June 2025 – The current economic situation is causing an increasing number of lessees to have concerns about the financial situation of their lessors and the stability of their lease rights. In this context, the question often arises as to what effect (i) the opening of insolvency proceedings against a lessor's assets, and/or (ii) the (compulsory) sale of the property on which the leased premises are located have on the lease agreement.
1. Opening of insolvency proceedings against the assets of a lessor
In Austria, the opening of insolvency proceedings against the assets of a lessor has no effect on the existence and the content of a lease agreement. Pursuant to Section 24 of the Insolvency Act (Insolvenzordnung), the insolvency administrator automatically assumes any lease agreement concluded by the debtor as the lessor. There is no insolvency-specific termination right.
Any sale of leased premises during insolvency proceedings has the effect of a compulsory sale (see below).
2. (Compulsory) sale of the leased premises
2.1. General remarks
The legal provisions governing lease agreements can be found in the Austrian General Civil Code (Allgemeines bürgerliches Gesetzbuch, "ABGB") and in the Austrian Tenancy Act (Mietrechtsgesetz, "MRG"). Depending on the respective premises and their intended use, a lease is subject to either (i) the provisions of the ABGB exclusively, (ii) only individual provisions of the MRG and additionally to the provisions of the ABGB (partial scope of application of the MRG), or (iii) all provisions of the MRG (full scope of application of the MRG).
The difference lies in the fact that the terms and conditions of a lease agreement under the provisions of the ABGB can essentially be freely agreed. With a few exceptions, the provisions of the ABGB are dispositive. In contrast, the provisions of the MRG are unilaterally mandatory: the provisions of the MRG cannot be deviated from to the detriment of a lessee. In general, the MRG is tenant friendly.
Whether and to what extent a lease agreement is subject to the MRG is stipulated in Section 1 of the MRG. In principle, the MRG applies to the lease (Miete) (not leasing (Pacht)) of apartments or business premises of all kinds, unless one of the exemptions specified in Section 1 para 2 of the MRG applies, in which case the lease would only be subject to the provisions of the ABGB. The most relevant exemption from the (partial) applicability of the MRG in practice is the lease of premises in a building with no more than two separate leasable apartments or business premises.
A (compulsory) sale of leased premises has different effects on lease agreements, depending on whether it is subject to the (partial) scope of application of the MRG or only to the provisions of the ABGB.
2.2. Lease agreements subject only to the provisions of the ABGB
If a lease agreement is only subject to the provisions of the ABGB, Section 1120 of the ABGB, which deals with the sale of leased premises, must be observed.
According to Section 1120 of the ABGB, the acquirer of the leased premises enters into the lease by operation of law—provided that the premises were already handed over to the lessee prior to their acquisition by the acquirer, otherwise the acquirer would not be bound by the lease agreement at all.
If the lease agreement is, however, not registered in the land register, then the acquirer is not bound to provisions regarding the term and termination of the lease agreement (in particular contractual time limits, termination waiver, notice periods and termination dates). On the contrary, the acquirer may terminate the lease agreement in compliance with the statutory notice periods and deadlines, or alternatively, in compliance with shorter notice periods that have been contractually agreed. The statutory notice periods and deadlines are regulated in Section 560 of the Austrian Code of Civil Procedure (Zivilprozessordnung, "ZPO") and vary depending on the type of lease, whereby lease agreements for business premises can be terminated with effect at the end of each calendar quarter by giving three-month’s prior notice. The special termination right pursuant to Section 1120 of the ABGB must be exercised within a "reasonable period of time" after the acquisition; otherwise it expires, and the contractual term and termination agreements apply.
Although Section 1120 of the ABGB refers to a "sale of the premises", this provision also applies to specific other cases where the premises are transferred and specific other rights relating to such premises are granted; we do not address these specifics in this article.
If the lessee's lease right is registered in the land register, the acquirer of the premises is also bound by the contractually agreed provisions regarding the term and termination of the lease agreement and are therefore not entitled to an early termination of the lease agreement.
Section 1120 of the ABGB also applies in the event of a compulsory sale of the premises.
According to Section 1121 of the ABGB, registered lease rights shall be treated as easements in the event of a compulsory sale. Pursuant to Section 200 of the Austrian Enforcement Code (Exekutionsordnung), easements that are registered in a higher ranking in the land register than the rights of the enforcing creditor or a registered mortgage must be assumed by the acquirer without being offset against the highest bid. Easements that are registered in a rank after any monetary encumbrance shall only be assumed to the extent that they are covered by the distribution fund in accordance with their respective ranking (based on the capital amount of the right determined by a valuation of the easement).
A lease right is therefore not absolutely protected from the consequences of a foreclosure simply because it is registered in the land register, but only if it is registered in a ranking higher than the first monetary encumbrance (i.e., a mortgage).
If the acquirer of the premises exercises its special termination right with regard to an unregistered lease agreement, the lessee is entitled to damage claims against its previous contractual partner. If the premises were acquired by way of foreclosure, the recoverability of compensation for damages is questionable.
Please note: Notwithstanding the entry of the acquirer of the premises into a lease agreement, any advance rent payments already made by the lessee that are not registered in the land register and which the acquirer is not aware of and must not be aware of (in good faith) have no effect on the acquirer. This means that a lessee must pay the rent that it has already paid in advance again when it falls due under the lease agreement, unless such advance payment has been registered in the land register or was otherwise known or should have been known to the acquirer.
2.3. Lease agreements subject to the (partial) scope of application of the MRG
Within the (partial) scope of application of the MRG, Section 2 para 1 of the MRG derogates the lessor's special termination right pursuant to Section 1120 of the ABGB. According to Section 2 para 1 of the MRG, the legal successors of the lessor are bound by a validly concluded main lease agreement (provided that the premises have been handed over to the lessee prior to the acquisition of the premises by the acquirer), even if the lease agreement has not been registered in the land register. If, however, such a lease agreement contains ancillary provisions (i.e., provisions not relating to the main elements (essentialia negotii) of a lease agreement) with unusual content, the legal successor of the lessor is only bound by these ancillary agreements if it knew or should have known about them.
Case law considers ancillary agreements as unusual if such provisions are not, or only rarely, agreed upon for comparable premises and for the comparable contents of lease agreements. For example, if there is no, or hardly any, need for such an agreement or because it does not correspond to the typical interests of the parties involved.
As an advance payment of rent is generally not unusual, it is to be accepted by an acquirer of the premises, even if it has not been registered in the land register.
3. Recommendation
Always check whether your lease agreement is subject to the (partial) scope of application of the MRG or only to the provisions of the ABGB.
If it turns out that the lease is only subject to the provisions of the ABGB, the registration of the lease right prior to the first monetary encumbrance should be sought, which is of course only possible with the consent of the owner of the premises and those persons in whose favour monetary encumbrances have already been registered in the land register (these are, in particular, credit institutions in whose favour mortgages have been registered and which need to issue declarations of priority in order to be able to register the lease right in a rank prior to such mortgage).
It can of course always happen that an examination as to whether a lease agreement is subject to the (partial) scope of application of the MRG or only to the provisions of the ABGB does not lead to a clear result. In particular, hotel lease agreements in Austria repeatedly raise the question of whether they should be classified as a lease agreement (Mietvertrag) or as a leasing agreement (Pachtvertrag) and whether the hotel building consists of more than two independently leasable premises or not. In such cases, it is advisable to register the lease right as described above to be on the safe side.
Please note: A lease right can only be registered on the basis of a deed that contains the essential terms of the lease agreement, including information on the rent. Such deeds—including the information on the rent—are publicly accessible in Austria from the collection of deeds at the land registry court.