Real estate finance law in Austria

A. Mortgages

1. Can security be granted to a foreign lender?

Yes. There are no restrictions for the registration of mortgages for foreign lenders.

2. Can lenders take a mortgage over land and buildings on the land?

Pursuant to the principle “superficies solo cedit” if a mortgage over land is established, such mortgage extends to the buildings thereon because they are an integral part of the land and follow its legal status; therefore, generally it is not possible to mortgage a building without the land on which the building is built on. The only exception is a so-called “superstructure” (Superädifikat) which is a building erected on land of another person which are built with the intention not to stay on the land on a continuous basis.

2.1 The distinction between mortgages on land and buildings on the land?

There is no distinction. In both instances, the mortgagee would have the benefit of the same rights.

2.2 Are mortgage certificates for a certain value issued? What is the cost? Are they transferable?

Under Austrian law, such mortgage certificates do not exist.

2.3 Can second ranking security be taken? If so, how is it registered? Is a priority deed also registered?

Yes, second ranking security can be taken. The registration procedure is the same as in the case of the first ranking land charge. The rank and priority of a land charge depends in principle on the time of receipt by the court of the respective application for registration. Change of the ranking in the land register is possible by way of an agreement between the respective secured parties.

Priority deeds (Anmerkung der Rangordnung) with respect to an envisaged land charge have to be registered in the land register to become effective.

2.4 Can the real estate be transferred to a third party (being still subject to the mortgage) without the lender’s consent?

Yes, mortgaged real estate can be transferred to a third party without the lender’s consent. The mortgagor and the mortgagee may agree that the mortgaged real estate cannot be transferred, however, such prohibition of transfer cannot be registered with the land register and has therefore no in rem effect. Such prohibition of transfer may only be registered with the land register if the agreement is made between spouses, parents and children (including adopted children) or brother/sister-in-laws.

2.5 Are there any preferred creditors (other than prior ranking mortgage holders)?

Yes, privileged security interests (Vorzugspfandrechte) exist; such security interests come into existence when such claims become due and do not require a registration with the land register. Therefore, such security interests are not always recognizable in the land register and override mortgages which were registered earlier. The most important privileged security interests are the security interests in connection with real estate taxes.

2.6 Can “all monies” mortgages be taken?

An “all monies mortgage” (being a mortgage where the mortgaged property stands as security for an indebtedness that is not determined at all at the time the mortgage is created) is not possible under Austrian law because claims must be determined following the principle of speciality. However, the principle of speciality is weakened by the maximum amount mortgage, i.e. a mortgage under which only the maximum amount to which the land can be encumbered is entered into the register. However, also in case of a maximum amount mortgage the mortgage secures an individual claim originating in a specific legal relationship.

2.7 Can a landlord’s right to receive rent be charged, assigned or transferred to a lender by way of security? If so, how?

Yes, claims for rent can be pledged and assigned. The landlord and the lender shall conclude an agreement assigning/pledging the landlord’s existing and future claims towards the tenant. To become effective, the assignment/pledge has either to be notified to the tenant or the assignment/pledge has to be entered into the accounting books of the landlord. Since claims are not immovable objects, no registration with the Land Register is required. In the event of the borrower’s default, the lender may be directly repaid from the assigned claim.

It should be noted that according to the Austrian Rental Act, certain lease agreements may only be pledged if the mortgage is granted as security for loans financing useful improvements of the real estate.

2.8 Is it customary/possible for a lender to take a charge/security over bank accounts of the borrower? Is it usual for lenders to contractually restrict rights to withdraw funds in accounts until the scheduled interest and capital repayments are made?

Yes, it is possible and common practice to pledge bank accounts. However, most general terms and conditions of banks provide for a right to preferentially settle claims by using the funds on the client’s account. Thus, the lender usually asks the pledgor to agree with the account bank to waive such preferential right. Usually, if the bank account is pledged, the debtor can dispose of his account, as long as no default occurs; it is however also possible to additionally block the pledged account.

