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Arbitration & ADR
The Supreme Court recently considered whether a rather brief and general notice of arbitration in ad hoc proceedings containing a nomination had properly initiated the arbitration proceedings and was thus sufficient grounds to request the Supreme Court to appoint an arbitrator, following the respondents' refusal to nominate one. The decision is a soft reminder for counsel that sending out incomplete notices of arbitration or nomination requests can be a time-consuming and costly endeavour.
The new Vienna International Arbitral Centre (VIAC) Rules of Arbitration and Mediation recently entered into force. They apply to all arbitration and mediation proceedings initiated after December 31 2017. The amendments to the VIAC rules allow for parties to conduct efficient and cost-effective arbitration and mediation proceedings, while offering enough flexibility when applying them in individual cases.
The Supreme Court recently considered whether proceedings (wrongly) commenced before an Austrian district court to set aside an arbitral award could nevertheless be continued. Notwithstanding the Supreme Court's exclusive jurisdiction regarding the setting aside of arbitral awards, the unusual facts of the case at hand led to the creation of an additional channel of appeals not provided for in the law.
The Vienna International Arbitral Centre (VIAC) recently obtained the right to administer domestic cases. The new law has received a warm welcome in Austria and is another sign of the quality of the VIAC's work and the confidence in its services. The VIAC has already established a working group to implement the proposed changes into the Rules of Arbitration and Conciliation in order to reflect this positive development.
The Supreme Court recently considered whether an arbitral award rendered in connection with licensing for the Austrian First Division Football League had to be set aside because of an alleged infringement of public policy. The decision is particularly interesting because the court had to tackle the sensitive issue of a possible infringement of substantive Austrian public policy in a situation where a party was forced to enter into an arbitration agreement with a dominant counterparty.
The Supreme Court recently considered if and under what circumstances defective reasoning of an arbitral award may lead to its annulment under the Arbitration Law. In a deviation from previous case law and views expressed by the majority of Austrian legal scholars, the court held that the requirement of sound reasoning is a fundamental principle of the Austrian legal system, and thus that an arbitrator's failure to comply with this constitutes a violation of procedural public policy.
In a recent decision the Supreme Court considered whether a lunch attended by a sole arbitrator and a party's counsel could give rise to doubts regarding the arbitrator's impartiality and independence. This decision serves as a reminder that arbitrators should disclose all circumstances that could give rise to a challenge and proceed with the utmost care when a challenge has been dismissed.
The Supreme Court recently considered several formal objections under the New York Convention, as well as several alleged grounds for refusal. The court adopted a rather strict approach with regard to the authentication requirement under the convention, while reiterating that the convention should generally be interpreted in favour of the recognition and enforcement of foreign awards.
The Supreme Court recently issued clear instructions that when it comes to the recognition and enforcement of foreign arbitral awards, Austrian law must not be applied where it is superseded by international treaties, such as the New York Convention. However, the convention contains no specific rules regarding the service of documents. Therefore, the decisive issue is whether national rules may nevertheless be applied in such a situation.
The Supreme Court recently considered, for the first time, the consequences of an arbitrator's failure to disclose circumstances that may give rise to doubts as to his or her impartiality and independence. In its decision, the court relied on both objective and subjective criteria – in particular, the weight of the non-disclosed fact and whether the non-disclosure was motivated by the arbitrator's desire to avoid a challenge.
A recent Supreme Court decision analysed whether parties to arbitral proceedings are still bound to pay for part of an arbitrator's services where the arbitrator is successfully challenged because of his or her conduct. The court held that, unless the work is found to be worthless, the arbitrator is entitled to receive remuneration.
The Supreme Court has ruled, for the first time, on the applicability of certain consumer protection laws in the context of corporate disputes and clarified the applicable law for assessing the capacity of a consumer when a foreign legal entity is involved. This decision makes clear that the Supreme Court will side with consumers in such cases.
The Supreme Court recently ruled for the first time on an issue that has been fiercely debated among legal scholars – namely, whether (and to what extent) grounds for challenging an arbitrator can also be raised in set-aside proceedings. The court ruled that where a challenge becomes known after the arbitration award was issued, only "blatant" grounds can be invoked in set-aside proceedings.
