The Real Estate Law Review: Austria

Introduction to the legal framework

The term 'ownership' under Austrian laws signifies the full right to freely use the substance and the benefits of an asset and to exclude everyone else therefrom. There are qualitative grades of this full right of ownership. In particular, the following four types of rights to real estate thus seem to be interesting for investors.

i Ownership of real estate

Full ownership or freehold

In Austrian law, the principle superficies solo cedit applies, meaning that the owner of land is generally also the owner of any building thereon. Therefore, the most common right to real estate is to own both land and building. However, there are two major exceptions when talking about the superficies solo cedit principle: superstructures and building rights (as described under 'Superstructures' and 'Building rights' below).

Condominium ownership

A condominium right grants the co-owner of land the right to exclusively use an independent unit in a building. The condominium right is not created automatically; it needs to be established, mostly by a 'condominium agreement' signed by all co-owners and the registration in the land register. The owner of a condominium has free disposal of the allocated unit and can sell or encumber it without the agreement of the other co-owners.


Superstructures are buildings that are constructed on someone else's land with the intention of not remaining there permanently. Usually, the developer acquires ownership of the superstructure through a 'superstructure agreement' with the owner of the land, granting the developer the right to erect the planned building as its owner. It is particularly remarkable that no registration in the land register for superstructures is necessary. In practice, superstructures mostly appear like permanent buildings, which is because of generous court rulings when it comes to the admissibility of creating superstructures.

Building rights

A building right is the right to have a building on or beneath (e.g., underground parking garages) the ground surface on third-party land. This right is granted for a limited period of between 10 and 100 years. The most important difference to superstructures is the fact that building rights are to be registered in the land register.

ii System of registration

All land plots within the federal territory as well as the rights in rem associated with them have to be registered in a land register maintained by district courts. The land register consists of two parts: the main book (where all land-plot related rights and data are entered) and the document archive (where the documents on which the entries are based are registered). The main book contains four different sections (known as 'folios'):

  1. A1-Folio: this folio includes general data on the land plot, such as surface area and the type of use (e.g., agriculture or construction area);
  2. A2-Folio: this folio contains rights (e.g., easements) in conjunction with the specific land plot as well as restrictions imposed by public law;
  3. B-Folio: this folio contains information regarding the ownership in the land plot (e.g., the respective shares of each owner in case of co-ownership); and
  4. C-Folio: this folio includes information about encumbrances connected with the plot of land, such as mortgages, possible building rights, sale restrictions and registered tenancy rights.

The land register is publicly accessible. The Austrian land register system follows both an 'intabulation principle' as well as a 'principle of trust' on registrations: on the one hand, the acquisition, transfer or deletion of in rem rights may only be accomplished by a registration in the land register (with certain exceptions such as acquisitive prescription) and, on the other hand, persons may generally rely on the correctness and completeness of registered facts and are legally protected in doing so (except for cases of bad faith) without them having to examine specific documentation in the document archive maintained by the district courts.

iii Choice of law

Pursuant to Regulation (EC) No. 593/2008 (Rome I), the parties are generally free to elect the law applicable to real estate transactions except for the respective in rem rights, which are always subject to Austrian law for properties located in Austria. To the extent that the law applicable to the contract has not been determined by the parties, Austrian law generally applies (as the law of the country where the property is located).

Overview of real estate activity

Almost two years after the covid-19 pandemic outbreak in Europe, the Austrian property market seems to have fully recovered. The prices for residential properties grew by 12.3 per cent in the first quarter of 2021 compared to the previous year; the trend of rising real estate prices in Austria has undoubtedly continued. According to the Austrian National Bank, those price developments in the residential sector derive partly from the repeating lockdowns and the higher demand for home offices. Undoubtedly, with 20,000 constructed residential properties, 2021 will render a new record. Furthermore, the annual growth rate of house loans has remained almost the same even though the job market has faced challenges due to the pandemic. Indeed, despite shutdowns of construction sites caused by the lockdown and other restrictions, 2020 has proven to be the third strongest year regarding building permits (60,100 permits) since 2005.

However, a rather more severe concern than the pandemic is the ongoing worldwide shortage and price increase of building materials (7.5 per cent in April 2021 compared to April 2020). Accordingly, housing construction investments have decreased by 4 per cent since 2020. The material shortage (arising from a higher demand by China and the United States) will remain a considerable issue for constructors causing them to be reluctant regarding fixed price arrangements until clear approximations on the price development can be made.

