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Employment & Immigration
In the wake of the COVID-19 pandemic, the government commissioned the so-called 'social partners' (ie, the Chamber of Commerce representing employers and labour unions acting on behalf of employees) to negotiate and present a bill on working from home that Parliament can pass into law as the new standard on the matter. The new framework will cover various issues – from contractual provisions and co-determination by works councils to recommendations on occupational safety.
Competitive actions by employees through intermediaries: imputation of liability and restrictive covenantsAustria | 04 November 2020
Under Section 7 of the Employment Act, employees cannot, while employed and without their employer's consent, operate a commercial business or conclude commercial transactions in their employer's line of business. In a recent case, the Supreme Court had to decide whether the statutory prohibition also covers such competitive actions by employees through intermediaries or whether only the employees themselves have the standing to be sued by their employer.
The Supreme Court recently ruled for the first time on the issue of whether GPS tracking without an employee's consent warrants compensation for immaterial damage. Employers that use GPS tracking systems or similar control measures to monitor their staff should ensure that they agree the system's introduction with the works council or have each affected employee expressly consent to such a measure if no works council has been elected.
The Supreme Court recently clarified the legal implications of one particular scenario of dismissal challenges: if a works council expressly objects to an employee's dismissal (as opposed to expressly consents or fails to make a statement), the right to challenge the dismissal rests with the works council, but only if the employee, within one week of such objection, requests the works council to act accordingly and file a lawsuit.
The COVID-19 pandemic has caused employers to use various methods to support employees and maintain business performance. Old and new legal remedies provide for continued payment of salaries (and in some cases also corresponding grants to employers) if performance of work is impossible. This article outlines the routes that employers and employees can take where normal working is impossible, such as sick leave and care leave to look after sick children.
Austria pioneered short-time work schemes. Introduced in 1949 and overhauled in 2008 and 2009 during the financial crisis, the Austrian short-time work scheme has recently been further adapted to the particular needs of the COVID-19 crisis. This article examines who is eligible for the short-time work scheme and what subsidies are available.
Following amendments to the Working Time Act, it was unclear whether the new statutory regime regarding working time overrides collective bargaining agreements that have not been adapted to the new maximum work hours and provide for a daily maximum of 10 working hours for flexitime. In the first decision on this issue, which will have far-reaching consequences, the Supreme Court has clarified all relevant questions regarding the collective bargaining agreement for metal workers.
From 1 January 2020, bike couriers' employment relationships will be governed by a newly enacted collective bargaining agreement. Bike couriers in Austria now enjoy rights and benefits which are similar to employees in other sectors. While this is good news for bike couriers, it remains to be seen whether customers will have to pay the bill because of increased prices for courier services.
The Supreme Court recently confirmed an appellate court's decision and ruled that a school teacher who had moonlighted as a brothel manager had been eligible for termination because this sort of behaviour could be considered a breach of trust and damaging to the school's reputation. The case was eventually decided in view of the perceived criminality of sex workers and their employers among the general public. However, this perception arguably depends on who is asked.
Parliament recently passed a new law that grants fathers a legal entitlement to one month off work following the birth of their child. Dubbed the 'daddy month' by the media, this entitlement seeks to fill a gap that puts fathers at a disadvantage when it comes to childcare immediately following the birth of their child.
An employee recently sued for damages and compensation for gender discrimination when his job application was rejected because he had long hair. Originally unsuccessful, when the employee learned that the defendant's employee handbook contained rules on employees' outer appearance, he sued again and succeeded, as the Supreme Court found that the employee handbook was prima facie evidence of gender discrimination.
The European Court of Justice advocate general recently confirmed that the Austrian regulation which sets out that Good Friday is a paid public holiday only for members of four specific churches is discriminatory. Further, the advocate general concluded that each affected employee could claim holiday pay for past periods, unless such claims were already time barred, in which case claims could be brought against the Austrian state.
It is widely understood that the Austrian concept of 'social partnership' (ie, the system for cooperation between the two sides of industry) has largely contributed to peaceful industrial relations. The social partnership recently agreed on a new collective bargaining agreement for the metal industry. However, negotiations in several other trades and industries have followed, and in a less constructive atmosphere, further strikes may be forthcoming.
Under Austrian law, Good Friday is a paid public holiday only for members of four churches. An employee who belonged to none of these churches took issue with this and sued his employer. The case eventually reached the Supreme Court, which requested a preliminary ruling by the European Court of Justice (ECJ). In his recently issued opinion, the ECJ advocate general delivered what will likely also constitute the court's position on the matter.
Parliament recently passed a new law that brings sweeping changes to the Working Time Act and will come into effect on 1 September 2018. The law – which was heavily debated in the media and caused much controversy among the 'social partnership' (the Austrian system for cooperation between the two sides of industry) – sets the stage for more flexibility in a changing work environment.
