When it comes to land, a house or an apartment, one can never be too careful; even if one has full trust in the contracting party; the unknown or not sufficiently known legal environment can cause unpleasant surprises. At the same time, Austria is often synonymous with stability of value: the Austrian economy has low unemployment and high income levels and, consequently, a high standard of living. In addition, the legal environment is secure and predictable, and ownership and tenancy are well regulated, making the country attractive for real estate investment.
In line with this, the share of foreign property buyers in Austria (mainly Hungarian, other EU, US, Middle Eastern, South Korean and Japanese institutional and other investors) has continued to rise recently, reaching 40% according to the latest published figures.
The majority of purchases continue to be for investment (capital appreciation and long-term rental) or operating purposes (commercial premises and short-term rental schemes), but there is also an increasing number of people looking to buy property for their own use, for their children studying in Austria or for holiday purposes.
The purchase price of individual properties depends essentially on their location (e.g. proximity to Vienna or other provincial capitals; tourist regions are generally more expensive), the age of the property and its expected yield (e.g. a property built before 1953 and subject to official rental regulations will always have a lower rental price). In general, however, a property in Austria can be expected to increase in value slowly but steadily (2-8%), with high overall rental yields (4-7%), which vary considerably from one province or even municipality to another.
This paper aims to provide guidance on the general Austrian legal requirements and the most important practical aspects of acquiring property in Austria for those planning to invest, start a business or move to Austria or buy property for holiday purposes.
It should be noted that the parties are not completely prevented from applying the law of another country to their contract for the sale of real estate. However, this choice of law by the parties cannot and does not lead to a result that the in rem provisions on the transfer of property, the provisions on recording of the transaction in the land register, the tax and duty provisions relating to the transaction and the provisions on the form of the real estate sale and purchase contract are being excluded from the Austrian legal regime.
This summary is not exhaustive and is not a substitute for a preliminary examination and assessment of the specific transaction envisaged.
I. The purchase offer
I.1 Mandatory nature of the takeover offer
As in Hungary, the offer in Austria is essentially a proposal to conclude a sales contract. In order to qualify as an offer, the content of the legal declaration must be sufficiently specific and detailed, i.e. it must contain all the circumstances relevant to the formation of a contract (e.g. parties, subject matter of the contract, purchase price). In addition, the offer must clearly and unequivocally express the intention of the offeror (usually the buyer) to purchase the property on the terms set out in the offer.
Thus, if the prospective buyer, after a short or long search and viewing, finds a property that he wishes to buy, he must make an offer to buy it. The mere advertisement of the property cannot be considered as a binding offer to sell which could be validly accepted by the reply "Yes, I want to buy" in such a way as to create a contract.
The real estate agent normally involved in a real estate transaction will certainly be happy to provide a potential buyer with a draft purchase offer, but the purchase offer should be carefully considered and drafted in a precise manner, in particular in the light of the outcome of the preliminary legal and technical examination of the property. For this reason, it is strongly recommended that the buyer involves professionals such as a lawyer, notary, architect or other real estate professional at the offer stage. These professionals can formulate the offer in the buyer's best interests and can check and assess the legal characteristics of the property, such as its classification and consequent usability, utility, the encumbrances on the property, and its technical condition.
This is also necessary because the acceptance of a purchase offer creates a valid contract of sale between the offeror (buyer) and the person accepting the offer (seller), unless the text provides otherwise. On this basis, the conclusion of a sale and purchase agreement, which is also capable of being registered in the Land Registry, is an obligation of the parties which can be enforced before court. This obligation can be waived only if the other party does not insist on the conclusion of the contract, but in that case compensation will still be payable. If, however, the party has reserved the right of withdrawal in the offer, he may withdraw from the transaction under the conditions of withdrawal.
I.2 The estate agent
In Austria, the sale of real estate is predominantly carried out by estate agents. However, it should be expected that the real estate agent will act as a double agent: when a potential buyer requests more detailed information about the property to be purchased, the agent will typically make the provision of this information conditional on the issue of a commission, as a result of which the agent will continue to act as agent for both parties and will claim a commission from the contracting party, typically set at 3% of the (gross) purchase price.
