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20 July 2007
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 (for further details please see "Bombshell for Landlords: Supreme Court Blacklists 39 Standard Clauses"). In a recent decision the court questioned the validity of repair and renewal obligations imposed on the tenant. If this decision is applied generally, many repair obligations may be unenforceable.
The case concerned an action by the Federal Chamber of Labour based on the Consumer Protection Act requesting that the Austrian Association of Real Estate Trustees refrain from recommending certain clauses contained in a widely used pre-printed lease form. Unlike the previous decision, the case at hand concerned lease agreements to which the Rent Act is fully applicable.
Under the insurance premiums clause, the tenant agreed to the conclusion, renewal or amendment of insurance agreements for the house against glass breakage, storm damage and other risks.
The Rent Act provides that insurance premiums may be imposed on the tenant as part of the operating cost only if the majority of the tenants have consented to the conclusion, renewal or amendment of the underlying insurance agreement.
The claimant considered that the clause was unlawful because it deprives the tenant of its statutory right to consent to insurance agreements concluded, renewed or amended during the term of the lease.
The court took a different approach and highlighted that the clause states only that the tenant agrees to the conclusion of such an insurance contract. The clause remains silent on the consequences of this consent. In particular, the clause does not state that, as a result of the tenant's consent, it will have to bear the insurance premium. Therefore, the clause was non-transparent and the Supreme Court held the clause to be invalid.
Pursuant to the repair obligations clause, the tenant had to keep the leasing object, including all fixtures, fittings and appliances, in good order. The tenant's duties included regular maintenance as well as repair, replacement and renewal.
The claimant argued that the repair and renewal obligations went beyond the duties imposed on the tenant by the Rent Act without any objective justification, and that therefore the entire clause was unlawful.
The defendant argued that the tenant could assume the repair and renewal obligations as part of the consideration for the lease.
The court first addressed the issue of whether the repair and renew obligations could be imposed on the tenant, stating that this is permissible in lease agreements that fall outside the scope of the Rent Act. However, the court chose not to answer this question with regard to lease agreements within the scope of the Rent Act. The court solved the problem by taking a different route, arguing that the tenant's right to a rent reduction in case of deficiencies cannot be waived in agreements falling within the scope of the Rent Act. By imposing a duty to repair or renew fixtures and fittings irrespective of the cause of the deficiency, the right to claim rent reduction is undermined. Therefore, the court held this clause to be unlawful.
Execution by substitution
Under the execution by substitution clause, the landlord was entitled to carry out repair and renewal works on behalf of the tenant if the tenant did not fulfil its obligations in a timely manner. The claimant argued that this clause violated the Rent Act because the landlord was entitled to carry out the works irrespective of the tenant's interests.
The defendant did not challenge the appeal court's ruling that this clause was unlawful. Therefore, the Supreme Court did not rule on this clause.
As both decisions concern the pre-printed standard lease forms used in numerous transactions, the latest ruling will have a significant impact. It remains to be seen how these judgments will be applied to individual agreements based on the standard forms.
In future, landlords will have to draft lease agreements carefully in order to guard against clauses that are insufficiently clear and clauses containing both lawful and unlawful elements.
For further information on this topic please contact Nikolaus Pitkowitz or Martin Foerster at Graf & Pitkowitz Rechtsanwälte GmbH by telephone (+43 1 401 17 0) or by fax (+43 1 401 17 40) or by email (firstname.lastname@example.org or email@example.com). The Graf & Pitkowitz Rechtsanwälte GmbH website can be accessed at www.gmp.at.
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