Author
Stefan Turic

Stefan Turic

Partner

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Author
Stefan Turic

Stefan Turic

Partner

Read More

3 November 2020

Franchise and Distribution - NOVEMBER 2020 – 9 of 9 Insights

Austria - Franchise and Distribution newsletter #23

  • Briefing

Suspension or reduction of rent payments for franchisees who rent their business premises during the period of an officially ordered closure

 

The impact of the measures against the COVID-19 virus has affected and is still affecting many businesses.
 
For franchisees who rent their business premises, the question arose if they had to pay no or less rent due to COVID-19 measures ordered by public authorities or by law.
 
First, a brief chronology of the most important COVID-19 measures in Austria concerning business premises:
  • On 16 March 2020 the extensive lockdown began. All shops outside the basic supply sector (grocery shops, pharmacies, drugstores, banks, post offices, tobacconists, petrol stations and pet food retailers) had to remain closed until further notice.
  • From 14 April 2020 small shops (up to 400m2 sales area) as well as DIY stores and garden centres were allowed to reopen (note: the restriction to shops up to 400m2 sales area without the possibility for larger shops to reduce the area accordingly has meanwhile been repealed as unconstitutional by the Austrian Constitutional Court).
  • From 2 May 2020 basically all shops were also allowed to reopen. Hairdressers were also allowed to receive customers in their salons again under strict regulations.

 

According to Section 1096 of the General Austrian Civil Code (ABGB) if the rented property cannot be used as contractually agreed, the tenant has the right to a rent reduction. The right to reduce the rent applies to all types of tenancies.
 
In addition, section 1104 ABGB provides that the obligation to pay the rent does not apply if the business premises cannot be used or occupied at all “because of extraordinary coincidences, as fire, war or plague, big floods, weather strokes (…).” According to section 1105 ABGB, a partial exemption from the rent can be argued if the business premises only have to be partially closed. The COVID-19 virus can most likely be regarded as a "plague" in the sense of section 1104 ABGB.
 
The amount of the rent reduction depends on the degree of usability of the business premises according to the purpose of the contract. If a business premises cannot be used or occupied at all, eg due to a law or an official order, no rent or lease is likely to be payable at all according to § 1104 ABGB. If a limited use (eg for storing goods or for processing online orders) is still possible, only a proportionate reduction may be justified. Whether the business premises are completely or only partially unusable depends on the purpose of the contract and the use agreed in the rental contract/leasing agreement.
 
Please note that all of the above-mentioned regulations are optional, ie they can be contractually excluded or amended. Also, if the business premises are only closed "as a precaution", but there is no official order to do so, it is unlikely that it will be possible to withhold or reduce rental payments.
 
In any case, the rent should be paid “under reservation". Otherwise, the landlord could argue that the rent reduction was (impliedly) waived.
 
What to do in case of new COVID-19 measures or in comparable situations which affect the usability of business premises in the future:
  • Have your lease contract checked! If it does not contain an exclusion from sections 1096, 1104 and 1105 ABGB, it can be argued that rent payments can be suspended or reduced for the period of officially ordered closures or restrictions on the usability of business premises.
  • In any case, the rent should be paid “under reservation".
  • If you would like/must suspend or reduce the rent payments immediately, inform the landlord in writing of the suspension reduction in advance.
  • In the interests of a good business relationship, it is advisable to contact the landlord in advance and find a solution that is as amicable as possible. If the tenant remits less rent without prior notice and without comment, he risks termination of the rental contract and a lawsuit for eviction.

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