Hotline: +43–1‑512 28 65–88
In real estate transactions, it is essential to proceed with proper caution. Statutory provisions may cause unpleasant surprises, however high the level of trust between the contractual parties may be. From the very beginning, a Civil Law Notary establishes and provides legal clarity to all parties involved in order to eliminate any potential surprises.
Setting up escrow agreements and acting as escrow agent is an everyday task for a Civil Law Notary. This includes safeguarding the purchase price and making payment the moment the purchaser is securely registered in the Land Register thus ensuring that both parties to an agreement fulfil their respective obligations.
For generations, Civil Law Notaries have been the first port of call for people seeking advice in real estate matters. A Civil Law Notary provides competent advice and services, including inter alia:
- Inspection and registrations in the Land Register
- Drawing up agreements
- Certification of the signing of the contract
- Fiduciary administration of the purchase price and additionally providing information on the expected costs, as well as registration and deletion of liens
Processing of a donation agreement
A donation agreement is processed similarly to the processing of a purchase agreement, but in the absence of cash flow, a fiduciary administration is normally not required.
The essential details are discussed during an appointment in which the notary advises the parties on the most adequate form of the agreement. Frequently, the donation agreement contains consideration or securities in favour of the donor, such as a lifelong right to use an apartment free of charge, usufruct, or a prohibition on sale and encumbrance. These must be taken into account when the property rights of the donee are registered. In that case, the donee does not acquire unencumbered ownership of the property.
Additionally, the parties are informed on the tax consequences regarding real estate transfer tax, property right registration fee, real estate income tax (usually not incurred), tax implications of pensions, etc. Consequences arising from inheritance law, such as the recognition of the donation to the inheritance or legitimate portion of the donees, are also discussed. A draft of the donation agreement is drawn up and circulated to the parties.
After consultation with the parties for the purpose of answering remaining questions and discussing amendment requests, a date on the ultimate signing is agreed. On this singing date, the agreement is read out and all details are discussed once more together with the parties. Since donation agreements without actual transfer (which is usually the case) have to be drawn up in form of a Notarial Deed, all contracting parties must be present at the same time.
In the course of self-assessment, the notary calculates real estate transfer tax and property rights registration fee and transfers these fees to the relevant tax authority in due time.
After that, the necessary entries for the execution of the donation agreement (property right of the donee, any retained rights for the donor) are made in the Land Register. After successful entry with the Land Register, all parties are informed on the status of the Land Register.
Real Estate Transfer Tax (Grunderwerbsteuer, GrESt)
Both the purchase and the donation of real estate, or the acquisition of real estate on death are subject to real estate transfer tax, which generally amounts to 3.5 % of the assessment base (=purchase price). In case of a donation of real estate, an acquisition (also purchase) by a person to the beneficiary family (Section 26a of the Act on Court Fees) or in case of an acquisition on death the graduated tariff pursuant to Section 7 of the Real Estate Transfer Tax Act applies.
Accordingly, the real estate transfer tax amounts to:
- 0.5 % of the assessment base for the first € 250,000
- 2 % of the assessment base for the following € 150,000
- 3.5 % of the assessment base for anything extending beyond
A property’s value is determined in three different ways, chosen at the party’s discretion:
- flat-rate model
- real estate price index of Statistik Austria
- expert opinion
Regarding the flat-rate value model, the property value consisting of the land value and the building value is determined by means of legally stipulated factors (floor area, land value, grossing-up factor, usable area/gross floor area, construction cost factor and deductions for age and type of building).
On the grounds of an expert opinion, it is possible to prove a lower general value of the property, which can subsequently be used as a base for assessment.
The real estate transfer tax is generally owed jointly by the persons involved in the acquisition process. In the case of a purchase contract, therefore, both the purchaser and the seller are tax debtors. Regarding donations, the donor and the donee of the donation are tax debtors jointly. With the purchase contract it is regularly agreed that the purchaser has to pay the real estate transfer tax. In order to secure the payment of this tax by the purchaser, the latter must deposit it with the notary’s escrow account.
