Austrian Supreme Court: Rent Restriction is Not a Pricing Factor in the Non-Profit Housing Act

Authors

Mark Krenn, Partner

In Austria, non-profit housing associations play an important role in providing affordable housing. These associations construct and manage apartments, often funded with public subsidies. When such apartments are sold, strict legal regulations apply to ensure that the apartments remain affordable for a broad segment of the population.

The 2019 Amendment of the WGG and § 15h WGG

As part of the amendment to the Non-Profit Housing Act (WGG) in 2019, § 15h WGG was introduced. This provision states that when a subsidized apartment is sold subsequently, the full application of the Tenancy Law Act (MRG) applies for a limited period of 15 years from the sale. Thus, such an apartment is subject to the rent restrictions of the MRG. Additionally, the narrow catalogue of operating costs allows only limited further allocation of operating costs. The aim is to prevent speculation with non-profit housing and to maintain a long-term social commitment to this housing.

In the literature, it has been discussed whether the temporary application of the full scope of the MRG has an impact on the fixed price formation for such apartments, thus leading to a price reduction because the earning potential of the apartment is diminished.

The Decision of the Supreme Court

The Supreme Court had to address this very question in its decision 5 Ob 46/24m dated May 27, 2024.

In the case at hand, the applicant had been entitled to use an apartment constructed and rented by a non-profit housing association since July 1, 2011. By letter dated April 7, 2021, the respondent offered the applicant the opportunity to purchase this apartment for a total price of 245,646 euros.

The applicant then filed for a declaration of the obvious inappropriateness of the offered fixed price and for a recalculation. She also challenged the valuation report and the method used for the valuation by the expert. The first court dismissed the application, and the appellate court confirmed this decision.

The revision appeal of the applicant was admitted because the Supreme Court had not yet addressed the question of whether the introduction of § 15h WGG by the 2019 amendment to the WGG affects the appropriateness of the fixed price when apartments are subsequently transferred into ownership.

Reasons for the Supreme Court's Decision

The Supreme Court ultimately decided that the revision appeal was admissible but not justified, for the following reasons:

Regarding the objection that the expert used an incorrect or inappropriate method for the valuation, the Supreme Court noted that there is no legally prescribed method requirement and that the result of an expert opinion approved by the lower courts is not subject to review by the Supreme Court, as it is a question of fact. The same applies to determining the local price for comparable privately financed objects, as the Supreme Court decided with reference to a previous decision of the specialist senate.

Regarding the objection of the obvious inappropriateness of the fixed price offer, the Supreme Court stated that the fixed price is "obviously inappropriate" within the meaning of § 18 Abs 3b WGG if it exceeds the local price for comparable privately financed objects.

The Supreme Court thoroughly examined the positions represented in the literature and ultimately spoke against taking into account the temporarily limited rent restriction under the Tenancy Law Act in the context of examining the appropriateness of the fixed price, justifying this as follows:

The statutory provision of § 18 Abs 3b WGG was not amended by the 2019 amendment to the Non-Profit Housing Act and still declares the "local price for comparable privately financed objects" as the relevant benchmark. Thus, the focus is on objects that are similar in their specific location, construction, and equipment, which were built without public funds.

The Supreme Court countered the voices advocating for consideration by stating that it would be inadmissible to nullify the meaning of the phrase "privately financed" with the term "similar," by no longer using the privately financed objects explicitly prescribed by law as a benchmark for price formation. The Supreme Court also found no unintended regulatory gap.

Nor could the term "local" be read to include the rent restriction under the Non-Profit Housing Act, as this criterion does not refer to the financing of the construction of the housing with public funds or the temporary rent restriction.

Ultimately, the Supreme Court saw no disadvantage claimed by the applicant for buyers of apartments from non-profit housing associations compared to buyers of privately financed apartments: The temporary restriction on achievable rents and the earning potential is not effective for the self-using buyer, as if he or his family lives in the apartment as intended by the legislator, a hypothetical rental income and its amount are ultimately irrelevant for the value of this apartment.

Conclusion

I find the Supreme Court's reasoning consistent and very comprehensible. This should significantly curb speculation with non-profit apartments that compete with privately financed housing.