Closed shops and empty offices in times of COVID-19

The coronavirus currently affects all areas of life – including the real estate sector. This also raises numerous legal questions, which are causing widespread uncertainty. The following overview shall serve to provide some clarity in these uncertain times.

On 15th of March 2020, the Austrian Government enacted the COVID-19-Measures Act. On the basis of this piece of legislation, the Minister of Health issued, among other things, the Ordinance on Temporary Measures to Prevent the Dissemination of COVID-19.

Said Ordinance poses the following restrictions on business operations from 17th of March 2020 until the end of 22nd of March 2020 (for the time being): It is prohibited to enter the customer area of certain premises of retailers and certain service providers as well as leisure and sports facilities for the purpose of purchasing goods or services or using leisure and sports facilities. Restaurants must remain closed. For the duration of the Ordinance, business premises may no longer be used to receive customers. If continuation of operation is necessary for professional purposes, it must be ensured that a distance of at least one meter is maintained between the persons present.

Do tenants still have to pay rent?

If the tenant is unable to use the rental object due to extraordinary circumstances, such as an epidemic, no rent shall be payable. Correspondingly, the landlord shall not be obliged to restore the agreed use.

The tenant therefore does not have to pay rent. The decisive factor is whether the rental object is usable or suitable for the (contractually) agreed use.

If the rental object is merely partially suitable for the agreed use, e.g. because it can only be operated to a smaller extent, the rent is only partially payable.

The above mentioned statutory provisions (Sections 1104 and 1005 of the Austrian Civil Code) may be contractually waived: For example, it could be stipulated that the tenant bears the risk of extraordinary circumstances, such as epidemics. Such regulations can be effectively agreed upon within the legally permissible limits – as long as they do not run contrary to bonos mores (against good morals).

It should therefore be examined in each individual case whether and to what extent the tenant is actually entitled to a rent reduction.

It is questionable whether only tenants of shops are entitled to a rent reduction, as shops have to remain closed under the above-mentioned regulation, or whether this also applies to tenants of offices. Currently, there are no closures of offices via Ordinance. The Austrian Government has merely issued a general call to employers to allow home office. Therefore, tenants of office spaces could be entitled to a reduction or cancellation of rent. Given that there is little case law on the subject, however, this question cannot be answered unambiguously and must be assessed on a case-by-case basis.

Is there an operating obligation for tenants of business premises?

Since the rental object cannot be used, there is no obligation to operate it. The landlord is not obliged to provide the agreed use, nor is the tenant obliged to operate the existing property. Consequently, there are no claims for damages.

Do different rules apply for usufructuary business lease agreements?

The law provides for different regulations regarding usufructuary business lease agreements (“Unternehmenspachtverträge”).

According to Section 1105 of the Austrian Civil Code, the lessee is only entitled to a waiver of the rent if, by extraordinary coincidence, the use of the leased object is partly usable, and the income from a property leased for only one year has decreased by more than half of the usual income. In this case, the lessee is entitled to an aliquot reduction of the rent.

In case of usufructuary business lease agreements with a term of more than one year, the lessee is therefore not entitled to a rent reduction. This provision could be particularly relevant for leased restaurants with delivery service. According to case law, contracts regarding retail space in shopping centers generally do not qualify as usufructuary business leases, but as rental agreements.

Is the tenant entitled to terminate the rental agreement?

Since the current situation renders the rental object merely temporarily unusable for the agreed purposes, it must be assumed that the tenant is not entitled to terminate the contract for extraordinary reasons.

Is the landlord entitled to terminate the rental agreement?

The same applies as for the tenant. In our view, the landlord is not entitled to terminate the rental agreement.

Does the tenant have special (maintenance) obligations?

The tenant is obligated to keep the rental object secured. He has to take the necessary precautions to prevent serious damage and to safeguard potential insurance benefits. As with any extended absence, the tenant must, for example, turn off the main water supply tap.

As far as legally possible and reasonable, the tenant is also obliged to check the condition of the rental object for serious damage at certain intervals.

Is the landlord entitled to compensation for loss of rent? As of 17th of March 2020

In principle, the landlord might be entitled to compensation from the COVID-19 crisis management fund due to loss of rent. However, it remains to be seen which specific Laws and Ordinances will be issued in this regard.

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