Following the revision of the Vienna Rules, another important development recently took place that is aimed at further increasing the attractiveness of Vienna as a venue for international arbitration. With the introduction of the Arbitration Amendment Act 2013, Parliament adopted a significant change to arbitration law in Austria, under which annulment claims will now be decided directly by the Supreme Court.
The Vienna International Arbitral Centre recently initiated a comprehensive review process aimed at modernising, overhauling and streamlining its rules. The process included a widely distributed user survey, a number of discussion rounds and a roadshow. The process is finally nearing completion and the centre is preparing to release the revisions publicly.
The Supreme Court recently clarified the relationship between state immunity and enforcement of an arbitral award in a case concerning art loaned by the Czech Republic to a Vienna museum for an exhibition. The Czech Republic argued that the works of art under dispute were cultural objects serving the country's sovereign aims, and thus exempt from enforcement proceedings. The Supreme Court rejected this defence.
The Supreme Court was recently faced with an inexecutable arbitration clause and clarified the interpretation of arbitration agreements and their boundaries. The court held that arbitration agreements must be interpreted primarily under procedural law; if an agreement refers to an arbitral institution which no longer exists, the agreement becomes inoperative only if it is impossible to reconstruct a comparable arbitration court.
The Vienna Commercial Court recently refused to set aside an arbitral award issued by a United Nations Commission on International Trade Law tribunal seated in Vienna that had awarded Danish-Polish Telecommunications Group €400 million against Telekomunikacja Polska. The court's decision is in line with the trend of Austrian case law to uphold arbitral awards.
The Supreme Court recently handed down a decision relating to the arbitrability of shareholder disputes in which it generally confirmed their arbitrability, but declared them to be subject to certain criteria. The decision is in line with the general approach to uphold arbitral awards taken by the Supreme Court since the introduction of the arbitration law. In fact, only in rare cases has the court set aside arbitral awards.
The Supreme Court recently extended the scope of the sections of the Consumer Protection Act that protect consumers that accede to a third party's obligation without any economic interest of their own. Although the Supreme Court returned the case to the first-instance court, the guidelines drawn up in this decision will apply to any type of collateral provided in similar situations for the account of a consumer.
The Supreme Court recently confirmed the admissibility and validity of qualified subordination agreements included in general terms and conditions and with respect to consumer transactions. Further, the Supreme Court held that qualified subordination agreements – in particular, those relating to loan agreements – create a specific type of contract. This decision has a significant impact on standard bank loan transactions, especially in restructuring situations.
The Supreme Court recently clarified its position on sureties payable on first demand and confirmed its view on the interpretation of contractual undertakings by which one party assumes a personal liability for a third-party debt. Considering the significant different legal consequences for a beneficiary's position following a qualification as either an abstract guarantee or an accessory surety, the guidelines provided by the court are of the utmost importance.
The Supreme Court recently rendered its first judgment on the admissibility of the use of electronic mailboxes, which are exclusively incorporated and only accessible via the e-banking system of a credit institution for serving client account notices and statements to consumers. This ruling will significantly affect Austrian banking practice.
Following the Fourth Anti-money Laundering (AML) Directive coming into force, Austria transposed the directive into law through two major legislative acts. This update provides an overview of the effects and obligations arising from the implementation of the Fourth AML Directive – in particular, the due diligence that banks will have to undertake on prospective clients.
Following a period of legal uncertainty and controversy, the Supreme Court has provided answers to the question of whether, against the backdrop of negative reference interest rates, a bank can unilaterally floor an overall floating interest rate at 0.00001%. Although the Supreme Court's decision is disappointing, it held that a decision rendered on an individual basis may come to other conclusions. Thus, this decision is unlikely to be the final word on this issue.
New almost EU-wide rules recently entered into force to support businesses in the recovery of debt from debtors in other EU countries. The regulation established a new procedure for creditors by providing common rules regarding jurisdiction and the procedure and conditions for freezing funds held by debtors in bank accounts located in the European Union. Austria has amended its Enforcement Code in order to provide the necessary framework for the procedures set out in the EU regulation.
