First decisions on rent reduction for commercial leases during the first Covid-19 lockdown.
Pursuant to § 1104 of the Austrian Civil Code (ABGB), the tenant is not required to pay rent if the leased property cannot be used at all because of extraordinary circumstances, such as fire, war, or epidemic. According to case law, an extraordinary circumstance is a natural hazard that massively affects a large group of people and is beyond human control, so that generally no one expects compensation for its consequences under general statutory rules.
If the leased property is partially usable despite an extraordinary circumstance, the tenant of a business premises is entitled to a proportionate rent reduction under § 1105 ABGB (for the Austrian concept of Miete, not Pacht).
Some scholars argue that § 1107 ABGB, having to do with the general life risk of the tenant, should apply to the Covid-19 pandemic instead of § 1104 ABGB. Even more controversial is whether and when, despite the Covid-19-related restrictions, a leased property is partially usable, e.g. because it is also used as a storage or office, because the display serves for advertising, or because the tenant operates an online store from the leased property.
Rent cancellation examples: hair salon and clothing store
The District Court of Meidling recently became the first court to decide, with regard to a hair salon (9 C 368/20b of 28.10.2020) and a clothing store (9 C 361/20y of 04.12.2020), that the commercial tenants were unable to perform their contractually agreed and hitherto performed activities in the leased property during the period of the first Covid-19 lockdown from 16 March 2020 to 30 April 2020, and therefore do not have to pay rent pursuant to § 1104 ABGB. The following should be emphasized from the court’s reasoning:
- The examples in § 1104 ABGB specifically mention “epidemic”, which designates a threatening and rapidly spreading disease. The coronavirus is a reportable disease that spread rapidly and worldwide; the Covid 19 pandemic was thus an epidemic as defined by § 1104 of the Austrian Civil Code.
- The restriction of use caused by the Covid-19 pandemic is beyond the control of the tenant, and it is also not a “general risk of life” to be borne by the tenant.
- The rent is to be reduced, not only if the property itself is defective, but also if the tenant cannot use the property for the contracted purpose, for reasons beyond their control. It is not based on absolute unusability, but on the unusability for the agreed use; the agreed business activity must be possible at least partially without direct customer contact in the sales rooms.
- The rent exemption concerns the main rent and the operating costs.
- Between 16 March 2020 and 30 April 2020, access to the customer area of the leased properties was It was not possible for the tenants to perform their contractually agreed and hitherto performed activities (i.e. selling clothing and cutting hair). If the property had been only partially unusable, the landlord would have had to prove this.
- The fact that the tenant uses the leased premises for storage does not make it usable (or reduce absolute unusability to partial unusability), if the items stored are for a business activity that is not possible. The ability to store items on the leased property only matters if it serves activities beyond those contractually stipulated.
- The display of the business premises had not contributed to further business activity (attracting customers, advertising, etc.), as entering the public space was only permitted to a very limited extent during the specific period (irrespective of whether the wording of the relevant ordinance actually gave rise to this interpretation, the public had assumed that it did). Moreover, the displays had not been redecorated.
- In the specific case, the tenants did not have an online store. The ability of customers to order gift certificates online did not make the specific clothing store location more usable.
- It was irrelevant what turnover the tenants had in the following months.
- The legislature apparently did not want to assign an independent value to the circumstance of the lease property “being reserved” (i.e. the fact that the property is available to the tenant again after the Covid-19 caused restrictions).
The two first-instance decisions of the District Court of Meidling have meanwhile become legally binding because they were not contested by the landlord. It remains to be seen whether the Supreme Court will confirm the tenant-friendly considerations described above. For the time being, landlords are threatened with forfeiture of the entire claim to rent (main rent and operating costs) if and as long as the rented business premises cannot be used (at least in part) for the performance of the agreed business activity because of the Covid 19 pandemic – e.g. because of a ban on entering the premises.