result of the crisis. In addition, various measures are in place, 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 precise records of the periods of loss of income and the amount of lost income so that these can be used in any later claims.

What restrictions apply to (tourist) accommodation establishments?

In the provinces of Salzburg, Vorarlberg, Tyrol and Carinthia, the closure of accommodation facilities had been ordered by the authorities in mid-March. Depending on the province, different exceptions for such closures applied. On 2 April 2020, the Minister of Health, Rudolf Anschober, further issued a regulation implementing the previously announced closure of accommodation for tourism purposes for the entire Austrian territory. Since 29 May 2020, the entry of accommodation facilities for the purpose of recreation and leisure is again possible. Here, too, restrictions apply, in particular partial masking requirements; you will find more details in our briefing on public law measures. Before that, only the accommodation of guests who had already commenced their stay was possible, but such stay could not be extended.

Were short-term rentals such as those via airbnb and other platforms possible during the inposed 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.

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

Lease agreements for residential purposes were not affected by the measures, because people were even encouraged to stay at home. As the situation did not result in any restrictions 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.

Do these provisions on increased protection against termination and eviction also apply to business premises?

The aforementioned provisions on protection against termination and eviction only apply to residential lease agreements, not to commercial lease agreements. 

It is irrelevant for residential leases, whether the Austrian Tenancy Act is applicable in full, in part or not at all (as it is the case, for example, with certain lease agreements for single-family homes). What is important is that the Covid-19 pandemic has significantly impaired the tenant's economic performance. As examples of the consequences of the Covid-19 pandemic, the legislator cites termination of employment due to the closure of restaurants and tourism businesses, the loss of income for self-employed hairdressers or physiotherapists, or the illness with Covid-19 for self-employed persons who can no longer pursue their profession due to quarantine/hospitalization. Tenants who are neither impaired in health nor suffer a reduction in income cannot take advantage of the special provisions.

Note for business premises: While the restrictions of termination do not apply, the limitation of default interest at a maximum of 4 % also applies to commercial leases.

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.

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

Magdalena Brandstetter
Expert in Real Estate and Landlord and Tenant Law
T +43-1-533 4795-103

Marie-Luise Pugl
Expert in Real Estate and Landlord and Tenant Law
T +43-1-533 4795-103


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