I.3 Typical content of the purchase offer
I.3.1 Purchase price
The most important element of the offer to purchase is the purchase price, followed by the description of the property or parts of property to be purchased. In addition to the purchase price, the buyer must pay a real estate acquisition tax, currently set at 3.5% of the (gross) purchase price. In addition, unless exempted from the obligation to pay the duty under the new legal provisions, the buyer will also have to pay a duty, currently set at 1.1% of the (gross) purchase price of the property. In addition, the seller may also charge VAT on the purchase price of the property. It should therefore be made clear in the purchase offer whether the purchase price is to be understood with or without VAT and what the consequences are for the buyer's ability to use the property. A property sold without VAT is often only available for use by the buyer, e.g. for renting, for a net fee, i.e. without VAT, and in such a case the VAT content of any invoices for renovation costs cannot be reclaimed.
I.3.2 Burdens
The buyer must also declare in the purchase offer whether or not he/she will buy or take over the property free of any encumbrances, or to what extent he/she will take over the existing encumbrances on the property. For example, the seller may still have a bank loan, typically secured by a mortgage, on the property; or a member of the seller's family or someone else may have a registered right of use on the property. If in the offer to purchase the property the buyer states that he/she wishes to purchase the property free and clear, it is also worth stating in the offer whether the outstanding charges are to be cancelled by the seller or the lawyer/notary who is handling the transaction, either before the sale and purchase agreement is concluded or during the transaction. It is also important to consider and state in the offer to purchase whether the costs of cancellation will be borne by the seller and whether the discharge will be made out of the purchase price or separately.
It is also advisable to specify in the offer which party will bear the costs of preparing the contract documents and executing the transaction, the costs of calculating and filing any taxes (e.g. real estate income tax on the seller’s side and real property acquisition tax on the buyer’s side) related to the transaction , as well as the fees of the real estate agent.
I.3.3 Procedure of the transaction
The offer should also set out the expected course of the transaction. This may help to facilitate the enforcement of the parties' rights later on. For example, the offer to purchase should address certain questions such as the validity period of the offer, when and where the purchase agreement is to be signed, when and how the property is to be delivered, and when the purchase price is to be paid or deposited.
I.3.4 Warranty
The purchase offer must state what warranties and indemnities the buyer expects from the seller, because the typical content of sales contracts in Austria is that sellers are normally only liable for the property's free and clear title. For this reason, it is also important that the potential buyer is aware of the legal and technical characteristics of the property and of his own expectations of the property when making an offer, because only in this way can he formulate his own expectations towards the seller. In the absence of such a clause, the seller may later claim that he has accepted the buyer's offer on the basis that his liability is excluded or limited.
I.3.5 Binding nature of the offer
The offer to purchase must contain clear time limits in all respects. The most important of these is the time limit set by the buyer in the offer before which the seller may accept the offer to purchase in a manner capable of producing legal effects; if the offer to purchase is accepted after this time, the potential buyer may decide for himself whether to accept the seller's (belated) acceptance or whether he no longer wishes to purchase the property. In the absence of a specific time limit, the seller may make an acceptance within a "reasonable time", which depends on all the circumstances of the case. In the event of a dispute, this will raise serious questions of interpretation, both on the part of the parties and of any court involved.
I.3.6 Conditions
It is often the case that the buyer intends to purchase the property with bank financing and does not have the commitment letter from the financing bank in hand at the time of the offer. In such case the potential buyer may include a right of withdrawal in the offer in case, for example, financing for the property is not found or other circumstances arise, as specified in the offer, which make it impossible to purchase the property or the buyer no longer intends to purchase the property. In this case, it is also worthwhile for the buyer to include a right of withdrawal, because without it, the buyer runs the risk of having to pay the purchase price even though the bank will not pay the loan.
II. Conducting the transaction
II.1 In Austria, the conclusion of a contract for the sale of immovable property and the registration of the buyer's title in the land register involve a number of steps, in which the lawyer or notary acting as agent plays a central role and must protect the interests of both the seller and the buyer. The lawyer or notary is usually brought along by the buyer, but it is not uncommon for the seller to specify in advance which lawyer or notary he is willing to deal with. The remuneration of the lawyer or notary is typically based on the purchase price of the property and amounts to 1.5-3% of the purchase price.
The lawyer or notary typically also acts as a custodian in the transaction, receiving the purchase price into his/her escrow account, as well as any additional costs paid by the buyer, such as property purchase tax, land registry fees, or the fees of the real estate agent or the lawyer or notary acting as an intermediary. Usually, the amount deposited is used to discharge the encumbrances on the property, pay the property income tax and any costs incurred by the seller in connection with the transaction, and the balance is paid to the buyer.