Over the decades Austria has remained faithful to its banking secrecy by being a late adopter, if at all, of international standards for exchanging information regarding bank accounts. However, the recent amendments to the legal framework have put an end to this and led to a material softening of banking secrecy in Austria. Among other things, the legislature introduced new laws carefully tailored to remove legal obstacles based on banking secrecy that prevented – or at least impeded – tax collection.
The Supreme Court recently dismissed a victim's claim to refund an unauthorised payment transaction against his bank and held that, among other things, a bank may offset its obligation to refund an unauthorised transaction with its claim for damages against the account holder. However, the court failed to provide long-awaited guidance on the criteria to be applied when assessing the various degrees of fault that potentially limit the liability of payment service users.
The Supreme Court recently held that one-off loan processing fees charged by banks are lawful. Based on a detailed assessment, and while outlining the material differences between Austrian and German law, the Supreme Court held that one-off loan processing fees qualify as contractually agreed principal performance obligations that are not subject to the control of unfair terms under Section 879(3) of the Civil Code.
The Supreme Court recently dismissed a bank's claim for enforcement of a third-party mortgage initially given to secure loans granted to two corporate entities. The Supreme Court, irrespective of fierce (and mostly negative) discussions in legal literature, failed to question the nullity of the underlying loan further and thereby indirectly confirmed its previous decision on the 'overall planning' criterion.
Negative interest is normally approached from the depositor's perspective. However, as some reference rates for floating interest rates fall below zero, this topic is also of interest in relation to loan agreements. A recent regional court decision brought attention to some earlier legal jurisprudence on this topic. However, the main question remains undecided: which party must bear the risk of a negative reference interest rate?
Virtual currencies – predominantly Bitcoin – have become the focus of internet aficionados and young entrepreneurs. The possibility of paying for services worldwide simply by using a smartphone and without having to consider exchange rates is a unique feature that clearly outguns established financial systems. However, no legislative steps have been taken to provide a reliable legal framework allowing Bitcoin to develop.
Since the bail-in of Hypo Alpe-Adria-Bank International AG, the government has enacted legislation which fully implements the EU Bank Recovery and Resolution Directive, including the bail-in tool. In addition, the Financial Markets Authority – in its capacity as the resolution authority – recently issued an administrative ruling based on the act, imposing a moratorium on all liabilities owed by the wind-down entity HETA until May 2016.
A recent Supreme Court case considered whether a recipient's bank was liable for damages arising from its execution of a payment order using an incorrect account number and bank sort code as unique identifiers, which caused the payment to be sent to an unknown third party. The court held that the payer bears the risk of a wrongful payment transaction due to an incorrect unique identifier.
The Supreme Court recently dealt with a case in which a claim secured by a bank guarantee became due after the guarantee period expired. It is crucial to have in-depth knowledge of the advantages and strategic use of abstract claims arising from bank guarantees, as well as an understanding of the pitfalls triggered by poorly drafted bank guarantees and underlying commercial agreements.
In 2007 Carinthia sold Hypo Alpe-Adria-Bank International AG (HAA) to BayernLB. In 2009 the bank was nationalised as a result of the financial crisis. Both the sale and the nationalisation are subject to court proceedings. Since 2009, Austria has taken material measures to determine the best way to proceed with HAA, including the Federal Law on Remedial Measures for HAA and a proposed bail-in.
Employment & Benefits
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.
Insolvency & Restructuring
If a managing director of a company makes payments after a substantive insolvency, they may be liable for damages under the Statute on Limited Liability Companies. Managing a company in a crisis situation requires special diligence and care. In order to avoid unpleasant surprises later on, where possible, the admissibility of envisaged future payments should be checked in advance.
The European Commission has proposed a directive on preventive restructuring frameworks in order to reduce significant barriers to the free flow of capital caused by differences in member states' restructuring and insolvency frameworks. It aims for all member states to implement key principles for effective preventive restructuring and second-chance frameworks, as well as measures to improve the quality and efficiency of all types of insolvency procedure by reducing their length and associated costs.
The Insolvency Code was recently amended in response to the introduction of the EU Insolvency Regulation, creating – for the first time – specific rules for the insolvency of corporate groups in Austria. From a practical standpoint, this approach is welcome, as it may lead to faster and more efficient insolvency proceedings. It remains to be seen how the new rules will affect insolvency practice and whether coordination proceedings according to the EU regulation will be applied in practice.