Determining whether an individual is an employee or self-employed can be risky for both the contractor and engager. Often, no one knows exactly how to qualify an individual until the national insurer claims arrears in social security payments in the wake of an audit. The parties involved hardly ever have legal certainty in advance. The Social Security Determination Act aims to change that.
Under Austrian law, a recommendation letter must be truthful and cannot contain language that would aggravate the professional advancement of the employee. When truthfulness would result in less than lavish praise, employers must resort to a short-form recommendation letter, devoid of any information beyond the type of work performed and the duration of employment. This alternative, although accurate in its lack of praise, can aggravate an employee's career prospects.
In its final session before the general election, Parliament passed a bill which serves as a first step in harmonising the different legal regimes covering blue-collar and white-collar employees. However, not everyone is happy with this half-hearted harmonisation project – most notably, employer organisations – as they believe that the extended notice period for blue-collar workers will cost employers dearly.
As of May 1 2018 smoking in restaurants and bars will be prohibited. The restrictions on smoking in the workplace will also be tightened as of this date. However, the new provisions still afford some leeway to employers in that they can organise smoking breakrooms. As a consequence, the workplace may be more smoker friendly than pubs – who would have imagined that.
New legislation recently came into effect that aims to ease the process of reintegration into the workplace for employees who have been on extended sick leave and who would benefit from a reduced workload in order to aid rehabilitation and reconnect with the workplace. Although it is a well-meant initiative to curb the increase in long-term sickness, the legal framework reveals some major flaws.
Two recent amendments to the Labour Relations Act benefit the legal status of works councils and are geared towards increasing older employees' job prospects. In particular, the term of office for members of a works council has been extended from four to five years. Works council members' entitlement to educational leave has also been extended. Further, the special treatment of employees who start employment at age 50 or older has been abolished.
The Supreme Court recently ruled on the thin line between the freedoms to provide services afforded under EU law and member states' legislation to contain social dumping, which can be extended to employers of other member states when they perform their services abroad. The decision clarifies that foreign minimum wage legislation will be avoided where its application poses an undue burden on employers and where it can be guaranteed that the purpose of minimum wage legislation is not undermined.
The Supreme Court recently ruled that a retirement policy which makes redundant all employees who are entitled to early retirement is discriminatory and, as a direct form of age discrimination, cannot be justified by claiming that such a policy amounts to a socially compatible form of redundancy. The decision indicates that the requirement to consider social selection and weigh social hardship can also qualify as a justification for age discrimination.
The Supreme Court recently ruled that the wearing of a niqab need not be tolerated by an employer because, although religious dress is protected under anti-discrimination legislation, it is one of the basic rules of interpersonal communication that facial expressions be visible. Further, although an employer's prohibition on religious dress amounts to direct religious discrimination, this ban can be justified as an occupational requirement.
In a recent decision with potentially far-reaching consequences, the Court of Appeals for the Vienna Circuit ruled that a peculiar provision in the Act on Rest Periods violates EU law and must therefore be disregarded by the courts. The court of appeals gave leave to appeal to the Supreme Court. If the Supreme Court hears the case and upholds the court of appeal's decision, Austrian employees may soon celebrate yet another public holiday.
The Supreme Court recently sought to set the standard for an employer's right to introduce or enforce a dress code. Basing its decision on the privacy rights under the Civil Code and the European Convention on Human Rights, the court clarified that an employee's outer appearance is his or her private affair, and that the test to be applied as to where this privacy ends is trustworthiness. Although clear-cut in theory, the guidance leaves considerable leeway for interpretation.
The new year has brought some substantive changes in employment legislation, including new minimum working time reductions for parental part-time work and new requirements for job offers under which employers must first offer job openings to part-time employees. Further changes include new laws and regulations in relation to non-compete agreements, all-in salaries and overtime and working time provisions.
Imagine that a foreign entity employing Austrian staff in Austria asks its Austrian employees to sign a standard employment agreement template and then tries to terminate one of those employment relationships under Austrian law. Those were the facts underlying a recent Supreme Court decision, wherein the court concluded that the termination of an employment relationship was governed by the laws of the foreign employer, not Austrian law.
The Supreme Court recently ruled on whether and how an employer can request that employees submit to alcohol testing. The court qualified the employer's unannounced breathalyser tests as a control measure that affected human dignity and thus required the works council's prior consent. This decision has left some questions for employers, as it is almost impossible to comply with strict safety standards without unannounced testing.
For decades it was settled case law that compensating (or promising to compensate) a new hire for contractual penalties owed by the employee to his or her former competitor employer for breaching a non-compete clause amounted to anti-competitive practice, and both the former employee and new employer were liable under the Unfair Competition Act. However, the Supreme Court recently reversed this case law.