When a purchase or donation agreement is processed by a notary, the real estate transfer tax is transferred to the notary’s tax escrow account, from where it is transferred to the relevant tax authority in due time.The notary is entitled to self-assess the real estate transfer tax. By submitting the declaration of self-assessment to the responsible tax authority, the said authority is informed about the acquisition process. The self-assessment done by the notary replaces the notification of the acquisition process, which forms the basis on which the tax authority would first impose the real estate transfer tax, and thus contributes to a swift settlement of the real estate transaction.
Apart from the real estate transfer tax, which is payable to the responsible tax authority, a so-called registration fee is payable on registration of the property right in the Land Register. This is a court fee to be paid to the competent land registry court. The fee amounts to 1.1% of the value of the right to be registered (e.g. purchase price).
According to Section 26a of the Act on Court Fees, however, there are, preferential acquisition transactions for which the registration fee is only 1.1% of the tripled unit value, but amount to a maximum of 30% of the right to be registered. This includes legal transactions in the extended family circle (e.g. the transfer of a property to the spouse, siblings, nieces and nephews or to the partner, if the partners have or did have a joint residence) as well as certain transactions under company law (e.g. the transfer of a property due to a merger).
Prohibit on Sale and Encumbrance
The prohibition on sale and encumbrance is a legal institution for the purposes of a lock-up on properties.
Such a prohibition has the effect that the person subject to the prohibition cannot sell (purchase, exchange, donation, sale on death and contribution in kind to a company) or encumber (e.g. through a lien or usufruct) the property without the consent of the beneficiary. However, in order not to impair the marketability of real estate too much, the law provides for the following restriction: It can only be invoked against a third party with absolute (in rem) effect if it is recorded in the Land Register. A prohibition on sale and encumbrance in accordance with § 364c ABGB (Austrian Civil Code) can only be registered if it is agreed between spouses, registered partners, parents and their children (including adoptees, foster children and stepchildren). A prohibition on sale and encumbrance therefore only has a real effect if it is registered in the Land Register. In absence of such a registration, an agreed prohibition on sale and encumbrance shall only have mandatory effect.
This means that in the event of a breach of the agreed prohibition, the prohibited party cannot prevent the sale or encumbrance of the land, but can only assert claims for damages against the obligated party. Prohibitions of sale and encumbrance are also quite common for condominiums and other co-ownership communities. The individual minimum shares or co-ownership shares may also be prohibited individually. It is particularly important to note that the division of the entire property remains possible, unless all shares have the same prohibition beneficiary. In addition, the prohibition in principle applies only to the encumbered part.
Also between condominium partners (see Condominium for persons who jointly own a minimum share), a prohibition on sale and encumbrance and can be mutually registered, provided that the partners are part of the immediate family according to Section 364c of the Austrian Civil Code.
Since, however, a minimum share can only be sold or encumbered by consent of the other party, such a prohibition also has the effect of an implied waiver of the civil division of the share. This waiver can only be revoked due to important reasons (e.g. a divorce). However, a divorce does not automatically lead to a dissolution of the waiver. Furthermore, an implied waiver of division is generally only assumed in the case of a reciprocal prohibition on sale and encumbrance. Regarding condominium, however, the registration can only be made mutually.
In order to register the prohibition with the Land Register, an effective agreement between the parties is generally required. This may consist of an ancillary agreement (e.g. to the purchase contract) as well as an independent agreement or a testamentary disposition. If the requirements of Section 364c of the Austrian Civil Code are met, it can be entered in the encumbrance sheet of the Land Register. In any case, the notarised form (certifications of signatures, see also certifications) must be abided by. Once the prohibition on sale and encumbrance has been registered with the Land Register, it not only prevents the encumbrance (e.g. through a right of lien or usufruct) and sale (purchase, exchange, donation, sale in the event of death and contribution in kind to a company) of the property, but also prevents executive access thereto. This means that the property cannot be seized in the course of an execution due to a claim by a third party. In addition, in the event of insolvency, the property cannot, in principle, be used contrary to the prohibition.
All described procedures remain possible, provided that the beneficiary of the prohibition agrees. This consent of the beneficiary must be documented in order to be able to make effective dispositions.