In some cases of insolvency, it may be necessary to take special measures which affect the debtor or third parties in order to prevent the insolvent assets from diminishing. These cases are governed by Section 78 of the Insolvency Code, which offers the possibility of ordering individual protective measures with regard to the debtor and third parties. In particular, recent case law has extended the scope of application of these protective measures.
One of the Bankruptcy Code's aims is to allow trustworthy debtors the right to be discharged from debts that remain unpaid after insolvency proceedings. However, in practice, low-income debtors cannot always avail of residual debt relief. As such, the government recently introduced an amendment to the personal bankruptcy process in its 2017/2018 Modern Insolvency Law Culture of Failure working programme.
Recent changes to the Insolvency Code have considerably expanded the obligations of shareholders in insolvency situations. For example, a new obligation has been introduced which requires majority shareholders in so-called 'companies without management' to file for insolvency. The language of these new provisions remains vague and provides significant flexibility in interpretation, which inevitably results in a number of legal uncertainties.
Recent case law from the Supreme Court demonstrates once again that lenders can be held liable by creditors of an insolvent borrower under certain conditions. In particular, a lender may be held liable where it has significant influence over the borrower's management. However, only a few cases have met the necessary level of influence. The case at hand shows that total disregard of this risk can have severe consequences for lenders.
Chartered accountants entrusted with drawing up financial statements must also examine the company's status of overindebtedness in terms of insolvency law if the company's accounts show that it is overloaded with debt. However, in practice, this task is often neglected, as the fact that chartered accountants run the risk of being held liable for damage incurred due to delaying insolvency proceedings is often ignored.
A rescue merger may be an effective instrument for the financial restructuring of an undertaking and for securing its survival. However, they involve numerous legal constraints and risks which could lead to a serious encroachment on the legal positions of shareholders, creditors and holders of special rights. It is imperative to observe these constraints and risks strictly in order to avoid any risk of inequality in the treatment of the parties to a rescue merger.
In case of a lessee's insolvency, a lessor's lien right is an excellent opportunity to secure and recover at least a portion of outstanding rental payments. However, lessors must act quickly in order to take full advantage of their liens in insolvency proceedings – in particular, rapidly securing a lien can be a considerable advantage for the lessor.
Insolvency lawyers frequently encounter problems in relation to goods that are purchased under a reservation of title and the assertion of resulting rights to separate these goods from the debtor's estate. In particular, the obligation to provide notice of withdrawal from the contract regularly raises issues. A recent Supreme Court case demonstrates that the absence of an express notice of withdrawal can also be problematic.
If an insolvency petition is filed too late and creditors incur damage because of it, the responsible managing director may be held liable. However, in practice, companies are often actually managed by a different person. In such cases the de facto managing director may be held liable.
In order to facilitate the formation of LLCs, the Tax Amendment Act 2014 introduced a formation privilege in the Limited Liability Companies Act, which reduces shareholders' risk capital from €35,000 to €10,000 while the privilege applies. This reduction of shareholders' economic risk also applies in insolvency cases. As a result, shareholders need not pay more where insolvency proceedings are opened within the 10-year period.
With the sale and delivery of a large quantity of branded goods subject to a larger retail chain's retention of title clause, confusion often arises over which goods were delivered by the seller at an earlier point and have been paid for and which are still unpaid goods. In insolvency cases, the question of the legal fate of the goods sold under a retention of title clause frequently arises.
A Constitutional Court decision has reintroduced the legal entity's rights to legal aid. Legal entities are again entitled to legal aid pursuant to Section 63 if neither the entity nor the beneficiaries are able to raise the funds necessary to conduct the proceedings and if the proposed enforcement or defence of the rights is not made in bad faith.
The 2010 insolvency law reform in Austria aimed to make the law more suitable for financial restructuring. In particular, tools were introduced for facilitating the continuation of companies. The Federal Procurement Act 2006 does not reflect that intention. Under the act, insolvent economic operators are disqualified on a mandatory basis. However, by including such provisions, the legislature may have exceeded its powers.