In line with the EU Transfer of Undertakings Directive, share sales do not trigger the works council's information or consultation rights. However, the provisions transposing the EU directive into Austrian law are not the only statutory rules that must be observed when it comes to share sales. As such, share sales with substantial operational changes trigger works council rights that far exceed those that apply under the EU directive.
In a recent decision the Supreme Court had to consider whether activities performed during an employee's sick leave that would not typically be regarded as adequate conduct were acceptable. The Supreme Court confirmed the lower courts' decisions and opined that the plaintiff had only followed his doctor's instructions and that he could rely on this advice.
The Supreme Court has upheld a lower court decision which dismissed an employer's claim that an employee should be liable for surveillance costs incurred by his employer. The decision reminds employers to think twice before incurring costs for detective surveillance of employees, as they can claim those costs from employees only where surveillance confirms misconduct and the misconduct warrants a valid, actionable claim.
Austrian law generally allows for imputation or attribution of knowledge to a principal where an agent, in the course of performing that task, learns something about a third party that has legal relevance to the principal's relationship with that third party. Employers should establish functioning reporting lines or risk knowledge being imputed to their detriment.
Under Austrian law, employees are granted protection against a termination of employment that lacks social justification. This means that employees can challenge their termination before the courts if it results in detrimental consequences that exceed the usual negative effects of a termination. The Supreme Court recently summed up the previous case law on the issue and specified what amounts to 'unusual' consequences.
In recent years, extended education-oriented programmes (eg, for educational leave and other subsidised leaves of absence) have set a precedent for allowing employees to find a work-life balance in an increasingly competitive work environment. Employees who are dismissed because of their intention to take educational or family care leave, or because of the actual leave taken, can challenge the dismissal as unfair.
The Supreme Court recently ruled that dismissal of an employee because of his or her national origin is deemed to constitute unlawful workplace discrimination based on ethnic grounds. Employers would be well advised to communicate clearly to staff that harassment, including offhand remarks or other verbal conduct, directed towards any ethnic or national group is unlawful.
Austrian legislation protects employees against the socially unjustified termination of employment. The Supreme Court recently clarified that an employer is not obliged or authorised to examine the decision-making process of a works council regarding its consent to the termination of an employee, provided that the employer was unaware of any illegality concerning the internal decision-making process of the works council.
In a recent decision the Supreme Court clarified that arrangements by works council members for a paid leave of absence are not enforceable if they go beyond the limits set forth in the Labour Relations Act. The court made it clear that the paid leave in the agreement at hand exceeded the benefits that works council members could accept in exchange for their honorary post and violated the concept of volunteering.
The Supreme Court recently clarified a conceptual question concerning age discrimination. The case was unique in that the plaintiff was the only contender for the job and the vacancy was never filled. The court had to decide whether discrimination could occur even in the absence of a person with whom the applicant's situation could be compared.
Employers must respond quickly when defending employees against mobbing attacks and harassment by their peers, a recent Supreme Court decision has confirmed. The court made clear that although an employer is free to choose any means necessary to protect its employees against such behaviour in the workplace, measures must be taken without delay.
Although Austria has had a statutory framework in place since 1988 regulating the relationship between temporary workers, their employers and the entity to which they are assigned, the legislature was slow to implement the regulations set forth in the EU Directive on Temporary Agency Work. In order to adopt the directive's provisions, the Temporary Employment Act will shortly be amended accordingly and signed into law.
Confidence in occupational retirement schemes has been lost over the years due to financial crises current and past, incorrect investment decisions and lax oversight. Many employees transferred their pension rights to defined contribution models hoping for higher returns, but instead suffered losses. The recent amendment of the Pension Fund Act aims to mitigate potential negative effects on occupational pensions.
Austrian law requires companies to be members of the Chamber of Commerce. In general, the applicability of a collective bargaining agreement is determined through mandatory membership of the relevant division of the Chamber of Commerce; the division to which a company belongs depends on the employer's trade/business and corresponding business licence.
In two recent decisions the Supreme Court clarified employer liability for harassment perpetrated by employees. The decision demonstrates that sexual harassment by the employer can also be perpetrated by the victim's superior. In such case the employer will be (vicariously) liable even where the harassment was the first such conduct of its kind.
The Supreme Court recently clarified that the termination indemnity for commercial agents can be forfeited if an agent has terminated the agency contract for retirement reasons other than reaching the regular retirement age. Agents would be well advised to consider the implications for their termination indemnity and principals have been granted yet another reason to avoid payment of the indemnity once an agent retires.
Austrian law allows employers and employees to enter into non-compete agreements. The law distinguishes between restrictions of competing activities during employment and restrictive covenants pertaining to post-termination periods. Whether a restrictive covenant on post-termination periods is enforceable depends on how, and by whom, the employment relationship was terminated.