The prohibition is a highly personal matter and therefore in principle only binds the beneficiary and the obligor. Accordingly, it can neither be inherited nor transferred by either party. It also expires if the property is sold effectively (e.g. by consent). It therefore only binds the first owner. It is also possible to include either only a prohibition on encumbrance or only a prohibition on sale.
Easements: usufruct and right of residence
Easements (or servitudes) represent a group of limited, absolute rights (rights in rem). In contrast to a mandatory legal position, as is the case, for example, with rent and lease, the person entitled to easement is entitled to an absolute right (enforceable against everyone). The particular content of the law can take on very different forms. The encumbered party, however, is in any case obliged to either tolerate or refrain from a certain conduct. If an active “doing” is required, one speaks of a land charge.
A servitude may be acquired in different ways. In the most frequent case, an agreement, the so-called Servitutsbestellungsvertrag, is concluded. However, easement may also be based on a testamentary disposition or the law. Servitudes that exist on the basis of administrative regulations for the public good are called legal servitudes.
Easements to real estate do not take effect until they have been entered in the Land Register. Without registration, an easement only binds the contractual partner, but not third parties. For registration, the agreement must be submitted to the Land Register in certified form (certified signatures, see Certifications) including the declaration of conveyance. Subsequently, the easement is recorded in the encumbrance sheet of the serving property and is made visible on the A2 sheet of the ruling property in case of an easement.
As already mentioned, various rights in rem can be subsumed under a servitude:
On the one hand, there are easements in which the beneficiary is a certain person, on the other hand there are easements in which a certain “serving” property is subject to a “ruling” property due to an easement.
Within the personnel easements it is distinguished between the right of use (use of an object without infringement of the substance), usufruct and the right of residence.
Basic easements are e.g. water pipe rights and rights of pasture or trespass rights.
The most important easements are described in more detail below:
Within the framework of usufruct, the usufructor is entitled to use the object without restriction, just like the owner, and to collect the proceeds (“fruits”) from it. The fruits can be both civil fruits (e.g. rent) and natural fruits. He is also entitled to administer the object. The owner may only interfere with this right by selling or encumbering the object. Otherwise, for example, only the beneficiary may conclude rental or lease agreements on the object as long as his right exists.
A right of residence is generally understood as the right in rem (absolute right) to use habitable parts of a house. However, unlike condominium (also see Condominium), it does not constitute a “full right” because it is limited by the ownership of the object. Conversely, however, the property is also encumbered by the right of residence. Depending on whether the right of residence is only intended to serve personal needs or whether it can also be used to generate income without restrictions, it is either a subset of the right of use (right of use for residential property) or of usufruct (usufruct on residential property). Object of the right can be either all or only individual habitable rooms of a building (plus courtyard or garden if applicable).
Servitudes are generally not transferable without the consent of the obligor.
In addition to the general reasons for termination (such as expiry of time, waiver, etc.), servitudes shall also cease by termination for good cause, futility, destruction of the dominating or serving object and, in principle, by limitation. The limitation period depends on the fact that the easement is not exercised for thirty years (for natural persons) or forty years (for legal persons).
In addition, a Freiheitsersitzung (a particular case of limitation of an existing easement) may be executed in which the obligor resists the exercise of easement for three years and the beneficiary does not oppose it. Personal easements, such as the right of residence, also expire upon the death of the beneficiary (in the case of legal persons, upon their expiration).
Depending on the reason for which the servitude expires, the deletion in the Land Register may be necessary for the termination to take effect.
If a servitude is not registered with the Land Register in respect of immovable property, but is nevertheless recognisable with a certain amount of attention and is not agreed as a mere mandatory right, then according to the case law it has absolute effect against any purchaser of the property even without registration.
Land Transfer / Land acquisition by foreign nationals
In case the maintenance of agricultural land in Austria is endangered by a real estate transaction (a so-called “green land acquisition”) or if a foreign national wishes to acquire property in Austria (“land acquisition by foreign nationals”), a permit to guarantee the validity of the legal transaction may be required in order to process the transaction.
Since the Land Transfer Act in legislation and enforcement falls within the competence of the federal provinces, the forms in this field of law may differ.
