Real estate finance law in Austria

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

 If a mortgage over land is established, such mortgage extends to the buildings thereon because they are an integral part of the land and share its legal status; therefore, it is not feasible to mortgage a building without the land on which it is built. Two exceptions apply. A so-called “superstructure” (Superädifikat) is a building erected on the land of another person that is built with the intention of not remaining on the land on a permanent basis. The building can be erected on the land based on a building right (Baurecht) which must be registered with the lander register.

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

There is no distinction. In both instances, the mortgagee would have in principle the benefit of the same rights. In relation to mortgages over superstructures it is however recommended to provide for contractual safeguards to facilitate the enforcement.

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 for the first mortgage. The rank and priority of mortgage depends in principle on the time of receipt of the application for registration by the land register A change of the ranking in the land register is possible by way of an agreement between the secured parties and the mortgagor.

Priority deeds (Anmerkung der Rangordnung) with respect to an envisaged mortgage must 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 in the land register and therefore has no in rem effect. Moreover, statutory restrictions apply to a prohibition of transfer for the benefit of a lender.

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 registration in the land register. Therefore, such security interests are not always recognisable in the land register and override mortgages that were registered earlier. The most important privileged security interests are security interests in connection with real estate taxes.

2.6 Can “all monies” mortgages be taken?

An “all monies mortgage” (i.e. a mortgage where the mortgaged property stands as security for indebtedness that is not at all determined 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 a maximum amount mortgage, i.e. a mortgage under which only the maximum amount to which the land can be encumbered is entered in the register. However, also in case of a maximum amount mortgage, the mortgage must secure specified 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 must conclude an agreement assigning/pledging the landlord’s existing and future claims against the tenant. To become effective, the assignment/pledge has to be either notified to the tenant or entered in the accounting books of the landlord. Since claims are not immovable objects, no registration in the land register is required or possible. In the event of the borrower’s default, the lender may be repaid directly from the assigned/pledged claim.

It should be noted that according to the Austrian Rental Act (Mietrechtsgesetz), 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 in 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 its account, as long as no default occurs; it is, however, also possible to additionally block the pledged account. 

A public deed (notarial act or private deed containing certified signatures) is required for the registration of land or a mortgage.

3.1 Consequences of failure to register?

The ownership right has not been perfected until its due registration in the land register (exceptions apply with regard to obtainment of 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 in the land register. In order to avoid registration fees, lenders sometimes accept a registrable mortgage deed that is deposited with the lender or a notary public and enables the lender to file it in the event of default. However, also in such cases, no right in rem is established until registration of the registrable mortgage deed. Due to the fact that registration in the land register is a requirement for the establishment of a right in rem, failure to register has the consequence that no right is established. This means that claims are not secured as long as they are not registered in 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 the notarially certified consent of the owner of the property in respect of the registration of the land charge and registration thereof in 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.

1. 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. 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).
2. In case of registration of a mortgage in the land register, registration fees according to the Court Fee Act (Gerichtsgebührengesetz) in the amount of 1.2% of the mortgaged amount are payable.
3. Mortgage agreements are generally subject to stamp duty in the amount of 1% of the secured amount according to the Stamp Duty Act (Gebührengesetz). No stamp duty is payable on a mortgage agreement if the mortgage exclusively secures claims under loan agreements (but stamp duty might be triggered if the scope of secured obligations is wider and e.g. covers all claims under all “finance documents” or similar). 

Under Austrian law, there is no concept of security trusteeship. For most types of securities (including pledges and mortgages) the secured party must be creditor of the secured claim. But if structured correctly from the outset, joint creditorship can be implemented under Austrian law, allowing a “security agent” to hold a mortgage as sole mortgagee for e.g. a consortium of lenders; however, this concept has not been tested so far before Austrian courts and may be at risk in particular if the “security agent” is not a lender under the loan agreement but solely holds claims for purposes of the security agency.

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

Generally, the security has to be transferred to the new lender. If each lender is registered as a pledgee, the mortgage needs to be transferred separately to the new owner. If the correct form of security trusteeship/security agency is used, no additional security document needs to be signed upon transfer/secondary syndication of a loan.

In general, transfer of a 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 applies to the lease agreement). 

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 Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters, as well as 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. Following Brexit, in general, English court judgments will only be recognised under Austrian law if the jurisdiction clause provides for exclusive jurisdiction of English courts.