In order to carry out dismissals and mass terminations, the Austrian legal regime requires the employer to give prior notification to the appropriate agency and observe the relevant terms. Additionally, the regime provides for staggered severance pay, increasing with seniority, if the termination of employment is not initiated or primarily caused by the employee.
The Supreme Court recently clarified the scope of a works council's right to freedom of information under the Labour Relations Act. The employer, an airline, intended to evaluate its quality of service using so-called 'mystery flyers'. The information gathered was passed on to the airlines works council, which made several inquiries, requesting further information.
In general, companies can collect employees' personal data. A prerequisite for the lawful processing of non-sensitive personal data is that it does not infringe an employee's legitimate interest in the confidentiality of the data. This condition is met if there is an explicit legal authorisation or duty to carry out the processing and the data subject has expressly agreed to, or has a vital interest in, such processing.
The European Works Council Directive imposed obligations on EU member states to establish a European works council or a procedure to inform and consult employees. Austria implemented these obligations by way of an amendment to the Labour Relations Act. The act provides for specific rules on the composition of a European works council, including rules on the number of members and the allocation of seats.
The Act on Secondment is broad in scope and basically applies to any scenario in which employees are seconded to a third party. The law's purpose is to provide rules which protect the labour and social rights of the seconded employees. Secondment creates a tripartite relationship between a temporary employment agency, the employer and the employee.
The Working Time Act defines 'overtime' as a period of working hours that exceeds either the maximum daily amount (eight hours) or the maximum weekly amount (40 hours) of standard working hours. Unless otherwise provided by collective bargaining agreements, a 50% premium is added to the normal hourly wage for calculating overtime pay.
Recent legislation has amended certain ingrained and inflexible rules on statutory working hours and conferred on staff representatives and employers legal powers to deviate mutually from the usual framework. Generally, standard working hours are up to eight hours per day and up to 40 hours per week; however, now they may be exceeded up to certain limits under certain circumstances.
Following the demise of Enron and ensuing US legislation, US companies have introduced mechanisms to safeguard the compliance of their European operations with the new legal framework. Such mechanisms have included implementing codes of conduct or ethics, which often provide for a whistleblowing hotline. The issue of whether the implementation of such codes is in line with Austrian legislation is twofold.
Under Austrian rules on collective bargaining, certain matters that affect the interests of staff are subject to regulation at plant level. Section 30 of the Labour Relations Act specifically requires that employers must make employees aware of any such plant agreements. In a recent Supreme Court case the employer failed to publish a plant agreement adequately, costing it dearly.
In response to the global economic downturn, Austria has in place a system wherein employers are permitted to reduce their employees' working hours while keeping the employment relationship intact. In accordance with this system, employers pay their employees government-subsidized special allowances instead of regular pay in order to cover most of the earnings shortfall.
Unemployment insurance is compulsory for all employees. Employers and employees must each contribute 3% to the social security provider. Since January 1 2009 self-employed indiviuals can opt into the system. It is hoped that this support programme will foster entrepreneurship and expand the Austrian social system.
A recent Supreme Court decision could have broad ramifications for employers that seek to raise individual employee performance by incentivizing their salary systems. Regardless of obtaining express consent from each individual employee, the court has ruled that such a system is voidable without prior consent from the works council.
In a recent decision the Supreme Court had to decide whether an employer was obliged to pay for office equipment needed by works council members to perform their representative roles on behalf of the workforce. The court concluded that the employer must, at its own cost, provide the chairman of the works council with a mobile phone, a laptop computer and a personal digital assistant.
According to Section 40 of the Labour Relations Act, a works council must be established by employees through an electoral process in companies where at least five employees are regularly employed. Certain changes to the ownership structure of an employing entity may require notification of the works council.
In a recent decision the Supreme Court reiterated previous case law concerning an employee’s private use of a mobile phone or other employer-provided electronic device. The court ruled that cause for dismissal is justified only if an employee uses for private purposes an electronic device provided by his or her employer under the express condition that it be exclusively used in a work-related context.
An amendment to the Working Time Act recently took effect. It brings with it sweeping changes and increased flexibility to maximum working hours. Its intention is to allow employers to adapt to a changing economic environment and at the same time grant legal protection to employees in connection with potential health hazards.
Austria has no codified piece of legislation that specifically regulates all aspects of outsourcing transactions. However, the legal ramifications with respect to employment are specifically set forth in the Employment Law Harmonization Act and the Labour Relations Act.
Austrian employment legislation is fully compliant with applicable EU regulations, yet it is still more flexible than the labour laws of other European jurisdictions. This update considers the legal framework that applies to working hours, tax duties and termination in the Austrian workplace.
It is accepted practice that when all of a debtor's assets are sold in an asset deal to an investor which uses them to establish a new company, the debtor's contracts of employment are terminated in the course of the bankruptcy proceedings and do not transfer to the new company. However, a recent ruling by the Vienna Regional Court of Appeals has thrown this position into doubt.