A lawyer or public notary acting as an escrow agent in a transaction is bound by the rules of the chamber/bar registers him or her, which are intended to protect the interests of the parties. For this reason, the lawyer or notary acting as registrar is required to open a separate (sub)escrow account for the transaction, to make prior notifications to his bar and to make any payment from the funds deposited only after approval by the bar.
It can be seen from the above that the acting lawyer or notary also represents the parties in the fulfilment of the tax and duty obligations in relation to the transaction. In addition, he or she also performs essential procedural acts: calculating the real estate acquisition tax, the real estate registration tax and the real estate income tax on the basis of the data and documents provided by the party concerned; declaring them by reference to the tax identification number of the parties concerned and paying them on the basis of the decisions of the Austrian tax authorities imposing the tax or duty (so-called ”Selbstberechnung”) or, if applicable, forward them to the party concerned for payment; then receive the tax authority's certificate of nil for the transaction and attach it to the application for the land register. If the party to the transaction is a non-Austrian citizen, a temporary tax number may also be required, as a prerequisite for the fulfilment of the above tax and duty obligations. It should be noted that the involvement of a lawyer or notary in tax matters can significantly speed up the transaction process, as there is no need to wait several months for decisions and certificates from the tax authorities.
It is also important that the parties usually authorise the lawyer or notary in the contract of sale to represent them fully before the land registry and the tax authorities, to make the necessary declarations on their behalf, to receive notifications and to make any changes to the documents signed by the parties, which are binding on both parties, if necessary to complete the transaction and to register the buyer's title.
II.2 After all outstanding issues are clarified and any requests for changes by the parties are incorporated, the contract is finalised by the attorney or notary public and signed by the parties under notarial certification. It is also possible for the signatures to be notarised by a Hungarian notary, provided that the notarisation clause is written in German or a German translation is available in Austria. It should be noted that in practice, there is also a case, which in our view is difficult to defend from a legal doctrinal point of view, where the lawyer or notary makes the signature of the sale and purchase agreement conditional upon the payment of the full purchase price and incidental costs to the buyer into his escrow account, i.e. the buyer's payment obligations arise before the signing of the agreement.
It is common practice for the parties to sign the deed of sale and any escrow agreement, which may be included in a separate deed, as well as the deed required to secure the buyer's ranking in the land registry and, where applicable, the mortgage deed of the financing bank. In the case of bank financing, the bank typically creates a mortgage on the property with a registration fee of 1.2% of the secured claim. Of these documents, the sale and purchase agreement contains all the terms and conditions for the transfer of the freehold title to the buyer, while the escrow agreement regulates the cash flow and its conditions, ensuring that the purchase price is paid only after the buyer's registration in the land register. The declaration of priority ensures that the buyer is entered in the land register in the order in which he acquired his rights, so that after the conclusion of the sale and purchase agreement, the registration of a new encumbrance on the property or even a resale of the property by the original seller can be excluded.
II.3 In most cases, once the deeds have been signed, the attorney or notary will arrange for the calculation, declaration and payment of taxes and duties, obtain the necessary declarations for the cancellation of existing encumbrances, and submit the application and the related documentation to the competent land registry. Once the buyer's title is registered, the remaining purchase price is paid to the seller.
II.4 Possession of the real estate is transferred in the manner and at the time specified by the parties in the offer (or contract), typically after the registration of the buyer's title. It is common practice that the buyer bears the burden and benefits of the property from the date of taking possession, but the first day of the month following the date of taking possession or the date of registration of the buyer's title is often set by the parties as the date for settlement of the costs related to the property (e.g. common charges, utility charges, etc.) in order to facilitate settlement.
III. Final thoughts
It should be emphasized that the involvement of experts is more than recommended at the tender stage. Not only does this ensure that the buyer can be sure that a purchase offer will be made that is in his best interests, but it also gives him the opportunity to reduce the costs and risks of the transaction.
Thus, with a well thought-out transaction structure, the buyer can save on the property registration duty (1.1%) or, in the case of a suitable buyer structure, reduce the tax on the future sale proceeds (30%).
In particular, in the vicinity of ski resorts and other tourist regions, the use of real estate is very limited and the involvement of experts in such transactions is almost mandatory. We have also encountered cases where the property to be purchased was in a condominium whose internal regulations restricted the intended use of the property by the buyer.