3. What are the mechanisms for registering land and for registering and perfecting security?

For the registration of land or a mortgage a public deed is required (notarial act or private deed which contains certified signatures).

3.1 Consequences of failure to register?

The ownership right has not been perfected until its due registration with the land register (exceptions apply with regard to obtainment of a real estate by way of universal succession) and therefore the pledge is not protected by the publicity rules of the land register.

Also mortgages (and other rights in rem) do not validly exist until registration with the Land Register. In order to avoid registration fees, lenders sometimes accept a registrable mortgage deed which is deposited with the lender or a notary public and which enable the lender to file them in case of an event of default. However, also in such case no right in rem is established until registration of the registrable mortgage deed. Due to the fact that registration with the Land Register is a requirement for the establishment of a right, a missing registration has the consequence that no right is established. This means that claims are not secured, as long as they are not registered with the Land Register.

3.2 Formalities for execution of security and costs?

3.2.1 Formalities for execution of securities 

The creation of a land charge requires a notarially certified consent in respect of the registration of the land charge from the owner of the property and registration there of with the competent Land Register.

3.2.2 Costs relating to execution 

The costs relating to mortgages include (i) notary fees, (ii) fees of the Land Register and (iii) stamp duty.

(i) The notary is entitled to notary’s fees in connection with the attestation (Beglaubigung) of the mortgage deed and, in case of submission to immediate forced execution, the notarial recording of such submission. The submission to immediate forced execution is a notarial deed executed by the owner of the property whereby the owner submits itself to immediate forced execution, i.e. without the pledgee having to obtain a court judgement. Since not only the signatures are notarially certified but the whole deed is notarially recorded, the notary fees are higher. The notary fees are calculated in accordance with the Notarial Fees Act (Notariatstarifgesetz).

(ii) In case of registration of the mortgage with the Land Register, registration fees according to the Court Fee Act (Gerichtsgebührengesetz) in the amount of 1.2% of the mortgaged amount are payable.

(iii) Mortgage agreements are generally subject to stamp duty in the amount of 1% of the secured amount according to the Stamp Duty Act (Gebuhrengesetz). No stamp duty is payable on the mortgage agreement if the mortgage secures exclusively claims under loan agreements.

4. Can the lender use a Security Trustee to hold security on trust for creditors?

Under Austrian law, there is no concept of trust similar to English law. However, it is possible for a security trustee to hold the security interest in its own name but on behalf of the secured lenders.

4.1 What happens if the lenders change later on e.g. on a transfer? Does new security have to be signed?

Generally, the security has to be transferred to the new lender (unless in case of a so-called “legal cession”). If each lender is registered as a pledge, the mortgage needs to be transferred separately to the new owner. If the correct form of the security trustee is used, no security document needs to be signed.

5. Does the landlord/borrower have control over changes in tenants if the tenant wants to transfer the lease to a new tenant and is the original tenant still bound by the lease?

In general, a transfer of the lease to another tenant requires the consent of the landlord. However, the tenant may sublease the premises if such sublease is not disadvantageous to the landlord and is not expressly prohibited under the lease agreement (whereas such prohibition has to be based on an important reason if the Austrian Rental Act (Mietrechtsgesetz) applies on the lease agreement).

6. How can the lender enforce its security?

6.1 Can a foreign jurisdiction (either a court or arbitral tribunal) be chosen to settle disputes and under what circumstances may such a choice not be recognised?

In general, based on the Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters and on Austrian law, the parties to a contract can choose a foreign jurisdiction. However, disputes relating to real estate can only be settled by the competent Austrian court.

6.2 Does the local law allow for the enforcement of arbitral awards or foreign judgements without review?

In general, domestic (i.e. Austrian) arbitral awards become final and enforceable without review.

Foreign arbitral awards are only recognized and enforceable in Austria if such recognition is provided for in international treaties to which Austria is a party. Thus, e.g. treaties within the scope of the New York Convention on recognition of arbitral awards are enforceable in Austria. Further, foreign judgements rendered under the Council Regulation (EC) No. 44/2001 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters will generally be reviewed and enforced without review of the merits of the case (if enforcement is not prevented by specifically in art. 34 enumerated factors). Further, a foreign arbitral award is acknowledged according to Austrian Execution Law (Exekutionsordnung) if the mutual recognition of arbitral awards of such foreign country is provided for by binational agreements or regulation.