Austrian legislation protects employees against socially unjustified termination of employment. This legal recourse regularly serves as a strong bargaining tool in case of redundancies. If an employee challenges his or her dismissal before the courts, a three-prong test is applied to determine whether the termination was justified.
If changes to a business structure proposed by an employer entail redundancies, the works council of the business unit has the legal power to force a social plan upon the employer. In the case of relocation, such a plan would typically provide compensation for increased travel expenses.
Although uncommon under the Austrian legal framework governing labour relations and dispute resolution, some collective bargaining agreements contain disciplinary procedures that must be observed by an employer before dismissal or lesser disciplinary penalties.
To date, there have been three COVID-19-related lockdowns in Austria. During each of these periods, the customer area of shops had to be closed to the public, except for certain essential retail stores. Restaurants could offer takeaway and delivery services only and hotels were shut subject to certain exceptions. This situation has created significant uncertainty regarding tenants' right to claim a COVID-19-related rent reduction. The Austrian courts recently issued two new decisions on this matter.
Two lower court decisions have confirmed tenants' right to claim a COVID-19-related rent reduction in general. However, both decisions must be read carefully and leave many questions unanswered, particularly in cases where shops made or could have made limited use of their premises during the national lockdowns by offering online delivery or click and collect services. In addition, state aid may affect rent reductions. This uncertainty has led to many mutual agreements in the market.
In an effort to reduce the spread of COVID-19, the government has ordered all shops and service providers, except those providing certain vital services, to close to customers from 17 March 2020 until 13 April 2020. The closure of shops may entitle tenants to reduced rent and ancillary costs. However, it does not entitle tenants to terminate their lease for cause. This article sets out guidance for affected tenants and landlords.
In early 2019 the Supreme Court passed three decisions confirming and clarifying its 2017 decision which had limited landlords' right to request a location surcharge for rent-controlled apartments in desirable neighbourhoods. Based on the court's judgment, approximately 100,000 apartments no longer qualify for the location surcharge. However, the court's vague criteria for determining whether a neighbourhood is considered above or below average leave scope to include additional indicators.
A new provision in the Vienna Building Code recently entered into force, rendering short-term letting – including through rental services such as Airbnb – illegal in large areas of Vienna. Further, under the new provision, all parts of residential zone buildings that were being used for residential purposes when the provision entered into force – or were built thereafter – may be used only for residential purposes. That said, the new provision may be unconstitutional.
The City of Vienna recently announced its intention to reform the building code. Some building owners consider it unfair that strict maintenance obligations and rent limits apply only to old buildings, whereas buildings constructed after 8 May 1945 can be let at market rent. As a result, many building owners have chosen to tear down historic buildings and erect new concrete and steel structures in their place. Therefore, one of the aims of the reform is to protect the city's historic buildings.
Service charge provisions in shopping centre lease agreements frequently give rise to disputes between landlords and shop operators. In a recent decision on such costs, the Supreme Court offered some insights into shopping centre lease agreements which go beyond service charge provisions.
The Supreme Court recently considered whether a landlord can increase the rent if the majority shareholder of a partnership dies and his or her shares are distributed equally among the remaining partners, none of whom holds a majority in the partnership. In the decision, the Supreme Court offered an insight into how to assess the change of control in a company that is not a corporation.
In the run up to the recent snap elections, Parliament passed a bill exempting rent agreements for residential leases from stamp duty. The stamp duty on non-residential leases – in particular, commercial and retail leases – remains unchanged. However, these leases are being re-evaluated due to recent case law from the tax authorities.
In 2015 Austria introduced an act which allows individuals, under certain conditions, to challenge laws before the Constitutional Court as unconstitutional. This gave hope to many landlords, which saw this as a tool to challenge the existing rent control regulations. The Constitutional Court recently handed down two new decisions on the same matter with surprising results.
The Act on Equal Opportunities for Persons with Disabilities recently entered into full force. The act prohibits, among other things, constructional barriers which prevent or impede disabled individuals from entering a building without help. While the act primarily addresses persons offering goods or services in such buildings, it also has implications for persons publicly offering real estate. In addition, the act has a significant impact on existing and new lease agreements.
While the Rent Act applies to both residential and commercial leases, there are some exceptions that give landlords greater flexibility with regard to their lease agreements. In particular, the act does not apply to buildings which house no more than two units. The Supreme Court recently considered whether a storage room and a separate building contained on the same property should be taken into account when applying this two-unit rule.
In an effort to alleviate the pressure on the real estate market, the Vienna City Council recently amended the Building Code. This amendment authorises the city, among other things, to conclude urban development contracts as a means of expediting private investment in real estate projects. Since the amendment entered into force, the city has concluded several contracts with real estate owners.