The Property Developers Contracts Act aims to secure the rights of individuals who intend to buy newly built apartments. The act further aims to protect both the down payments made by buyers and such buyers' rights in the event of a developer's insolvency. In a recent judgment the Supreme Court ruled that the developer's entitlements will transfer to the buyer exactly as they have already been held by the developer.
Following the 2012 introduction of a tax on capital gains realised from the sale of real estate by individuals, one issue remained unclear - the question of who must pay if the property owner is insolvent, the property is sold in connection with the insolvency proceedings and the sale proceeds are transferred to pledgees. A recent Supreme Court decision provides clarification in this regard.
For a successful rescue to take place, the business premises must remain available for the continued operation of the company. Consequently, Section 12c of the Insolvency Code protects the debtor from eviction in rescue proceedings. However, the Supreme Court recently confirmed that a landlord may proceed with eviction proceedings if the tenant fails to meet certain obligations.
A recent judgment of the Supreme Court made clear that future damage of an unknown amount arising from an event that occurred before the opening of insolvency proceedings may be asserted only as a bankruptcy claim in the insolvency proceedings. The estimated amount of damage must be disclosed when the claim is asserted against the bankrupt company.
A new real estate income tax was recently introduced in Austria. When land encumbered by liens is now sold in the course of insolvencies, the question arises as to whether this new tax qualifies as special estate costs. The Supreme Court is yet to clarify the matter; therefore, until this happens, creditors should note that reduced amounts will be attributed to them from the proceeds from the sale of collateral.
In 2009 the Austrian legislature abolished free legal aid for legal entities, and thus also for insolvency estates without assets, although free legal aid had previously been granted only under very restricted conditions. However, a recent ruling of the Constitutional Court held that the abolition of the entitlement to free legal aid for legal entities (ie, also for insolvency estates) was incompatible with constitutional law.
The Supreme Court recently clarified its position on whether injured persons could also join criminal proceedings as private parties if the offender has filed for insolvency. It ruled that creditors may join criminal proceedings as private parties in such cases only if the claims result from the prosecuted criminal action, arose after insolvency proceedings were opened and are not affected by the effects of the insolvency proceedings.
Company pension commitments to employees should be secured in case of the employer's insolvency. If (contrary to legal requirements) such pension securities are not held separately from the employer's other securities, the statutory pledge for securing company pensions cannot fulfil the hedging purpose prescribed by law. Therefore, if the employer acts unlawfully, the security mechanism prescribed by law is to no avail.
Individuals can free themselves of debts through a so-called 'skimming-off procedure', provided that their assets have already been sold. However, if they cannot settle the required 10% share of their debts, they will not be released from the remaining debts and their situation will remain unchanged after the bankruptcy proceedings have been set aside. A proposed reform should change this.
The recently enacted Insolvency Amendment Act provides new rules for secured creditors. Since the return of items needed for the operation of an insolvent business could jeopardise the business's continuation, the act provides for mandatory deferrals of claims for separation and recovery of assets not belonging to the bankrupt estate over a period of six months after the initiation of insolvency proceedings.
The Austrian legislature has now adopted the comprehensive insolvency law reform that should have entered into force at the beginning of 2010. The reform project targets the privileged treatment under avoidance law of financial restructuring loans that were granted before the initiation of insolvency proceedings.
When the Budget Accompanying Act 2009 entered into force on July 1 2009, free legal aid - which was already being granted on only a limited basis to legal entities and other structures with the legal capacity to sue and be sued - was abolished. Receivers can no longer enforce in court claims of bankruptcy estates that have no assets, unless a third party advances the money for the litigation costs as a loan.
The legislature intends to address the difficult economic environment and the increasing demands on insolvency law by reforming the insolvency legal framework. The first priority objective is the timely initiation of insolvency proceedings and thus improved chances of successful financial restructuring. This should be primarily achieved by amending the procedural laws governing forced composition and bankruptcy proceedings.
In a recent judgment the Supreme Court ruled on the personal liability of the honorary bodies of an Austrian premier league football club. After the football club had become unable to pay its debts, rather than filing a bankruptcy petition in accordance with their duties, the club's bodies signed new players. The players took legal action against the club's bodies for compensation of their losses.