6.3 How can that security be enforced? Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

For the forced sale (Zwangsversteigerung) (or forced administration (Zwangsverwaltung)) procedure, the court for the Land Registry at which the real estate is registered is competent. The creditor has to submit with the application for forced sale a list of all persons having rights on the real estate and an enforcement title (such title being the positive final judgement or a directly executable notarial deed).

The court appoints an expert who assesses the value of the real estate and fixes the day of the public auction. After the sale of the real estate the court fixes the date for distribution of the purchase price to the creditors.

The forced administration serves for settlement of the creditors’ claims by the use of the revenues arising from the administration of the real estate (such as rental revenues). The forced administration may be applied together with the forced sale. For administration of the real estate, an administrator is appointed by court.

Based on recent court precedents, it appears doubtful whether a private sale (based on a power of attorney by the owner to the creditor) is possible (unless the debtor is cooperative).

6.4 Is the lender responsible for the maintenance and insurance of the real estate after default until sale?

According to the Austrian Execution Act, in case of a forced sale proceeding, as of acquisition of the real estate, the acquirer of the real estate enters into the insurance agreement concluded by the former owner of the real estate and is responsible for maintenance and insurance of the real estate. If after the initiation of the sale proceedings and the sale of the real estate, forced administration (Zwangsverwaltung) is applied for by the creditor, the court appointed administrator is in charge of the maintenance of the real estate and has to pay insurance premiums using the revenues of the real estate. If the owner maintains the possession of the real estate during this phase, the owner himself is responsible for the administration and maintenance of the real estate.

6.5 Is there any method of foreclosure (lender obtaining good title to the real estate in satisfaction of all or part of its debt)? If so, does this require a court order and is it only automatically used when the real estate is not sold at public auction?

Under Austrian law in the case of a borrower’s default, the ownership of the mortgaged property is not automatically transferred to the mortgagee. Any such provision agreed on between the mortgagor and the mortgagee prior to maturity of the claim is null and void.

7. Is there anything else that you would specifically point out to a foreign lender as being unusual or particularly difficult?

No.

B. Security Over Shares

Assuming real estate is held in a locally incorporated single purpose vehicle to provide an alternative to enforcement of the mortgage over real estate:

1. Can security be granted to a foreign lender?

Yes, security over shares in an Austrian company can be granted to foreign lenders.

2. Can second ranking security be taken? If so, how is it registered?

Yes, second ranking security can be taken and is established in the same way as a first ranking security; provided that certain specifics apply (and cooperation of the first ranking beneficiary will be required) for joint stock companies.

3. What are the mechanisms for registering and perfecting security?

3.1 Consequences of failure to register?

No public registration is provided for under Austrian law.

3.2 Formalities for execution of security and costs?

The security is established by the share pledge agreement (providing for a first or other ranking pledge) and perfected by the required publicity act. Usually, the notification of the company is sufficient as publicity act; only in case of shares in joint stock companies which are chartered by a document of title, does the document have to be transferred to the lender. Without the publicity act the security is not perfected. The only costs which occur are the costs of the legal advisors in connection with the drafting of the share pledge agreement.

4. Do the shares need to be transferred into the name of the lender or its nominee?

No, such transfer is not needed.

5. How can the lender enforce its security?

5.1 Can it be sold to a third party? Is it possible for a secured party to appoint receivers/liquidators and if so how and what are their powers? Can security be enforced directly without recourse to the courts and are private sales of security possible? Does it have to be sold by auction?

In the case of enforcement the shares may be sold either by the court (either by public auction or, if the shares have a determinable market value (e.g. in case of stock), by private sale of the court appointed administrator without public auction) or, if agreed between the parties, by the pledgee by private sale.