Tenants sometimes refuse to vacate a leased premise after the expiry of their contract in the hopes of extending their lease or getting the landlord to pay them off (instead of undertaking a cumbersome eviction process), or for other reasons. The Supreme Court recently demonstrated that such tactics are not without risk, as tenants may face direct damage claims by successors.
Agency agreements typically differ from other agreements with regard to the way in which agents share risk. As such, agents try to limit their risk by including clauses in agency agreements which entitle them to remuneration even if the principal refuses to conclude the agreement. The Supreme Court recently ruled on such a clause and upheld the principal's right to choose whether to conclude the envisaged agreement.
As part of its overall tax reform, the government recently proposed a new act to amend the taxes relating to real estate transactions. As the new act will significantly increase the tax on real estate transactions, in most cases it is advisable to effect share deals involving real property before the act enters into force on January 1 2016.
Under the Tenancy Act, if the shares in a company that rents property are sold, the landlord has the right to increase the rent to market level. Under previous case law, directors were liable only for rent payments that could not be recovered from the renting company directly. However, the Supreme Court recently ruled that a director was liable irrespective of the lessee's ability to pay the outstanding debts.
By law, the buyer of a property automatically enters into existing lease agreements on behalf of the seller. However, the Supreme Court recently rendered a judgment stating that this does not necessarily apply to all clauses contained in a lease agreement, thereby redefining the scope of this provision.
In a recent case involving a tenant who had affixed two mock cameras to the front of his property without obtaining the landlord's prior consent, the Supreme Court analysed the tenant's rights in this context. It ruled that, based on the direction and position of the cameras, an impartial observer would not have the impression of being monitored. Hence, the action was dismissed.
Parliament recently passed a bill to implement the EU Consumer Rights Directive (2011/83/EC). The act affects consumers' rights to withdraw from certain contracts concluded outside the trader's ordinary place of business and those concluded using distance communication. This update focuses on the effect of the act on real estate-related agreements.
Tenancy law stipulates certain formal criteria for fixed-term leases. In particular, agreements must be in writing and specify a definite end date. If these criteria are not met, the landlord cannot enforce the end date. Two Supreme Court decisions on these criteria underline that parties need to agree whether they want to provide for a renewal option or a non-binding declaration of intent before signing a lease agreement.
The Supreme Court recently allowed a direct claim by the first purchaser against the second purchaser in case of a double sale of a property. A direct claim against the second purchaser, such as in the case at hand, is particularly useful in a scenario where the seller is insolvent, as the property is not handed back to the seller and then passed on to the first purchaser, but rather transferred directly between the two buyers.
Following the rise in demand for real estate in recent years, owners hoping to maximise their profits have started to look for new opportunities for liquidating their property. Willing to take extra risks, they have entered unfamiliar legal territory. Two recent Higher Administrative Court decisions regarding real estate lotteries show that such an approach is not always successful.
The Supreme Court was recently asked to assess whether a buyer of a house could rightfully initiate warranty claims against the seller by reason of defective insulation when the parties had confirmed in the purchase agreement that the exterior walls of the house had been damaged by moisture. The Consumer Protection Act provides that a consumer can waive its warranty claims only with regard to known defects.
The Supreme Court recently ruled that under the terms of a lease agreement between a tenant and its landlord, the landlord was obliged solely to hand over the property in the condition as at the conclusion of the contract. Any necessary repairs for both existing and subsequently occurring defects were shifted effectively and validly to the tenant. As this also comprised hidden defects, any repairs were the tenant's responsibility.
In a recent decision, the Supreme Court ruled on the permissibility of clauses in rent agreements requiring the tenant to repaint the leased property and refurbish the flooring at the end of the lease, as well as on contractual penalties that would apply following late handover of the leased premises at the end of the lease. The decision will affect all types of tenant and types of leased property.
Parliament recently introduced the Act on Late Payment, implementing the new EU directive on the same topic. The act aims to improve payment behaviour by introducing new due dates and increased interest rates. The act introduces new payment dates for rent agreements, depending on the type of property and parties involved, while taking into account the needs of tenants.
In light of a Constitutional Court decision, Parliament recently passed a bill amending the provisions on the Land Register registration fee. As of January 1 2013, the fee for all types of property acquisition is generally calculated on the basis of the fair market value of the real estate. The amendments have a considerable impact on ancillary costs of such acquisitions.
The Act on the Presentation of Energy Performance Certificates 2012 implements the EU Energy Performance Directive, which replaced EU Directive 2002/91/EC. The act introduces disclosure requirements for advertisements in commercial media, more stringent sellers' and landlords' obligations in relation to energy performance certificates and an effective regime of administrative penalties.
Parliament recently passed the Fiscal Stability Act 2012, introducing a number of measures intended to consolidate the budget. As these measures, among other things, introduce new taxes or increase existing taxes on real estate transactions, the act has sparked a huge outcry by the industry and will have a significant impact on the Austrian real estate market.
