Current Supreme Court decision on operating costs and value retention

Regarding the objected operating costs

The lease agreement stipulated that, in addition to the main rent, the tenant must bear a proportionate share of all management costs for the building. Among the management costs specified were the operating cost categories listed in Section 21 of the Austrian Tenancy Act (MRG), the administrative costs set out in Section 22 MRG, and the property maintenance costs and public charges defined in Section 23 MRG.

However, the use of the term „in particular“ was noticeable, which indicated a non-exhaustive list. The tenant argued that this made it unclear what exact costs could be incurred, and invoked the principle of transparency pursuant to Section 6(3) of the Consumer Protection Act (KSchG) as well as gross disadvantage pursuant to Section 879 of the General Civil Code (ABGB).

The Supreme Court clarified that the clause constitutes standard form contract terms, as it was pre-formulated and not individually negotiated.

Pursuant to Section 6 (3) of the Consumer Protection Act (KSchG), general terms and conditions must be drafted in a clear and understandable manner so that the consumer can clearly recognize their legal position. In the present case, however, this was not given because:

• the listing of costs was for illustrative purposes only,
• due to the word „in particular“ it remained open whether further costs could be passed on,
• the tenant could therefore not clearly see what is meant by „management costs“.

The Supreme Court therefore declared the clause invalid due to lack of transparency. Of particular relevance here is that no validity-preserving reduction took place. This means that not only the unclear parts, but the entire clause was omitted.

Practical implications

This decision shows that when drafting operating cost clauses in the lease agreement:

• it must be stated precisely and exhaustively which costs are to be passed on to the tenant,
• vague formulations such as „in particular“ or „in any case“ lead to a lack of transparency and thus to invalidity,
• clear regulations are necessary, particularly in the partial application scope of the MRG, since pursuant to Section 1099 ABGB the landlord generally has to bear the costs.

Had the tenant been a business enterprise, the transparency requirement would not have applied and the operating costs clause might have been valid.

Regarding the contested value retention clause

Another clause examined by the Supreme Court concerned the indexation of the base rent. This was to take place either for the first time after one year or whenever the CPI had changed by at least 5 % since the last base rent adjustment.

However, the tenant argued that the clause was opaque and abusive because it did not regulate clearly enough when and how the rent would be adjusted. The Supreme Court of Justice (OGH) saw it differently, however:

• The clause clearly regulated two alternative cases:
  • For the first time after one year: Regardless of the index development, the rent can be adjusted once.
  • After each index change of at least 5 %: After that, the rent may be adjusted again if the CPI has changed by at least 5 % since the last adjustment.
• The word „or“ clearly shows that these are two separate possibilities that are applied alternatively.

Since there was neither contradiction nor ambiguity, the Supreme Court declared the clause to be transparent and valid.

Regarding the objected base index

The price escalation clause referred to the index number of the month in which the contract was concluded, which meant that price changes prior to the commencement of the tenancy could be taken into account. However, the Supreme Court (OGH) did not consider this to be invalid, because:

• the time the contract was concluded is decisive, because at this time the mutual services are assessed and agreed upon,
• the clause only takes into account changes after the conclusion of the contract and no price increases from the period prior to it.

With this, the Supreme Court considered the clause to be transparent and objectively justified.

Conclusion

This decision illustrates:

1. Operating cost clauses must be clearly and exhaustively regulated to avoid lack of transparency and invalidity.
2. General formulations such as „in particular“ or „at any rate“ should be avoided.
3. Value-adjustment clauses based on the Consumer Price Index (CPI) are permissible if they clearly regulate when and how the adjustment is made.
4. The selection of the base index can be based on the month the contract is concluded, even if the lease commencement date is later.

For landlords, this means:

• Lease agreements should be formulated precisely and transparently to avoid legal disputes.
• It should be explicitly pointed out that the list of operating costs is exhaustive.
• The seriousness of the willingness to make changes should be documented in order to counteract the application of Section 6 (3) of the Dismissal Protection Act (KSchG).

The following applies to tenants:

• Operating cost clauses and value retention clauses should be carefully reviewed, in particular for transparency and comprehensibility.
• It can be advantageous to insist on ambiguous clauses and introduce proposed changes.

For further information and individual consultation, please Anela Blöch and your team at any time at office@atb.law or by phone at 01 39 12345 available.