Notwithstanding the above, residential rents are still on the rise while the ongoing demographic trends and supply shortages in the affordable housing sector in most of Austria's urban areas strengthen the trend to affordable accommodation, including micro-living apartments and student houses. However, residential rents have only increased moderately compared to residential purchase prices, given the Austrian Rental Act imposing caps on a large number of rented living spaces. Demand for high-priced luxury apartments in Vienna therefore seems to be in decline; market experts recommend taking the demand for cheaper apartments into consideration when developing new housing projects.

As regards the commercial real estate market, modern office clusters outside of residential areas (but in proximity to other successful businesses) continued to be the focus of office occupiers in 2021. Nevertheless, the lack of building materials has also naturally affected the commercial sector, as it has with residential properties. In 2021, the development of office premises was 10 per cent lower than in 2020. CBRE Research reported that the number of vacant offices has shrunk to a low 4.5 per cent. Owing to the general lack of new development lands close to the city centre of Vienna, developers are turning their attention towards the refurbishment of outdated office properties, including for co-working spaces. Moreover, shopping streets are generally affected by a decline in frequency even though top locations remain strong with stable rents in retail real estates.

Foreign investment

Real estate investors remain attracted to the Austrian market, given its stable political and economic framework. Even though real estate prices have increased significantly over recent years, Austria is still considered to be a place for non-speculative real estate investments, particularly because the demographic development and expected urban conurbation (with Vienna being ranked as one of the world's best cities in which to live) results in a situation where demand exceeds supply. As a consequence, real estate investments have appeared attractive to foreign (institutional) investors even during the pandemic. In the first half of 2021, 60 per cent of the total investment value came from foreign investors, indicating a stable investment activity (but is still lower than the 71 per cent of 2020).

Out of those investments, 39 per cent was in commercial real estate. This is due to the sale of 45 per cent of Shopping City Süd, which is the largest shopping mall in Austria, by Westfield to the French bank Crédit Agricole Assurances. By the end of the year, the total investment is expected to reach €4 billion. The activities of other international institutional investors and funds remain behind expectations as these groups' interests generally lie in large-scale investments and there are rarely suitable properties available on the current market, in particular due to the limited amount of new spaces added to the market this year and the fact that a large portion of properties built in 2020 have already been sold.

The transfer of property rights to foreign investors may require an approval according to land transfer regulations. In this respect, each Austrian federal province has its own legal framework defining the applicable restrictions and approval process. As long as the necessary approval has not been obtained, the transfer of the ownership cannot be registered in the respective land register and the contemplated transaction may not be carried out (as ownership of real estate is generally only obtained by the registration of the new owner in the land register). Persons and corporate bodies of Member States of the European Union or of signatory parties to the agreement on the European Economic Area have the same status as domestic persons or corporate bodies.

Structuring the investment

The structuring of the investment for the acquisition of a property should be based on various economic, fiscal and legal considerations, whereby investments may generally be structured as asset or share deals. The advantage of an asset deal is that the investor may be better aware of the transaction scope (in particular in relation to potential tax or other liabilities of a pre-existing company). A share deal would generally be tax advantageous, as with correct structuring, real estate transfer tax can be avoided. While an asset deal generally triggers Austrian real estate transfer tax of 3.5 per cent of the consideration, only a transfer of at least 95 per cent of the shares in a company holding Austrian real estate is subject to real estate transfer tax. Under this tax situation, it has become common practice to implement a share deal structure with two acquiring entities that each have to acquire more than 5 per cent in the target company (e.g., in a 94/6 per cent structure).

Furthermore, a share deal will not result in a change in the ownership of the property itself, which means that registration fees of 1.1 per cent of the consideration or market value of the real estate may also be avoided. Three different legal forms are typically used as real estate holding entities and acquisition vehicles:

  1. the limited liability company (GmbH), which offers flexibility and can be set up by one or more individuals as well as legal entities that, in general, are not personally liable for the liabilities of the company. The minimum share capital amounts to €35,000, of which at least €17,500 has to be paid in. (Since 2014, there is an option to limit the share capital for up to 10 years to €10,000, of which at least €5,000 has to be contributed.);
  2. the stock corporation (AG), which is also a limited liability entity, where shareholders participate in the share capital divided into shares by means of contributions without being personally liable for the liabilities of the company. The minimum capital stock amounts to €70,000. The ongoing legal structure costs of an AG are higher than for the GmbH; in addition, it offers less flexibility except in relation to share transfers and equity transactions; and
  3. partnerships, which may be established by at least two parties either as a general partnership or a limited partnership. The difference is the limitation of the liability of at least one partner in a limited partnership, while all partners of the general partnership are personally fully liable. In addition to the flexibility of a partnership (which is even higher than in the GmbH), the main advantage of the partnership is its tax transparency, allowing a direct allocation of profits and losses to its partners for tax purposes.