Land acquisition by foreigners – using Vienna as an example:
The term foreigner refers to natural persons who do not hold Austrian citizenship as well as legal persons having their corporate seat abroad as well as legal persons having their corporate seat in Austria but whose majority holders are foreigners.
Exempted from the obligation to obtain a permit are:
- Spouses/registered partners acting jointly with one of them being an Austrian citizen
- In case of a cohabiting condominium partnership in accordance with Article 13 of the Austrian Condominium Act 2002, with one of the owning partners being an Austrian citizen
- EEA nationals (natural persons and legal persons) and Swiss nationals (natural persons)
- Legal transactions on death
In addition to that, Iranian citizens who are not gainfully employed, Swiss legal persons, as well as employers of particular, favoured organizations (such as UNO, OSCE, OFID) may apply for a so-called negative certification which certifies that the legal transaction is exempt from the obligation to obtain a permit.
Foreign nationals who wish to acquire property, a building right or an easement in Vienna need to obtain a permit to guarantee the validity of the legal transaction. The applicant must provide proof that the legal transaction is of a social or economic interest. Social interest means that the acquisition satisfies the individual housing needs of the applicant.
Economic interest means that the acquisition object is used for the purpose of establishing, expanding or maintaining a business.
“Green land acquisition” using Lower Austria as an example:
This includes the acquisition of property, the granting of usufruct on an agricultural and forestry property or on an associated residential or farm building and, in the case of areas exceeding 2 hectares, also their stock/other transfer as well as leasing.
No permit to guarantee the validity of the legal transaction is required for:
- Properties whose cadastral area does not exceed 3000 m² proven to the Land Registry court by an affidavit or public document.
- Legal transactions on death (in particular last wills),
- Legal transactions between spouses or relatives or in-laws in direct line, between siblings or their spouses, and between uncles and aunts on the one hand and nephews and nieces and their spouses on the other hand,
- Legal transactions within two years following an absolute divorce, annulment or dissolution of the marriage for the purpose of division of the matrimonial property or savings; the same applies in the event of annulment of the registered partnership between the then registered partners for the purpose of division of the economic property and savings,
- agricultural and forestry properties required by the sovereign administration, as public transport facilities or energy supply,
- Legal transactions which exclusively include, the establishment of walking, driving, delivery and piping rights, easements on buildings and rights of use regulated by agricultural authorities,
- Legal transactions in which co-ownership is rescinded or the co-ownership quota is amended while the co-ownership remains valid
In individual cases it is advisable to request an official decision according to which there are no agricultural and forestry areas.
General | Donation Processing | Real Estate Transfer Tax | Registration Fee | Prohibit on Sale and Encumbrance | Easements | Land Transfer | Condominium Ownership | Costs | FAQ.
Condominium ownership is the right in rem (absolute right) granted to the co-owner of a property to exclusively use a condominium property (e.g. apartment, parking space, storage).
The Condominium Act 2002 contains special provisions in this respect. In Austria, co-ownership is generally structured according to the principle of quotas. This means that, in principle, every co-owner only has an immaterial share and no one owns a real part of the object. However, if condominium ownership is justified, each condominium owner owns a share of the property with the right to exclusively use a condominium part of property.
In principle, condominium ownership is based on a condominium ownership contract.
Therein, the rights and obligations of the condominium owners among themselves, the distribution of the individual shares, the associated legal positions (such as the allocation of cellar compartments or parking spaces) and the distribution of property-related costs between the condominium owners, are regulated. As a rule, the condominium ownership contract is based on a utility value appraisal to be drawn up by a civil engineer, which determines the amount of the individual minimum shares of the condominium properties. In order for condominium ownership to become effective, it must be registered in the ownership sheet of the Land Register. In order to be registered in the Land Register, among other things, the condominium ownership contract must be submitted to the Land Register in the requested form (certified signatures, see also Certifications).
The condominium owners may only dispose of the property as a whole or make amendments (e.g. amendments in the condominium ownership agreement) together. Each condominium owner is only entitled to individually dispose of his own minimum share, i.e. encumber or sell his own minimum share. In addition, every condominium owner is entitled to use the common parts of the property. For example, staircases, elevators, courtyards, but also communal gardens are considered common parts.
