On 12

October 2017, right in a last minute attempt to win undecided voters for one of

the political parties, the leaving members of parliament enacted a new tax law.

While fundamental changes to the Austrian Tenancy Law had been vividly

discussed between the socialist and the conservative parties in recent years,

the new law on the abolition of stamp duty falls completely short of what could

have been achieved.

Stop!

There has been consensus among experts in the real estate industry that the Austrian Tenancy Act is no longer acceptable in the current form. Members of all political parties have discussed potential solutions ranging from the softening of provisions in order to bolster development to enhancing the restrictions in the Tenancy Act. The most piercing thorns in the eye of the landlords are the limitation to the amount of rent (in particular for buildings with construction permits dated before 30 June 1953) and the restrictions on termination. Tenants, on the other hand, complain about excessive rent payments and lack of protection. Despite continuing discussions between the members of the coalition, proposals were fully rejected and contemplated reforms have come to a full stop.

In addition, Austria's notorious Stamp Duty Act sets out stamp duties for a very heterogeneous list of contracts, in particular for written leases: the duty amounts to 1% of the total rent charged for the entire term including service charge and VAT but with a maximum cap of 18 years of rent. In case of leases for an indefinite term or leases for residential homes, the cap was put at 3 years of rent. Both, landlords and tenants opposed to stamp duty but again no solution was found.

Wait!

Surprisingly, stamp duty was picked up in the last weeks before election and on 12 October 2017 stamp duty for residential homes was fully abolished. The main motivation was to reduce the tenant's overhead costs. Some experts estimate that the financial impact will amount to EUR 50m although reliable numbers are not at hand.

While this clearly means relief for tenants in Austria, leases for other purposes (commercial, retail, etc) are still punished. This is particularly true for retail and commercial leases as they are usually executed for definite terms (mostly 10 years or above).

Move!

The new Austrian members of parliament should now show more courage and abolish stamp duties in their entirety. Most real estate transactions are hampered by the duties and in larger transactions parties need to find solutions to best avoid them. If already consulting on how to proceed with real estate law, the new government should also tackle the Tenancy Act allowing for more flexible leases in order to stimulate investment.

Author: Klaus Pfeiffer, Attorney DORDA / Expert on Real Estate and Construction Law