Real estate ownership

i Planning

Austrian building law provisions, such as zoning laws and construction regulations, differ between each of the nine federal provinces (and in certain instances even the respective communities within these provinces), are quite strict and the approval process may have to be carried out under different authorities. The requirements for planning permission vary according to the envisaged location as every Austrian federal province has enacted its own building, planning and zoning laws. In some provinces a simple notification to the planning authority suffices for certain types of buildings, while in others a formal building permit has to be obtained in the course of an administrative procedure (which in some cases includes the participation of the direct neighbours). Additionally, federal laws have to be obeyed and permissions under these laws may have to be obtained (e.g., under heritage protection laws, air traffic safety laws and forest protection laws).

The protection and development of historic and cultural buildings are governed by the Austrian Heritage Law, which is administered by the Federal Heritage Commission. Subsidiary rules might apply from provincial heritage laws, which differ between each of Austria's nine federal provinces. An existing heritage protection of real estate may generally be seen from the publicly available land register.

ii Environment

As a general rule, a 'polluter pays' principle applies to environmental clean ups: whoever causes pollution is primarily responsible for the cleaning up and the associated cost. In certain instances, the owner of a polluted land plot and his or her legal successor may also be held liable in the second degree, mainly if they agreed to, or tolerated, the pollution.

No particular environmental disclosure obligations apply to real estate sales in Austria. Austrian case law assumes a fraudulent intent of the seller, however, if information was withheld to the potential purchaser that would otherwise typically be disclosed or could reasonably be expected to be disclosed in fair business dealings.

iii Tax

Typically, the following taxes could become payable in connection with real estate transactions.

Real estate transfer tax

The acquisition of Austrian real estate, as well as the consolidation of more than 95 per cent of the shares in a company owning Austrian real estate in the hand of a single shareholder, is generally subject to Austrian real estate transfer tax. The taxable base for the determination is the value of the consideration (i.e., as a rule the purchase price) or the true value of the real estate in case the purchase price is lower. The real estate transfer tax generally amounts to 3.5 per cent in case of an asset deal and to 0.5 per cent in case of the consolidation of more than 95 per cent of shares in a company. In addition, transfers without consideration (donations) are subject to the real estate transfer tax under application of a progressive tax rate ranging from 0.5 to 3.5 per cent.

Real estate profit tax

The profit from the sale of the real estate is subject to a real estate profit tax, which is generally subject to a flat tax of 30 per cent provided that a flat tax rate of 25 per cent applies to all profits generated by profits from corporate entities (including from the sale of real estate).

Registration fees

In addition to the real estate transfer tax, a registration fee for entering the right of ownership in the land register amounting to 1.1 per cent of the consideration or market value of the property is incurred. For the registration of mortgages, an additional 1.2 per cent of the mortgage amount needs to be paid.

Value added tax

Real estate transactions are generally not subject to value added tax (VAT). The selling party, if an entrepreneur, may opt to treat the sale of real estate as VAT taxable subject to a 20 per cent tax rate. An entrepreneur would typically take this option into consideration if it has reclaimed input tax regarding the real estate (which would otherwise have to be refunded) within the past 10 years for real estate acquired prior to 1 April 2012 or the past 20 years for real estate acquired after this date.

Stamp duties

The execution of a purchase agreement and the contemplated acquisition of real estate generally no longer triggers stamp duty.

iv Finance and security

Generally, real estate financing is provided by banks via loans. Restrictions on who may provide financing in relation to real estate transactions mainly stem from banking regulations that restrictively regulate the commercial granting of loans (including within groups). Typically, mortgages serve as collateral for real estate financings. In relation to share deals, pledges over the shares of the borrower, pledge of movables, accounts pledges, assignments of receivables or rights under any major contracts are also considered. To create a mortgage, the pledgor and pledgee need to execute a mortgage agreement in writing with the signatures being notarised. Generally, both fixed amount mortgages (securing a specific amount) as well as maximum amount mortgages (which may be recurrently used under a specific relationship) are possible under Austrian law. The mortgage is only established upon its registration with the land register.

Leases of business premises

Austrian law generally differentiates between usufructuary leases (where an object is leased for use and profit) and tenancy agreements (where an object is leased for use) with different legal rules being applicable. Several conditions have to be met for the qualification as usufructuary leases (with the Austrian Supreme Court taking a strict view) so that the majority of business premises leases constitute tenancy agreements.

Tenancy agreements may be fully, partially, or not at all subject to the Austrian Rental Act, which contains several restrictions and a general legal framework applicable to lease agreements. The qualification depends on the type of lease and its purpose, its duration, and the building in which the premises are located.