However, agreements defining the permitted use of these parts (user agreements) can also be drawn up.
It is also possible for a minimum share to be acquired jointly by two natural persons, thus establishing a so-called owner partnership.
This results in co-ownership according to ideal quotas (see above) of this minimum share. It should be noted, however, that the partners’ shares in the minimum share can never be encumbered differently or sold individually. This circumstance results in a restriction on the disposal of the share, which is similar to a prohibition on sale and encumbrance (see Prohibition on sale and encumbrance).
With regard to the management of the property, a distinction must be made between ordinary and extraordinary measures. In principle, every condominium owner has the right to manage the property. This means that measures may generally be taken to maintain and improve the common parts of the property. It should be noted, however, that in the case of ordinary administrative measures the (simple) majority has to decide. Even in the case of exceptional measures, the simple majority decides. In that case, however, any overruled condominium owner may request the annulment of the majority decision in court under certain conditions.
Ordinary administrative measures include the proper maintenance of the common parts of the property (see above) or the adequate insurance of the property. Extraordinary measures can include, for example, structural changes that go beyond simple maintenance (such as an enlargement of the house). In practice, an administrator is often appointed to take administrative action. This also requires a majority decision of the community.
If a condominium owner incurs expenses for the property (e.g. for improvements or maintenance), these are generally to be distributed among all condominium owners in proportion to their shares.
In case of certain serious reasons, an individual condominium owner may be excluded from the community by a majority action. However, this measure is deemed as ultima ratio and is only permissible in the absence of any other possible solution.
In principle, condominium ownership is inheritable, unless it is merely based on a lifetime. In this case, it shall cease upon the death of the person entitled. In a co-owner partnership (see above), the decedent’s share is transferred to the surviving partner by law (Section 14 of Austrian Condominium Act 2002) in return for a payment to the estate.
Acquiring property always involves financial efforts.
In addition to the purchase price, further costs incur that have to borne by the purchaser, including land transfer tax and registration fees (for registering the property and a possible lien).
As a rule, the seller is liable for the real estate income tax, which is deducted directly from the purchase price if necessary, and under certain circumstances for the costs of the release from encumbrances.
If, in addition to that, an estate agent was involved in the transaction, he is usually entitled to a fee.
In the case of a property donation, it should be noted that no real estate income tax is payable as a matter of principle. Furthermore, different tax rates apply to the land transfer tax.
The notary is also entitled to a fee for drawing up the contract and for the fiduciary administration of the purchase agreement. The amount of this fee depends on the circumstances of the individual case and is usually agreed in advance by the purchaser and the contractor. The essential parameters for the determination of the fee are: amount of the purchase price, requirement for exemption from encumbrances, debt financing, permit to guarantee the validity of the legal transaction, complexity of the individual case, etc.
In general, the notary’s tariff is calculated in accordance with the provisions of the Act on Notarial Tariffs, unless there is a separate agreement. However, it is advisable to agree on a lump sum, which is based on the purchase price of the property transaction, in advance. In most cases a lump sum of 1.5% of the purchase price plus cash expenses, fees and VAT will be appropriate, but the specifics of the individual case (in particular the amount of the purchase price, the requirement for exemption from encumbrances, debt financing, a permit to guarantee the validity of the legal transaction etc.) must be taken into account accordingly.
What does release from encumbrance mean?
Release from encumbrance means that the property or condominium object that the purchaser intends to buy is encumbered in the Land Register, i.e. encumbrances are registered in the encumbrance sheet of the Land Register. That way, a loan that the seller has taken in the process of his acquisition, is secured by lien. Prohibitions on sale and encumbrance and easements may also be registered. As a rule, the purchaser acquires unencumbered property, that’s why the deletion of all encumbrances relating to the seller has to be ensured. In his capacity as escrow agent, the notary guarantees that all encumbrances not to be assumed by the purchaser are deleted in the Land Register and that the purchase price is paid to the seller only after fulfilment of these conditions. The deletion of the encumbrances relating to the seller is called release from encumbrance.
What is the purpose of a release from encumbrance?
