The Legal Environment
Indexing as a legal labyrinth
Inflation adjustments to rents, especially within the scope of application of the Austrian Tenancy Act that applies to investment properties, have become a minefield following recent legal intervention and decisions on association- based legal actions by the Austrian Supreme Court which declared numerous index clauses invalid. Whether the situation is really as bad as it seems is as subject we discussed with Nina Mitterdorfer and Wilfried Seist, two experts in real estate law.
The Austrian Supreme Court has caused great uncertainty with its decision to declare numerous standard index clauses invalid. Is the fog slowly lifting, and just what does this mean for the branch? The situation is still not completely clear, but certain trends in the legal literature are now evident. The first step is to differentiate between the type of legal proceedings for the evaluation of an index clause: A legal action instituted by an association – for example, proceedings initiated by the Association for Consumer Protection against a landlord – involves the application of stricter standards to the wording of an index clause because the interpretation is assumed to take the most consumer-unfriendly approach. In cases where the legal action is lost or a phrase
in a rental agreement fails to meet the Supreme Court’s strict requirements for these types of proceedings, this does not necessarily mean a tenant would also be successful in an individual action against the landlord.
goalkeeper. An individual legal action, in contrast, also considers whether the actual indexing reflects the original intention of the contract parties. If this is correct – which can be expected in many cases – the landlord has a good chance that the clause will be judged effective in the individual proceedings. Here is one example: A contract indicates that indexing is possible for the first time after one year of the contract term. The eagerly awaited initial relevant decision by the Supreme Court on individual proceed- ings indicates that an index clause is also effective when a value adjustment during the first two months after the contract conclusion is not explicitly excluded.
Can you give us an example?
In a legal action instituted by an associa- tion, an index clause that originated prior to the contract conclusion or which does not explicitly exclude the possibility of an increase in the base rent by the landlord during the first two months after the con- tract conclusion is, in any event, invalid. Including this type of clause in a newly concluded contract gives the plaintiff in an association-based legal action the same advantage as a penalty kick without a
20
Investment Property Report
Powered by FlippingBook