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 recognised and enforceable in Austria if such recognition is provided for in international treaties to which Austria is a party. Thus, for instance, treaties within the scope of the New York Convention on Recognition of Arbitral Awards are enforceable in Austria. Further, foreign judgements rendered under Regulation (EU) No 1215/2012 will generally be reviewed and enforced without review of the merits of the case (subject to possible restrictions under that regulation). Moreover, 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 bilateral agreements or regulations.

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?

The court for the land registry where the real estate is registered is competent for proceedings regarding its forced sale (Zwangsversteigerung) or forced administration (Zwangsverwaltung). The creditor has to submit a list of all persons having rights to the real estate and an enforcement title (such title being e.g. a positive final judgement or a directly executable notarial deed) with the application for forced sale.

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

Forced administration serves to settle creditors’ claims by using the revenues arising from the administration of real estate (such as rental revenues). Forced administration may be applied together with a forced sale. An administrator is appointed by the court to administer the real estate.

A private sale is possible in principle if it is agreed with the owner and a power of attorney is issued by the owner to the creditor. Recent court precedents, however, stipulate strict criteria for an out-of-court sale of a property, and those criteria might get even more stringent in the future. In any event, certain restrictions apply to such powers of attorney (e.g. the pledgor may not act arbitrarily (willkürlich), and a sale should only be permitted at market prices).

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 the case of forced sale proceedings, as for acquisition of real estate, the acquirer 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 forced administration is applied for by the creditor after the initiation of the sale proceedings and the sale of the real estate, 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 possession of the real estate during this phase, the owner itself 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, 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. 

No. 

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

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

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

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 first or other ranking pledge) and perfected by the required publicity act. Usually, notification by the company is sufficient as a publicity act in case of a pledge of shares in a limited liability company; only in case of shares in joint stock companies, which are chartered by a document of title, the document has to be handed over to the lender or a nominee of the lender. In case of shares represented by centrally stored global certificates (dematerialised shares, im Effektengiro gehandelte Wertpapiere), the pledge can be perfected solely by a book entry in the relevant securities account. Without the publicity act, the security is not perfected. 

No, such transfer is not needed. 

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, 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 by the court-appointed administrator without a public auction) or, if agreed between the parties, by the pledgee by private sale. In-court enforcement again requires an enforcement title (such title being e.g. a positive final judgement or a directly executable notarial deed).

Share pledge agreements often contain irrevocable powers of attorney issued by the pledgor, authorising the pledgee to sell the shares in the pledgor’s name and/or to exercise the pledgor’s shareholder rights. Case law requires the implementation of certain measures to protect the interests of the pledgee, in case the pledgor agreed to an enforcement via private sale by the pledgee . 

Forced administration by a court-appointed administrator is not provided for under the Austrian Execution Act.

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 the bank's loans granted to that borrower. 

Depending on the transaction, lenders might consider requiring a qualified subordination clause that would also apply in case of insolvency of the borrower. Any other form of subordination typically only applies inter partes and does not bind third parties (including an insolvency administrator).

Without such subordination agreement, loans from shareholders are usually not subordinated unless they have been granted to the company during financial distress instead of an injection of share capital – in such cases, 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.

It may be agreed in the subordination agreement and it is often done so that in case of an enforcement of a share pledge subordinated loans are deemed waived or written off. 

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

1.1 Typical lease length?

The length of a 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 centre, hotel).

1.2 Maximum/minimum lease length if any?

Under Austrian law, in general, no maximum or minimum terms of lease agreements exist. Only with respect to residential leases that fall under the scope of the Austrian Rental Act and 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 any 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 by the landlord 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 cases the lease expires automatically with the lapse of the 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 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 a period of three years, and, if the lease agreement is not terminated after those three years, it is deemed to have been renewed for an indefinite period. The tenant has the right to terminate the renewed lease agreement at any time, either in court or in writing, with three months’ notice.

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 reasons, such reasons being stipulated in the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch) and in the Austrian Rental Act.

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 contractually stipulated use that is not unsubstantial may entitle the tenant to reduced rent. Except for the limitation 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 that fall into the scope of the Austrian Rental Act, specific provisions with regard to determination of maximum rents apply (e.g. the tenant has the right to terminate the lease agreement without notice if the property has been handed over in a condition or, through no fault of his own, has fallen into a condition that renders it unsuitable for the agreed use; or in case of a fixed-term lease agreement for a flat, the tenant has the unwaivable and unrestricted right to terminate the lease agreement before the end of the month, subject to a three-month notice period, after one year of the originally agreed or extended term of the lease has passed).