A forced administration by a court appointed administrator is not foreseen under the Austrian Execution Act, however, the share pledge agreement often contains irrevocable power of attorneys issued by the pledgor authorizing the pledgee to sell the real estate in the pledgor’s name and/or to exercise the pledgor’s shareholder rights.

5.2 Are loans from shareholders subordinated? If so, how is this done? Is it customary for such loans to be waived or written off contractually as part of an enforcement of a share pledge should a default occur?

It is common practice for a subordination agreement to be entered into between the borrower, its shareholders and lenders of a facility granted to that borrower. These deeds of subordination will provide for the subordination of the shareholders’ loans to other loans granted to that borrower. However, it is not common practice that such provisions are included in the share pledge agreement.

Without such subordination agreement, the loans from shareholders are usually not subordinated unless they have been granted to the company during financial distress instead of injection of share capital – in such case under the terms and conditions of the Equity Substitute Act (Eigenkapitalersatzgesetz), such loans may be regarded as equity and will therefore be subordinated to other loans provided to the company.

C. Leases

Legal issues that would be likely to impact upon the valuation and the security of income from an investment perspective.

1. Lease Structure

1.1 Typical lease length?

The length of the lease contract is determined by the parties in accordance with their economic needs, subject to the comments below. The typical lease length depends on the kind of use (private/commercial) and the sector (small retailer, shopping city, hotel).

1.2 Maximum/minimum lease length if any?

Under Austrian law, in general, no maximum or minimum term of lease agreements exist. Only with respect to leases which fall under the scope of the Austrian Rental Act (Mietrechtsgesetz) and which are concluded for a fixed term, the Austrian Rental Act imposes a minimum lease length of three years (whereas the tenant may terminate the lease agreement after one year); this provision also applies to every extension of such lease agreement.

Lease agreements may either be entered into for a fixed term or for an indefinite period of time.

1.3 Statutory controls and obligations re renewal/termination of leases (does tenant have automatic right to renewal or can they apply to the courts for a new lease); also does some form of notice have to be served to terminate a lease to avoid renewal?

Lease agreements entered into for a definite period of time expire upon the end of the lease term. Fixed term contracts may only be terminated before their expiry for good cause.

Lease agreements entered into for an indefinite period of time may be terminated in accordance with the notice periods agreed between the parties or the notice periods provided for under the Austrian Civil Procedure Act (Zivilprozessordnung). Private lease agreements concluded for an indefinite period of time and which fall within the scope of the Austrian Rental Act may only be terminated for the reasons set out in the statute.

Lease agreements entered into for a definite period of time may be extended by the parties by mutual agreement. The fixed term in a lease agreement can either be an unconditional fixed term (unbedingter Endtermin) (i.e. in such case the lease expires automatically with the lapse of agreed lease term) or a conditional fixed term (bedingter Endtermin) (i.e. requiring, in addition, a termination notice). If a conditional fixed term was expressly agreed between the parties, the lease agreement will be extended automatically if no party submits a termination notice.

Further, irrespective of the fact whether a conditional or an unconditional fixed term was agreed, if the tenant continues to use the premises following expiry of the lease and the landlord does not react, the lease agreement is extended automatically for the period set out in the lease agreement, and, if no term is stipulated, the extension is for one month.

1.4 Any overriding statutes concerning the ability of the tenant to break a fixed term lease (whether or not included as a term of the lease)?

A fixed term lease agreement may be terminated by either party for important reason, such reasons being stipulated in the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch) and in the Austrian Rental Act (Mietrechtsgesetz).

1.5 Any other security of tenure provisions available to a tenant that would frustrate possession or prevent receipt of market rents?

Any limitation of the contractually stipulated use that is not unsubstantial may entitle the tenant to a reduced rent. Except for the limitations of termination and the implied extension of lease agreements, the tenant has no right to take possession of the real estate beyond the rights under the lease agreement. With regard to lease agreements which fall into the scope of the Austrian Rental Code, specific provisions with regard to determination of maximum rents apply.

