Austria: New Supreme Court ruling on operating costs and indexation clauses

This decision was presented in the daily press as a great victory for tenants and a significant risk for landlords. In fact, it is positive for landlords in many areas.

When is a contract considered general terms and conditions?

If the landlord indicates a willingness to amend or negotiate the wording of the tenancy agreement they have drafted, the agreement is no longer considered general terms and conditions. To this end, the contract must not only be sent to the tenant for "review and signature" but must also be sent for "review and notification of proposed additions and amendments". If the prospective tenant proposes amendments, they should also be negotiated, and the tenant's wishes should be followed for those points that are not relevant to the landlord. This can document the seriousness of the willingness to make changes. There is then a chance that Section 6(3) KSchG and Section 879(3) ABGB, which regulate the invalidity of grossly disadvantageous and non-transparent clauses in general terms and conditions and contract forms, may not apply (at least increasing the chances of this argument).

To do:

• Send drafts of rental agreements to potential tenants for "review and notification of proposed additions and amendments".
• Accept changes proposed by the tenant or at least find a compromise solution between the two formulations.

Final list of operating costs

The invalidity of the clause concerning the charging of operating costs is based solely on its non-transparency, as the costs passed on are only listed as examples. The tenant is then unable to assess what constitutes operating costs and what cost burden it entails for them.

The plaintiffs only won because the word "in particular" was included in the list of operating costs. Even though this is not explicitly stated, the Supreme Court obviously assumes that the agreement of the operating costs catalogue of Sections 21 ff MRG is also permissible within the partial area of application of the Tenancy Act.

To do:

• Do not use blanket phrases in the rental agreement such as "all costs necessary for the operation of the property", "in particular" or "for example".
• Provide that the "operating costs include the items listed exhaustively below".

Admissibility of agreeing to the CPI and the index value published for the month in which the contract was concluded

The Supreme Court has made two very important clarifications for landlords with regard to the indexation clause.

It is permissible to agree on the index value published for the month in which the contract is concluded as the basis; it is not necessary to refer to the month in which the contract commences, which is typically in the future. There is no lack of transparency in this case (such issues might arise if an index figure from a longer period in the past is agreed, such as the index figure on which the last recalculation of the standard values (Richtwerte) was based, with only the rent to be paid currently indicated alongside it). The clause is not grossly disadvantageous (as the Supreme Court assumed in the aforementioned example, though without providing further reasoning). It remains unclear whether agreeing on the index value, which is the last published index value on the day the contract is concluded, is also permissible.

An indexation clause based on the consumer price index is generally permissible and does not inherently contradict the principle of objectivity. The Supreme Court has expressly confirmed that it considers the agreement of an indexation based on the CPI to be permissible, after having previously ruled that agreement of the construction cost index to be objectively unjustified in a previous decision, as this does not reflect the change in all of a landlord's costs.

To do:

• In rental agreements, always link indexation to the CPI and do not choose any other index.
• Agree on using the index value published for the month in which the contract is concluded as the base index.

Liability for recovery claims

The Supreme Court has also ruled that an apartment buyer is liable for repayment claims related to payments made to the previous owner before the purchase. In this case, the purchase agreement between the seller and the buyer included an assumption of the rental agreement, encompassing all associated rights and obligations. In the event of an assumption of contract, where all reciprocal rights and obligations are transferred, case law holds that this transfer also extends to repayment claims arising from payments made to the former party, which must be reversed due to the nullity of the relevant clause in the lease contract.

In principle, the landlord's legal successor is already bound by the validly concluded main rental agreement in accordance with Section 2 MRG, both in the partial and full scope of application of the MRG.

To avoid this legal consequence, it should be agreed in the purchase agreement that all claims and entitlements related to the period before the purchase are not transferred and that the transfer of rights and obligations only applies to the future. If this is also communicated to the tenant when they are informed that ownership of the rented property has been transferred, the tenant cannot assume that claims for repayment for periods prior to the transfer of ownership have also been transferred.

To do:

• When purchasing a rental property, explicitly state that any claims arising from the rental agreement that relate to the past are not transferred.
• Inform the tenant that any past claims remain with the previous owner.

author: Peter Madl