Depending on the applicability of the Austrian Rental Act, the law could in particular provide for mandatory restrictions on the landlord's termination rights, the maximum amount of rent as well as the maintenance obligations. Within the scope of a partial applicability of the Austrian Rental Act, mainly termination restrictions regarding the lease agreement apply.

i Conclusion of lease agreements

There are no special formal requirements for the conclusion of lease agreements. Orally concluded lease agreements are also binding. Certain exceptions apply to agreeing on a fixed term for a tenancy agreement within the applicability of the Austrian Rental Act that need to be concluded in writing.

ii Term and termination

Generally, the term may be freely determined between the parties; lease agreements may thus be concluded for a fixed or indefinite period of time. Minimum periods only apply to residential leases within the scope of the Austrian Rental Act (minimum period of three years). Long-term and short-term tenants have the same rights under Austrian law without special extension or renewal rights applying to either of them.

Fixed-term leases terminate automatically upon the end of their term; indefinite lease agreements terminate upon their termination by either the landlord or the lessee after the lapse of the termination period (which depends on the qualification of the lease). Within the applicability of the Austrian Rental Act, a landlord may only terminate indefinite agreements for a limited number of legally specified reasons such as a detrimental use of the property by the lessee or defaults of the lessee in paying the rent.

An eviction of the lessee from the property is only possible after having obtained an appropriate legal title in the course of court proceedings.

iii Rent and adjustments

The rent may generally be freely determined by the parties except if the Austrian Rental Act is fully applicable. In the latter case, only an adequate rent (or even a legally capped rent) may be asked for by the landlord. The amount of an adequate rent or the legal cap is basically determined by the size, location and equipment of the premises.

In the event of (temporary) non-usability of the rented object, a tenant is entitled to (partially) withhold rent payments depending on the gravity of the defect.

In the event of a sale of a business with a lease contract falling in the applicability of the Austrian Rental Act, the landlord is entitled to increase the rent to an adequate level within six months after having been notified of the transfer. The same principle applies to a change of control (e.g., as a consequence of a share deal).

iv Deposits

The Austrian Rental Act contains specific provisions on rent security deposits that apply to certain lease agreements. These rules include an obligation on the landlord to invest it in an interest-bearing way if the deposit is delivered in cash (e.g., on a savings account). After the termination of the lease agreement, the landlord has to immediately return the deposit including the interest unless there are claims against the former tenant. Outside the applicability of the Austrian Rental Act, a landlord and lessee may freely agree upon the conditions for rent security deposits. There is no legal cap on the rent security deposit. Typically, rent security deposits amounting to the rent of three to six months are asked for.

v Subletting

Subletting is allowed for the lessee unless contractually prohibited in the underlying lease agreement. In the case of subletting of the entire leased premises or for an unreasonably high sublease rent (as compared to the head lease rent and investment), each without the consent of the landlord, the landlord may terminate the lease agreement. The termination of the lease agreement automatically leads to the termination of the sublease agreement.

Developments in practice

The following developments in real estate law and practice throughout 2021 are noteworthy.

After the real estate crisis in 2009, prices have risen steadily. Despite the pandemic and the challenges in the construction industry, Austria remains a reliable and stable market for property investments. According to the broker association RE/MAX, in the first half of 2021, the land registry recorded 9,300 more real estate transactions than in the same period of the previous year. Furthermore, the value of traded real estates in the first six months increased by €3.2 billion, Vienna being the top (€1.1 billion), followed by Lower Austria (€0.7 billion) and Tyrol (€0.5 billion). With the growing trend of home office solutions, most people now seek larger homes in different districts or in the countryside.

As regards the commercial property market, the sale of an office building complex in the 12th district of Vienna worth €120 million and the transfer of an industrial building in Tirol worth €108 million have been notable transactions in 2021. Furthermore, a positive sign comes from the hospitality branch where investors now seem to be less reluctant, given the governmental aid measures that prevent a high number of businesses from an emergency sale. Moreover, at the end of 2021, the prime yield of hotel investments should be almost at the previous year's level, according to CBRE Research.