According to case law, restrictions on the transferability of life insurance policies mean that creditors have the right to separate a life insurance policy from a bankruptcy estate, ensuring that their claims are preferentially satisfied if bankruptcy proceedings are initiated against the insured. In a recent judgment the Supreme Court departed from this case law.
The federal government’s Working Plan 2008 shows that the Federal Ministry of Justice intends to reform the law on private bankruptcies. A first draft is expected to be submitted in November 2008. The aim of the reform is to grant people with low income facilitated access to a release from residual debts.
There has been prolonged uncertainty in Austria as to whether the employment contracts of an insolvent company must automatically transfer to a buyer if all of the insolvent company’s assets are sold by a receiver. Is there an exemption if the seller files a bankruptcy petition?
The Austrian Securities Supervision Act recently entered into force. It contains insolvency regulations for investment firms and investment service providers. Only companies that hold a licence under the Securities Supervision Act qualify as investment firms and investment service providers.
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.
A new coalition government has recently come into power in Austria. The new government's legislative plan includes new measures in respect of the insolvency legislation. Some of these measures would be designed to combat abuse of the insolvency legislation.
The federal minister of justice has admitted a fourth creditors' protection association, the Österreichische Verband der Vereine Creditreform. Creditors' protection associations are privileged under Austrian bankruptcy law and may take part in pre-bankruptcy proceedings.
The Supreme Court recently affirmed once more that the exemptions to the principle of exhaustion of trademark rights must be construed narrowly. In its decision, the court made clear that once trademark rights are exhausted, resellers may use not only word marks, but also figurative marks without any limitations when advertising or reselling original products.
In a welcome development of Austrian copyright law, the Supreme Court recently ruled that a combination of works by two artists does not constitute a joint work if it can be separated, even if the works involved were created for the sole purpose of being combined as a jointly planned contribution. Strong indicators of whether parts of a work are separable are the individual marketability and possible depreciation of the separated parts.
Parliament recently transposed parts of EU Directive 2015/2436 into national law. Most important is the introduction of certification marks, which did not previously exist under Austrian law. Other provisions of the bill concern the division of trademark applications, the shortening of the validity period of a registration and the reduction of the registration fee.
The Supreme Court recently ruled that the producer of a photograph who marks his or her name in the photograph's metadata must be credited as the producer on copies of the photograph made by other persons and intended for distribution. This judgment is good news for producers of digital photographs who wish to safeguard their copyright. Persons reproducing and distributing digital photographs should routinely check the metadata to ensure that the producer's name is listed on any reproduction.
The Supreme Court recently confirmed its view that the issuance of contradicting decisions in, on the one hand, infringement proceedings and, on the other hand, opposition proceedings by different panels of the same appellate court is no reason to admit an extraordinary appeal to the Supreme Court. The decision stresses that, in principle, the appellate courts must consider the issue of likelihood of confusion, and that it will step in only if the appealing party can demonstrate gross misjudgment.
In light of a European Court of Justice ruling, the Supreme Court recently overturned its earlier interpretation of an author's exclusive distribution right in relation to his or her work of art. The court found that any kind of distribution – regardless of whether it is a transfer of ownership – falls under the author's exclusive distribution right. Further, it held that this distribution right is violated only if ownership in the work is actually transferred.
In a recent case a trademark comprising a famous family name was infringed through use in the course of trade by someone with the same family name. The Court of Appeal defined the limits of trademark protection when competing with naming rights and the requirements that trademark owners must meet to shield their trademarks from exploitation under the cover of exercising legitimate naming rights.
The Supreme Court has once again ruled on a case dealing with the so-called 'picture right' – a provision in the Copyright Act on which numerous decisions are based. In the case, the question arose as to whether a well-known criminal defence lawyer had the right to demand that a media owner not publish his picture. The court weighed the claimant's interest in security against the defendant's interest in reporting the story.
The Supreme Patent and Trademark Board (SPTB) has clarified the status of program logic under the Utility Model Act. The SPTB concluded that program logic can be protected only if it contains a technical aspect. This means that only new, inventive and industry-related technical software can constitute an invention and thus be protected.