Real estate investors are increasingly renting out fully furnished apartments to tourists or business travellers for short periods. While short-term leases are highly attractive to respective lessors, owners of neighbouring apartments within a complex are usually not fond of such agreements, due to the high turnover of guests. The Supreme Court recently dealt with cease and desist proceedings instituted by apartment owners.
The Constitutional Court recently declared unconstitutional an article of the Court Fee Act, under which the fee for the registration of a new owner in the Land Register by reason of a deed of gift is taxed on the basis of the tax value. Although this judgment concerns court fees only, it calls into question all occasions where property transactions are taxed on the basis of the tax value rather than the market value.
The Supreme Court recently handed down a decision concerning a real estate agent's fee in connection with a cross-border sale agreement under which an Italian estate agent had facilitated the sale of an Austrian hotel to an Italian investor. The court ruled that the agent's contract had no close connection with Austria but was instead governed by Italian substantive law. The claim was therefore dismissed.
The Supreme Court recently handed down a decision concerning the disruption of a tenant's business by severe construction work carried out by the landlord, and held for the first time that corporate entities can claim compensation for discomfort. The damages will be consolation for the tenant, but will not induce landlords to take tenants' interests into consideration when planning such work.
In civil law jurisdictions, sale and purchase agreements frequently use key phrases which either trigger or exclude a set of legal rules laid down by statute, and which thus need not be explained in detail. Consequently, contracts require careful drafting. The Supreme Court recently handed down a decision concerning the contractual exclusion of a seller's warranty in a property transaction, with surprising results.
The Supreme Court recently applied the rules of unlawful return of equity to a rental agreement. A company and its majority shareholder agreed on rent payments of approximately three times the market value. The company realised that it was overpaying and argued that the excessive rent payments constituted an unlawful return of equity. The court's decision will have a significant impact on M&A transactions involving property.
Estate agents are entitled to a statutory commission if they facilitate the conclusion of a contract for the sale or lease of real property. In the absence of an agreement between the estate agent and the respective party to the agreement, the estate agent is entitled to claim the maximum amount as laid down in a regulation by the minister of economics. A new regulation, which recently entered into force, significantly reduces these limits.
Value added tax (VAT) regulations allow landlords either to charge 20% VAT on commercial leases or treat them as VAT exempt. In the latter case, VAT on any costs related to the lease becomes non-deductible. In commercial leases the parties usually agree to charge VAT on rent because the tenant is entitled to claim VAT input tax deductions. However, certain tenants are not entitled to claim input tax deductions.
The Supreme Court recently handed down a decision concerning a lease agreement in a shopping centre. Although the court once again stressed that there is no general rule on the legal qualification of shopping centre agreements, for the fourth time since its landmark 2006 decision, the court held that the agreement must be qualified as the rent of retail space rather than the lease of a business.
When restructuring an insolvent company, it is often necessary to divest all or part of its business. Such a sale is possible only if the purchaser is aware of the liabilities that come with the assets. In a recent decision the Austrian Supreme Court clarified the purchaser's liability for outstanding rent payments.
Section 12a of the Tenancy Act provides that if the shares in a company that rents property are sold, the landlord has the right to increase the rent to market level. The managing directors of such company must inform the landlord of the change in ownership. In a recent judgment the Supreme Court held that failure to notify the landlord can result in managing directors being held personally liable by future landlords.
As in most countries, landlords in Austria regularly require a security deposit as a condition of the rental agreement. This deposit provides the landlord with a degree of protection from any damage done to the rented premises or any failure on the part of the tenant. Despite its significant practical importance, no previous legal framework existed for the security deposit. A recent amendment to the Rent Act has filled this gap.
The EU Energy Performance of Buildings Directive provides that when a building or apartment is sold or rented out, an energy performance certificate (EPC) must be made available by the owner of the building to the prospective buyer or tenant. This update outlines the circumstances in which an EPC must be produced and examines the consequences of violations of the Act on the Presentation of Energy Performance Certificates.
Under Austrian law the ownership of a building is generally vested with the owner of the land, unless a third party holds a development right with regard to the property or the building constitutes a superstructure. In a recent decision the Supreme Court called the criteria of what constitutes a superstructure into question.
In a recent judgment the Supreme Court ruled that a lease agreement for business premises in a shopping mall falls within the scope of the Rent Act, and thus the tenant should enjoy tenancy protection. Although this judgment confirms a previous judgment, it is still undecided whether the act generally applies to business premises in shopping malls.
The Developers' Contract Act concerns agreements for the acquisition of apartments or other real property before the construction of the building. The act generally intends to protect the buyer against onerous provisions dictated by the typically stronger developer. Parliament has recently passed a reform of this act.