In case of doubt (unless otherwise agreed), a property or condominium object must be transferred free of encumbrances. The release from encumbrances is of utmost importance, as otherwise the property (or condominium object) acquired by the purchaser remains liable for the seller’s liabilities or obligations. For example, a bank that has secured its loan by lien in the Land Register can access the property or condominium if the debtor does not fulfil the payment obligation under the loan agreement. It is the task of the notary in his capacity as escrow agent to ensure that the purchaser is registered as the owner with the Land Register free of encumbrances.
Who pays for the release from encumbrance?
The costs of the encumbrance release include the preparation and certification of documents required for the encumbrance release as well as the corresponding implementation measures in the Land Register. It may be agreed by the parties who shall bear the related costs. Typically, they are to be borne by the seller, since the necessity of the release from encumbrances was also caused by the seller. As a rule, the release from encumbrances of the object of purchase is effected at the same time as the registration of the right of ownership, so that no additional registering fees are due to the Land Register.
If the repayment of a loan relating to the seller is necessary as a condition for the release from encumbrances, the open balance from the trust deposit (= purchase price) will be covered by the notary as escrow agent. After the registration of the ownership right, the seller directly receives only the remaining amount (if necessary less real estate income tax) upon agreed encumbrance status. In any case, the notary in his capacity as escrow agent ensures that the release from encumbrances from the escrow can be achieved so that the purchaser becomes the unencumbered owner of the contractual object as agreed. The escrow agent will only dispose of the purchase price if the release from encumbrances can be guaranteed for the purchaser (see Processing of purchase agreements).
What documents do I need to bring with me? Which documents does the notary require for the registration with the Land Register?
The notary generally draws up all the documents required for a smooth processing. When signing the contract, the contracting parties need to bring an official photo ID. The purchaser must also present an original proof of citizenship or a passport. Please make sure that the photo ID also states your academic degree, otherwise the presentation of the corresponding award certificate is also required.
In individual cases, it may be necessary to submit further official documents, for example if a prohibition on sale and encumbrance is to be recorded in the land register.
What does it mean if the notary acts as escrow agent?
In real estate transactions, the notary usually acts as escrow agent. The escrow agreement is usually a so-called multilateral escrow, since the notary has to take the interests of different parties into account.
On the one hand, the escrow agent ensures that the purchaser acquires unencumbered ownership and that the seller receives the purchase price for the contractual object. On the other hand, the escrow agent secures the bank financing the purchase price by ensuring that the lien in favour of the credit institution is recorded in the Land Register at the desired rank. Only if the interests of all parties are taken into account is it possible to process the property transaction safely, quickly and smoothly. The notary guarantees and is responsible for ensuring that the interests of each party are adhered to without risk.
Up to which amount is the notary insured?
Our notary’s office is insured against liability with an amount of EUR 10 million per business transaction.
On average, how long does it take to register the property right?
Real estate transactions are handled swiftly in our notary’s office. The property right is registered by the competent land register court upon application of the notary and is done in strict chronological order according to the first come, first served-principle. The completion time of the individual land registry courts is very different. As a rule, registration can be expected within a period of 14 days. However, the actual time of registration is not within the notary’s sphere of influence.
How many people can buy a condominium together?
Condominium can be acquired in principle only by one or two natural persons together, or a legal entity. An acquisition by two natural persons results in co-ownership. The condominium partners each acquire half of the condominium. These half shares cannot be further divided and may not be subject to different encumbrances (see also Prohibition on sale and encumbrance).
What is the notary’s fee for processing the purchase agreement?
The notary’s fee is calculated in accordance with the provisions of the Notarial Tariff Act, unless otherwise agreed. However, lump sums are agreed in advance, which are based on the purchase price of the property transaction. Often a lump sum of 1.5 % of the purchase price plus cash expenses, fees and VAT seems appropriate, but in individual cases a number of factors have to be taken into account when agreeing on a lump sum. In particular, the following factors are decisive: Amount of the purchase price, requirement for release from encumbrances, debt financing, permit to guarantee the validity of the legal transaction, etc. We advise on agreeing on a settlement of costs with the notary in advance.