The Supreme Court recently considered whether an international trademark had a distinctive character that qualified it for protection under trademark law or whether, due to its descriptive nature, it could not be granted protection. The decision confirms that trademarks will be determined as distinctive or descriptive after a subjective and interpretive case-by-case analysis.
Following the European Court of Justice decision in Céline, the Austrian Supreme Court has changed its jurisprudence on whether the owner of an earlier trademark can demand the modification or cancellation of a company name that is identical or similar to its trademark. However, some have argued that the decision is too abstract, and it remains to be seen whether the Supreme Court will stick to this position in future.
In a recent decision the Supreme Court has reiterated its view that plaintiffs must prove that their products, product appearances and unregistered marks have acquired secondary meaning with the relevant public in order for them to be protected under the Act on Unfair Competition. Producers of products with distinctive product appearances should therefore consider registering them as trademarks.
The introduction of new provincial administrative courts in Austria will fundamentally change administrative provisions in several IP statutes. The main amendments concern the reorganisation of appeal procedures. Among other things, from the beginning of 2014 the Patent Office will handle only first instance proceedings and the Supreme Patent and Trademark Board will be dissolved.
In a recent decision the Supreme Court upheld the position of a collecting society claiming copyright infringement, ruling that the interests of an author to receive remuneration for the use of its work have greater weight than the interests of practising a trade. The court's decision is in accordance with the prevalent German doctrine on the subject concerning the monopolistic position and the obligation to contract.
In a recent decision the Austrian Supreme Court thoroughly examined the legal effects of a supplementary protection certificate for medicinal products and its interrelation with patent rights. The decision is complex, but provides valuable information on related proceedings for injunctive relief. Additionally, the detailed examination of legal aspects of supplementary protection certificates is welcome.
The Supreme Court recently clarified the applicability of Article 12(c) of the Community Trademark Regulation in the context of comparative advertising, ruling that it should be interpreted narrowly and must be employed only in cases where such usage is the only possibility for providing the public with comprehensive information on the marketed goods.
In a recent decision the Supreme Court evaluated the scope of patent protection of so-called 'Swiss-type claims' and infringements constituted by dietary supplements, thereby interpreting the European Patent Convention on a national level. A Swiss-type claim is intended to cover subsequent medical use (or indication of efficacy) of a known substance or composition.
The latest amendment to the Trademark Act grants trademark proprietors the right to submit a notice of opposition against registered trademarks. Previously, a proprietor had to wait for a trademark to be registered before it could challenge the lawfulness of the registration. By implementing opposition proceedings, the legislature also introduced a legal remedy to cancel a trademark registration retroactively.
The Patent Act provides for regulations with respect to employee inventions. Thus, employees (if they are not specifically employed for the purpose of making inventions) are entitled to adequate compensation if the invention or any right to use the invention is transferred to the employer. In a recent case the Supreme Court confirmed its view on the validity of flat-rate compensation agreements for employee inventions.
In a recent case the Supreme Court ruled on the permissibility of parodies of trademarks. The defendant claimed that its trademark, STYRIAGRA, was a parody of the claimant's trademark, VIAGRA, and that it wanted to encourage discussion about the use of chemical products (VIAGRA) as opposed to natural products (Styrian pumpkin seeds).
The Supreme Court recently clarified potentially far-reaching aspects of copyright-related information rights in the internet age. An Austrian copyright collecting society identified a number of dynamic internet protocol addresses that had unlawfully shared copyright-protected material. It requested that the internet access provider identify the holders of the respective addresses at the relevant dates and times, but it declined to comply.
The Trademarks Act provides that only the trademark owner has the right to use a registered trademark for goods or services for which it has registered the mark. Thus, third parties can use the same or similar sign only if there is no risk of confusion with the goods and services of the trademark owner. In two recent decisions the Supreme Court confirmed this principle in respect of domain names.
Product Regulation & Liability
The Supreme Court recently ruled on a case where the cost to repair a defective product far exceeded the value of the goods in question. In its decision, the court determined that existing Austrian law on warranty claims can (and must) be construed in line with European Court of Justice case law on the EU Consumer Sales Directive. While ending an academic debate, the decision is bound to spark disputes between sellers of defective products and their counterparts.
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.