2. Rent/Rent Reviews

2.1 Rental income receivable quarterly/monthly in-advance/in-arrear?

Rent is usually paid monthly in advance. For commercial leases in shopping centres and hotels, quarterly payments are market practice. With regard to hotels in particular, often a combination of fixed term and variable term is agreed with an annual adjustment.

2.2 Periodicity of reviews?

The periodicity of review depends on the contractual agreement. Usually, rents are adjusted in accordance with the consumer price index. For lease agreements within the scope of the Austrian Rental Act, the rents are yearly reviewed in view of the maximum rents provided for in the statute.

2.3 Basis of review (upwards-only or variable, indexation or market rent)?

Usually, the rent is annually adjusted in accordance with the consumer price index, whereas deviations of up to 10% are often not taken into account.

2.4 Are rents/reviews subject to statutory control in regard to quantum or increase (i.e. rent control)?

With regard to lease agreements within the scope of the Austrian Civil Code, no statutory control regime is provided for; with regard to lease agreements under the scope of the Austrian Rental Act, a differentiated regime for maximum rents is stated.

3. Lease Obligations: Who has responsibility for:

3.1 Internal maintenance, decoration and repair?

The lease obligations depend on the type of lease agreement as some lease agreements are governed by the Austrian Civil Code and others by the Austrian Rental Act which contains more provisions for the benefit of the tenant. For the avoidance of doubt, most of the commercial leases are governed by the Austrian Civil Code.

According to the Austrian Civil Code, the landlord is obliged to maintain the lease premises in a usable condition. Most of the maintenance obligations are usually transferred to the tenant.

3.2 External maintenance, decoration and repair?

According to the Austrian Civil Code, the landlord is obliged to maintain the lease premises in a usable condition. Most of the maintenance obligations are usually transferred to the tenant.

3.3 Structural repairs?

The landlord is responsible for structural repairs.

3.4 Insurance?

Insurance costs are operational costs and have to borne by the tenant.

3.5 VAT?

A reduced rate of 10% applies for the leasing of immovable property for accommodation purposes. If the property is leased for commercial purposes, VAT at 20% applies.

3.6 Rates?

Generally, public charges (e.g. real estate taxes) are to be borne by the landlord and operational costs are borne by the tenant. In the case of execution of a lease agreement, stamp duty falls due. The parties usually agree that the tenant shall pay the stamp duty.

3.7 Other typical outgoings?

No.

3.8 The ability to recoup any landlord outgoings (including management costs) by way of service charges?

Normally, the tenant has to pay all service charges. The definition of operational costs in the relevant statutes is quite broad; therefore, management costs may also be operational costs to be borne by the tenant.

4. Enforceability

4.1 Are terms of leases/contracts recognised and supported by case law in the jurisdiction?

Contractual stipulations and terms of leases are generally enforceable and supported by the Austrian courts unless such provisions contravene against mandatory provisions of the Austrian Civil Code or Austrian Rental Code.

5. Valuation and Environmental

5.1 To be recognised in the courts, does an appraisal have to be prepared by some domestically regulated/qualified party or is an RICS (Royal Institution of Chartered Surveyors)-qualified appraisal report accepted and recognised in each jurisdiction?

In order to be recognized by a court, a property valuation must be made by a domestically regulated and qualified expert appointed by the court. However, the parties of a loan agreement or a lease agreement may contractually agree on the (e.g. yearly) valuations by a foreign appraiser and may relate certain consequences (as increase of rents; event of defaults) therewith.

5.2 Is it possible/customary to obtain environmental reports from a local government agency or a qualified, insured environmental professional?

A public register regarding certain contaminations exist (Altlastenregister). Except for that, no public available information exists. There are however, various professional service providers specialising in environmental compliance which may provide environmental due diligence reports.

5.3 Is it possible for liability in respect of past or present breaches of environmental laws to attach to a lender by it holding or enforcing a mortgage over real estate?

No, a lender holding or enforcing a mortgage cannot be held liable for past or present breaches of environmental laws relating to the mortgaged properties unless the lender purchases the real estate.