COVID-19 and rent reduction

Does a tenant have to pay the rent if the business premises are affected by closures resulting from COVID-19? Two rulings by the Meidling District Court (BG Meidling) provide initial clues on the matter.

Initial situation

The 2nd COVID-19-Justice Accompanying Act (2. COVID-19-Justiz-Begleitgesetz, 2. COVID-19-JuBG) created regulations on tenancy law in the course of the COVID-19 crisis. For example, under certain circumstances terminations and cancellations of the tenancy agreement are not possible[1] and eviction executions can also be postponed.[2]  However, the law does not provide for any regulations regarding business premises tenancy. In particular, the question arises whether businesses that can no longer use a rented property due to legal prohibitions on entering it are still obliged to pay the rent.

The legislative documentation points out that these cases can be addressed on the basis of the existing legal situation.[3]  This refers in particular to Sec. 1104 et seq. of the Austrian Civil Code (Allgemeines Bürgerliches Gesetzbuch, ABGB), which exempt the tenant from the obligation to pay the rent in the case of non-usability due to extraordinary circumstances.

The Meidling District Court recently ruled in two first-instance (!) decisions[4] that Sec. 1104 et seq. ABGB also applies to the entry bans caused by COVID-19 and that the tenants – a hairdresser’s and a textile shop – were not obliged to pay the rent. Both rulings are already legally binding.

Complete waiver of the obligation to pay – when does a tenant not have to pay at all?

Non-usability of the rental property

According to Sec. 1104 ABGB, the landlord is not obliged to restore the rental object if it cannot be used due to extraordinary circumstances. However, the tenant is not obliged to pay any type of rent (Mietzins or Pachtzins).

Extraordinary circumstance

According to the law, an extraordinary circumstance exists in the case of fire, war or epidemic, major floods and severe weather. In both rulings, the court stated that the COVID-19 pandemic was to be regarded as an epidemic in the sense of Sec. 1104 ABGB. The restriction of use was not within the sphere of the tenant and was not a “general risk of life”[5] to be borne by the tenant.

Partial waiver of the obligation to pay – can the landlord claim part of the rent if the property was used for other purposes?

Partial non-usability

Sec. 1105 ABGB stipulates that in the case of restricted use of the property, only a proportionate part of the rent is waived. Sec. 1105 thus regulates the consequences of partial non-usability. In each individual case it must be examined to what extent the property could still be used after the official entry ban. It should be noted that in the scope of application of Sec. 1105 ABGB, different treatment is given to tenancy (Mietvertrag) and lease[6] (Pachtvertrag) agreements (see below).

The contractual intended use

In this regard, the court stated that in order to assess whether the business could also be used in a different way, it was not important whether the object could still be used in any other way. What is important is the intended use stipulated in the contract.

A storage activity would only be of importance if it went beyond the actual activity – i.e. the sale of clothing or the hairdressing service. The mere storage of products that are normally necessary for business operations therefore does not preclude a total rent reduction.

According to the court, it was also irrelevant what turnover the parties had in the following months. A “catch-up effect” had been ruled out in the hairdressing sector in particular and had not been proven in the case of the clothing sector.

Other uses

In particular, the court emphasized that the tenants did not operate an online shop. This leads to the conclusion that in other cases it is quite possible that the tenant is not exempted from payment in its entirety. For example, if the premises are used during the lockdown to store goods for an online shop, packed by the staff there and prepared for dispatch or collection (“click and collect”). Even in the case of a takeaway service in the catering sector, the property continues to be used and a complete exemption from the rent would have to be questioned.

Conclusion from the rulings and outlook

Key points from the decision

The court had no problem applying Sec. 1104 et seq. ABGB to the COVID-19 pandemic (“epidemic”). What is important in both cases, however, is that the premises could not be used for any other purpose and therefore the rent was not payable in full. If partial use of the business premises is possible, the landlord could be entitled to part of the rent.

In the decisions, the court – due to the lack of arguments by the parties – did not address the question of whether subsidy measures (e.g. fixed cost subsidy (Fixkostenzuschuss)) should be taken into account. This could certainly play a role in other proceedings, because it was precisely the fixed cost subsidy that replaced the rent for the business premises up to a certain amount.

Lease agreements (Pachtverträge)

Different assessments could also arise in the case of lease agreements. The tenant (Mieter) is always entitled to a reduction of the rent according to Sec. 1105 ABGB. The leasee (Pächter), however, only in the case of one-year (or shorter) leases and also only if the usage has fallen by more than half of the usual amount.[1]

Contractual agreements

Due to the non-mandatory character of Sec. 1104 et seq. ABGB, the contracting parties can agree otherwise. However, such agreements must still comply with Sec. 879 (3) ABGB and therefore may not be grossly disadvantageous.[1] If the contract is an agreement between two entrepreneurs, this must be taken into account in the assessment of unconscionability. For this reason, it should be verified in advance whether deviating contractual provisions have been made.

Government compensation for lost sales due to the lockdown (“Lockdown-Umsatzersatz”) and the obligation to mitigate (“Schadensminderungspflicht”)

It should be noted that at the time of the closures of the businesses, no sales compensation had yet been granted. It therefore also remains unclear how the courts would have assessed the circumstances with approved sales compensation, as this cushions the loss due to the non-usability of the rental object.

It is also unclear whether, in the sense of an obligation to mitigate damages, the tenants could be obliged to offer alternative services, such as the pick-up of goods from the shop, within the scope of their possibilities. Here, both cost/benefit criteria on the one hand and the question of turnover relevance will play a role. The use of the rental property for such services will have to be taken into consideration when assessing the question of (reduced) usability.

First instance decisions

Finally, we would like to point out that these are judgments of courts of first instance that are already legally binding. It is therefore unclear how higher courts would judge the facts of the case. In any case, however, the decisions do contain reference points for tenants when asserting their rent reduction claims based on the pandemic.

[1] Sec. 1 2. COVID-19-JuBG.

[2] Sec. 6 2. COVID-19-JuBG.

[3]403/A XXVII GP – Independent Motion.

[4]BG Meidling 28.10.2020, 9 C 368/20b; BG Meidling 04.12.2020, 9 C 361/20y.

[5]Sec. 1107 ABGB, which assigns the risk to the tenant, would therefore not be applicable.

[6]Hereinafter the term “lease” is used to refer to the German term “Pacht”.

[1]Lovrek in Rummel/Lukas, ABGB4 Sec. 1104-1108 margin no. 6.

[1]Lovrek in Rummel/Lukas, ABGB4 Sec. 1104-1108 margin no. 10.