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Closure of business premises: Effects on lease agreements

Within the framework of the Austrian COVID-19 Law (COVID-19-Gesetz), which entered into force on 16 March 2020, the Law on Measures against COVID-19 (COVID-19-Maßnahmengesetz) authorises the Federal Minister for Social Affairs, Health, Care and Consumer Protection to prohibit by ordinance the entry to business premises or certain business premises for the purpose of acquiring goods and services, to the extent necessary to prevent the spread of COVID-19. In addition, there is also the possibility to prohibit access to additional specific places.

Based on this, the Minister of Social Affairs issued an ordinance, which – with exceptions for basic supply areas – prohibits "entering the customer area of business premises of retail and service companies as well as leisure and sports companies for the purpose of acquiring goods or services or using leisure and sports facilities" with effect from 16 March 2020, 12:00 a.m. and "entering the premises of all types of restaurants” with effect from 17 March 2020, 12:00 a.m. These prohibitions will apply for the time being until the end of 22 March 2020. By separate ordinance, access to public places was also prohibited with some exceptions. It is currently expected that the bans will remain in force for a longer period.

If tenants are forced to close their business premises due to official orders, sections 1104 ff of the Austrian General Civil Code (ABGB) arerelevant. If a leased premises cannot be used or utilized at all due to "extraordinary circumstances", the tenant or the leaseholder does not have to pay rent for the duration and to the extent to which the premises is unable to be used. In case of partial usability of the leased premises, the tenant may reduce the rent proportionately. However, unlike the tenant the leaseholder only has this option if the lease is concluded for a definite period of one year (or less) and additionally, more than half of the usual revenue is lost.

Extraordinary circumstances are elementary, uncontrollable events that affect a larger circle of people (the law cites as examples fire, war and also – as is currently repeatedly emphasised in the media – epidemics). From our point of view, closures due to official orders which were not caused by the contracting parties but affect the general public or at least a larger circle of people also constitute extraordinary circumstances.

However, lease agreements must first be examined for relevant provisions. As the regulations in section 1104 et seq. ABGB are statutory laws, they can be cancelled or amended by deviating provisions in the lease agreements.

The situation is less clear as to what applies to tenants who are not affected by the orders for closure (e.g. an all-office business without customer area), but nevertheless suffer considerable losses of revenue as a result of the Corona-crisis or voluntarily close their business. Although the COVID-19 spread is undoubtedly considered as an "epidemic" and thus, an "extraordinary circumstance" according to section 1104 ABGB, such premises would still remain usable. Since there is little case law on this subject, it can only be foreseen at this point that the court, on the basis of its developed theory of risk distribution in lease agreements ("Allgemeines Lebensrisiko"), will most likely assess such cases to be at the risk of the tenant, who can therefore still remain liable to pay rent without restriction.

Finally, it is important to know that the lack of usability does not automatically terminate lease agreements. However, pursuant to section 1117 ABGB, the tenant has the option of terminating the lease agreement with immediate effect if the leased premises is completely or partially unable to be used, unless this right of termination has been contractually excluded by the parties. Thus, a right to termination must be examined in each individual case and will most likely also depend on the duration of the official closure.

 

Please note: This newsletter merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The newsletter cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the newsletter.



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