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

Rent is usually paid monthly in advance. For commercial leases on shopping centres and hotels, quarterly payments can be agreed. It is also common that revenue-based rent is agreed. 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 that are subject to the full scope of application of the Austrian Rental Act and to which the reference value or categorised rent is applied, rents are reviewed yearly 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, rent is adjusted annually in accordance with the consumer price index, whereas deviations of up to 3-5% are often not taken into account. Threshold values for indexation may be agreed, or it may be agreed that only a certain percentage of the index change will be applied.

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 stipulated.

One of the objectives of the Austrian Rental Act is price protection, i.e. protection against excessively high rent charged by the landlord from the tenant. It is worth noting that these rent control regulations do not apply if the Austrian Rental Act is only partially and not fully applicable.

The Austrian Rental Act has set a statutory maximum rent limit for residential leases. If the lease agreement stipulates a higher rent than permitted by law, the part of the rent that exceeds the maximum limit is considered null and void. However, this does not mean that the entire contract is void.

Furthermore, not all residential lease agreements fall under this provision. For example, if a flat is larger than 130 m², or if a flat is located in a historically protected building and there is a public interest in maintaining the building, a reasonable rent can be stipulated. 

Additionally, commercial lease agreements may also regulate that a reasonable rent shall be paid. Therefore, the characteristics of rented commercial properties themselves are decisive for the assessment of the reasonableness of the rent. Regulations regarding the reference value or categorised rent are not applicable in such cases. 

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 to the tenant’s benefit. For the avoidance of doubt, most commercial leases are governed by the Austrian Civil Code.

According to the Austrian Civil Code, the landlord is obliged to maintain the leased premises in usable condition. However, the Austrian Civil Code is dispositive; other provisions can be agreed, and 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 same rules apply as for internal maintenance as mentioned in section 3.1 above. According to the Austrian Rental Act, certain external maintenance obligations remain with the landlord and cannot be transferred to the tenant.

3.3 Structural repairs?

The landlord is responsible for structural repairs. If the Austrian Rental Act is not or not fully applicable, other contractual provisions may be agreed.

3.4 Insurance?

Insurance costs are operational costs and have to borne by the tenant. This can vary depending on the contract. If the Austrian Rental Act is not or not fully applicable, the entire insurance obligation may lie with the tenant.

3.5 VAT?

A reduced rate of 10% applies to the leasing of immovable property for accommodation purposes. If the property is leased for commercial purposes, no VAT applies, but the landlord can opt for VAT, in which case a rate of 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. However, public charges are often passed on to the tenant. They are only charged to the landlord, but not borne by him. The Austrian Rental Act also states that many public charges may be charged as operating costs and must thus be borne by the tenant (e.g. water charges and costs arising from inspections of the water pipes required under the terms of supply). 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?

Yes, if there is a property manager, property management costs must be borne by the landlord. However, the landlord has the right to transfer these costs to the tenant by means of operating costs. If the landlord decides to transfer these costs to the tenant, the Austrian Rental Act (if fully applicable to the lease agreement) sets a maximum amount for the transferral of such costs.

Additionally, the owners of the property must also contribute towards the reserve fund. But this only applies if the Austrian Rental Act is fully applicable; otherwise, these costs are omitted.

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.

4.1 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 mandatory provisions of the Austrian Civil Code or the Austrian Rental Act. Disputes are to be settled by the district courts. It is possible to enter into a jurisdiction agreement regarding the locally competent district court. 

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 recognised by a court, a property valuation must be made by a domestically regulated and qualified expert appointed by the court. However, the parties to a loan agreement or a lease agreement may contractually agree on (e.g. yearly) valuations by a foreign appraiser and may relate certain consequences (such as increase of rent, event of default) thereto. A private appraisal report may be submitted by a party during court proceedings, but is not to be recognised as a qualified appraisal report and only constitutes a deed in civil proceedings.

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 exists (Altlastenregister). Except for that, no publicly available information exists. There are, however, various professional service providers specialising in environmental compliance, which may provide environmental due diligence reports (e.g. a request to the Federal Environment Agency for further information on important properties can be made). Additionally, companies can be appointed to inspect soil or buildings for contamination.

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 or has caused the contamination.