Austrian Real Estate and Construction Law

On 30 June 2018 an amendment to the Vienna Building Code entered into force rendering it more difficult to demolish historic buildings in the Austrian capital. Is this the beginning of a new and hostile approach to owners of historic buildings? No! The Austrian Constitutional Court had already confirmed in 2017 that the rent based on the reference value (Richtwertmietzins) and the prohibition to request higher rent in certain areas of the city (Lagezuschlag) were in line with the constitution. In addition, the Supreme Court had redefined the rent control system in leading judgments in 2017. Despite massive impacts on owners of historic buildings, the federal legislator has not provided viable solutions.

The Vienna Building Code

According to the newly amended § 62a para 5a BO, the demolition of buildings situated in protection zones (Schutzzonen) or of buildings subject to construction prohibitions (Bausperren) as well as the demolition of historic buildings  erected before 1 January 1945 must be notified to the building authority (MA37). Such notification must include a confirmation by the Department of Architecture and Urban Design (MA19) stating that there the preservation of the building does not lie in the public interest.

If MA19 concludes that the preservation of the building is in the public interest, a demolition permit must be obtained. The building authority must consult a civil engineer and request an expert's opinion on whether or not such public interest exists. In practice, the new provisions raise a lot of questions as none of the new provisions contain legal definitions putting owners and developers in uncertainty . The most problematic provisions are the following:      

Requirement of a negative impact on the local cityscape:

Neither the law itself, nor the legislative initiative of 4 June 2018 clarify whether the whole political district, a neighborhood or simply a street serve as reference point and to what extent the impact must materialise. It is also unclear if the new project has to be fully planned by the time the notification is made.

Requirement that the conservation is in the public interest:

One may assume that the requirement of a public interest is an objectification of the first requirement although this is not clearly stated.

The Tenancy Act (MRG)

For years, the long sought-for proposals for amendments to the Austrian Tenancy Act have been passed on from one legislator to another. While vague proposals have been made, solutions are nowhere to be seen.

Under Austrian Law, landlords only have the right to claim the rent based on the reference value (Richtwertmietzins)  for buildings constructed with a building permit dated before 30 June 1953. The reference value for historic buildings in Vienna currently amounts to EUR 5.58 per square metre which is substantially under market rent. Desperately needed investments in historic buildings do not take place.

The Constitutional Court  confirmed in its judgment dated 28 June 2017 (G428/2016) that the rent based on the reference value complies with the Constitution even though the benchmark for Vienna is the second lowest in Austria. The Supreme Court  also failed to take the opportunity to apply sec 16.1.2 Tenancy Act more broadly allowing for higher rent for new leased or reconstructed objects.

Both courts also analysed the location premium (Lagezuschlag) : The Constitutional Court held the prohibition to request a premium in certain neighbourhoods of Vienna as constitutional (judgment of 12 October 2016, G 673/2015-35), the Supreme Court redefined the applicability making it more unpredictable for landlords (20 November 2017, 5 Ob 74/17v). Consequently, the location premium is now difficult to apply even outside of the historic neighbourhoods.

The Way Out

Based on the judgments of the last two years, owners of historic buildings are left with one option only: the demolition of the historic building and the construction of a new one in which, at least according to the current legal framework, free rent is chargeable. This is exactly what the new amendment to the Building Code forbids raising substantial questions under the Austrian constitution. In a worst-case scenario, landlords are massively limited in their right to determine rent (and their income) while being forbidden to dispose of their property.

The unsatisfactory legal situation together with massive encroachments on fundamental rights will likely be fertile soil for further judgments.

Authors:

Bernhard Müller is partner at DORDA Attorneys at Law and specialised in public and procurement law.

Klaus Pfeiffer is partner at DORDA Attorneys at Law and specialised in real estate and construction law.