In two recent decisions the Supreme Court held that certain clauses contained in widely used standard forms for rent agreements violate the Consumer Protection Act and the Tenancy Act, respectively. The court has now handed down the first follow-up decision on an individual agreement containing one of the clauses in question, albeit not in the context of a consumer contract.
Under Austrian tenancy protection laws landlords can, in general, terminate lease agreements only in certain specified circumstances (eg, if the tenant defaults on its lease obligations). A recent Supreme Court decision addressed the question of whether a landlord still has a right to terminate the tenancy agreement if its tenant is in arrears with monthly payments and subsequently files for bankruptcy.
In Autumn 2006 the Supreme Court held for the first time that the Consumer Protection Act also applies to the landlord-tenant relationship and blacklisted 39 clauses contained in a standard lease form. The court recently developed this jurisprudence by questioning the validity of repair and renewal obligations imposed on the tenant.
The Supreme Court has held a creative interpretation of the rules on the admissible height of buildings, which had become regular practice in Vienna, to be unlawful. As a result, all procedures involving building permit applications that would be rejected as a result of this ruling have been stayed pending the enactment of a new law.
In a recent ruling the Supreme Court analyzed a standard form widely used for rent agreements and held that 39 of the contract clauses were unlawful. These clauses ranged from minor matters, such as certain formal requirements, to the key clauses of lease agreements, such as the tenant's duty to maintain the rented property in good order.
The Supreme Court has ruled that a lease agreement concerning a shop situated in a shopping centre fell within the scope of the Rent Act and, therefore, the tenant enjoyed tenancy protection. If this decision is generally applied, landlords will find it increasingly difficult to terminate thousands of lease agreements for shops in shopping centres, airports and stations.
If an entity operating on leased premises is transferred in a share deal, the lessor is entitled to increase the rent to the market level, provided that the opportunity to exercise legal or economic influence in the entity subsequently changes. A recent Supreme Court decision not only explicitly confirms the change of control theory, but also comprehensively sets out its theoretical basis.
After several years of debate, Parliament has passed an amendment to the Tenancy Act. The amendment makes significant changes in certain areas of tenancy law, particularly in connection with (but not limited to) the termination of lease agreements. At the same time, Parliament has also amended the Condominium Act.
In a recent Supreme Court case a real estate agent was engaged by a seller. After a purchase agreement had been concluded, the agent requested a 3% commission from the purchaser. The purchaser refused to pay, arguing that he had not concluded an agency agreement with the agent and that he was not aware that the agent was also acting on his behalf. The Supreme Court rejected the agent's claim.
Under Austrian law, special provisions regulate superstructures. A 'superstructure' is a building which is erected on the land of another party with the express intention that it should not remain there forever. In a recent case the Supreme Court confirmed that the Rent Act applies (by analogy) to the lease of empty building lots for the purpose of constructing a superstructure there.
Section 12a of the Tenancy Act provides that if a legal entity rents business premises and the opportunity to exercise legal or economic influence in that entity subsequently changes (eg, through transfer of the majority of the issued share capital), the lessor becomes entitled to increase the rent to market levels. The Supreme Court has recently handed down several decisions interpreting this provision.
Following recent uncertainty over whether the lease agreements for shops and businesses in airports and stations fall within the scope of the Rent Act, the Supreme Court has held that such agreements are not protected by the act as they do not concern the lease of business premises.
In a recent decision the Supreme Court ruled out the possibility of agreeing arbitral clauses with respect to core provisions of rent agreements. It has also handed down a number of decisions in cases where tenants occupying commercial premises requested a rent reduction due to increased competition from new businesses opening in the immediate vicinity.
The Fifth Chamber of the Supreme Court recently handed down a decision on the lessor's right to increase rent in light of corporate transactions. The decision deviates significantly from past case law and creates a great degree of uncertainty as to the effects of corporate transactions on the retail sector in particular.
The new Real Estate Investment Funds Act took effect on September 1 2003. The act aims to make risk-diversified real estate investments accessible to a wide range of investors. Real estate investment funds are subject to relatively strict organizational rules in order to protect investors.
In separate rulings, the Supreme Court has ruled on the effects of a breach of a non-compete clause, premature termination of a fixed-term lease and detrimental use of the lease object. In particular, the non-compete clause ruling represents a landmark decision by the court.
Including: Real Property Law; Tenancy Law; Taxation.
Section 12a of the Rent Act provides that a lessor is entitled to increase rent to market level where (i) a business which is operated in the leased premises is sold, or (ii) a change of control occurs within the company operating the business. The Supreme Court recently handed down a number of significant judgments on the interpretation of this provision.
While the new Condominium Act restructures and in many places rephrases the provisions of the prior Condominium Act of 1975, some new provisions are introduced which introduce a range of interesting opportunities, as well as some potential pitfalls.