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24 November 2006
In a recent decision the Supreme Court 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, as well as other commercial centres.
Austrian tenancy law distinguishes between the mere rent of business premises and the demise of a business (including its premises). Only the former falls within the scope of the Rent Act. However, the distinction is far from clear and the Supreme Court has issued numerous decisions on the issue.
In the past, the Supreme Court has consistently held that the Rent Act does not apply to leases in shopping centres, arguing that the agreement goes beyond the lease of merely floor space because the tenant is also entitled to participate in the business of the shopping centre, its infrastructure and its goodwill. Therefore, such agreements were qualified as the demise of a business.
A 2005 decision of the Supreme Court concerning a lease in a railway station initiated fierce discussion among academics (for further details please see "No Easy Ride for Airport and Station Shops"). While most academics agreed with the Supreme Court, others have presented numerous arguments as to why the Rent Act should apply to such leases. However, earlier this year the Supreme Court appeared to end the dispute by refusing to re-examine the issue and rejecting an appeal.
The case at hand concerned a lease agreement by which the landlord let retail space in a shopping centre to the tenant for the purpose of operating restaurant facilities for an initial term of five years. The term was then extended for an additional five years. At the end of the second term of the lease, the tenant refused to vacate the premises, arguing that the lease fell within the scope of the Rent Act; therefore, the limitation of the lease was invalid and a termination on the part of the landlord was possible only with good cause. In the absence of such good cause, the landlord could not terminate the lease.
The Supreme Court agreed with the tenant's arguments and held that the Rent Act did apply, citing the following grounds for its decision:
This decision raises more questions than it answers. The Supreme Court acknowledged for the first time the academic dispute on this issue, and the decision appears to reverse previous case law by granting tenancy protection to the tenant. However, the court refused to decide the question as a matter of principle and repeatedly stressed that the facts of the case were special, which is why the decision was justified.
From a practical point of view, contract drafters are left with a dilemma.
On the one hand, there is a risk that in future the courts will decide that
such leases do fall within the scope of the Rent Act. In this case certain references
to the Rent Act are indispensable. On the other hand, such references may be
the very reason why the Rent Act applies to the lease.
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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