The rising trend is not only reflected in the transfer of ownership but also in the increasing rents, given that the average rent price has climbed by 57 per cent since 2005. However, this trend has now forced the political institutions to act on behalf of the tenants and to ensure reasonable rents. By the end of 2021, Salzburg as the county with the highest rents (€9.90 per square metre including operational fees) will introduce a special fee on vacant residences. This is unsurprising because around 5,000 residential apartments in the city of Salzburg are currently not used. Notwithstanding that such ruling could be subject to a constitutional law assessment, Tirol and Vienna have already stated that they will follow Salzburg and keep an eye on the upcoming developments there. In the past few years, the aim to reduce vacant spaces has been a high concern, not only in Salzburg. The City of Vienna (represented by Binder Grösswang) has successfully filed a case against Airbnb to remove communal apartments from the booking platform. This will pave the way for the allocation of vacant communal apartments to people in need and simultaneously render private residences more attractive for investments in the hospitality sector.

The Austrian market, in particular, continues to be dominated by about two dozen institutional investors, who buy and sell the top objects among themselves in considerable numbers and thus have an interest in keeping prices high. As a consequence, commercial real estate prices have risen significantly in the past few years. For all of these reasons, the medium-term outlook for the real estate market remains good.

Furthermore, because of the demographic development, an increase in development projects relating to students and elderly people are expected. As a consequence of supply shortages in the affordable housing sector in urban areas and an increase of people living alone or in smaller groups, the living space used per person has generally declined.

There were attempts to void the current system of capped rent and time limitations as unconstitutional, in particular due to the fact that no location-related premiums may be requested from tenants in Gründerzeit quarters. The Austrian Constitutional Court did not follow these arguments, however, so the current system remained in place.

The stamp duty for leasing residential premises was abolished on 11 November 2017. Before that date, the stamp duty for residential premises (i.e., premises that are mainly used for residential purposes) amounted to 1 per cent of the gross rent for the total contractual period, limited to 1 per cent of the 36-fold monthly rent. This stamp duty was abolished for lease agreements concluded from 11 November 2017. However, written lease agreements for residential premises concluded prior to 11 November 2017, as well as other lease agreements (i.e., for commercial premises), remain subject to this stamp duty.

On a regional level, the Vienna State Parliament passed an amendment to the Vienna Building Act in November 2018. The changes aim to provide for simpler, faster and cheaper building procedures, in particular regarding small construction projects (constructions of up to 150m²). Only a notification without approval by the building authorities is from now on required for insignificant changes in the external design of buildings. In addition, the Parking Space Directive, which stipulates the number of parking spaces to be allocated to each apartment, will be handled more flexibly in the future. Unused garage parking spaces, inter alia, may from now on be converted into storage rooms or rented to residents of other residential complexes, providing that one parking space for each 100m² of living space remains available.

Conversely, the amendment to the Vienna Building Act has made the demolition of existing buildings more difficult: the demolition of certain buildings erected before 1 January 1945 requires the prior approval by the building authority; thus developers are facing challenges in increasing the stock of land available for building in the urban conurbation, which has led to a price increase of land plots.

Finally, an amendment to the Austrian Condominium Act (Wohnungseigentumsgesetz) entered into force on 1 January 2022, providing a decrease in quorum requirements regarding charging stations for electric vehicles and photovoltaic systems.

Outlook and conclusions

Although the impact of the covid-19 pandemic on the global market may not be assessed completely from today's perspective, statistics demonstrate almost a full recovery in the Austrian real estate sector and forecast a positive development. If challenges in the transaction of new properties arise, however, the reason would be rather the worldwide shortage of building materials, the period of which remains uncertain.

Political discussions about a reform of the Austrian Tenant Act and the general legal tenancy system will most likely continue in 2022 as the government intends to carry out a fundamental reform of the Austrian tenancy law. The main points of discussion in this context are a substantial decrease in the allowed rent for time-limited lease agreements, increased transparency for tenants through comprehensive information obligations of landlords, abolition of the possibility of relatives to enter into favourable rental agreements, abolition of the prohibition of location-related premiums in Gründerzeit quarters and simplification of the Austrian Condominium Act, among others. It remains uncertain whether this long-planned reform will eventually take place in 2022.

The expected decline in supply as a result of the amendment to the Vienna Building Act and the high land prices in urban Vienna have made the surrounding areas considerably more attractive for both developers and investors. In addition, long-requested reforms in the administrative law and abolishing unnecessary legal and administrative barriers will most likely not occur in the near future. Unless the new government keeps its promise to 'deregulate', real estate developments and construction projects will thus continue to face the same administrative burdens as today.

In general, despite the ongoing pandemic, the outlook for the Austrian real estate market remains positive, but a lack of availability of new development land is slowly putting brakes on interest from foreign institutional investors. The availability of affordable development land will, therefore, continue to be a prominent topic in all urban city areas. Given the general political and economic stability, however, investments and real estate prices are still expected to rise.


1 Tibor Fabian and Markus Uitz are partners at Binder Grösswang Rechtsanwälte GmbH.

The Law Reviews content