The purchase of a property

When acquiring an undeveloped plot of land, the following aspects must be given priority: Firstly, the respective dedication (“Widmung”) of the property as defined by the Tyrolean Town and Country Planning Act (TROG) must be considered. The land-dedication plan (“Flächenwidmungsplan”) of the respective municipality regulates the permitted use for the realisation of your building project or the change of use. There is no legal entitlement to the change of dedication of an area.

According to sec. 11 of the Tyrolean Land Transfer Act (TGVG), undeveloped building plots must generally be built on within ten years. For building plots in commercial and industrial areas as defined in sec. 39 TROG, however, the deadline is 20 years. If this deadline is not met, the law provides for compulsory auction, which can be avoided by a further act of transfer.

When acquiring land, citizens of EU and EEA member states are treated equally to nationals. When acquiring building plots, it is sufficient to notify the land transfer authority of the acquisition of ownership. Third-country nationals, on the other hand, require authorisation from the land transfer authority.

In Tyrol in particular, it should be noted that the acquisition of agricultural or forestry land always requires authorisation from the land transfer authority. If the purchaser is not a farmer, the so-called interested party regulation pursuant to sec. 7a TGVG applies to the acquisition of agricultural land. If the buyer is not a farmer within the meaning of the TGVG, resident farmers are favoured and can purchase the property as pre-emptive buyers at local conditions (estimated price by an expert from the agricultural authority of the province of Tyrol).

If the plot is already built on, it is important to ensure that the current building status corresponds to the originally approved building project. Deviations in the actual realisation can lead to having an illegal building, for which in the worst case the authorities will issue a demolition order. It should also be noted that the use of a property for recreational purposes (recreational residence is only permitted with the appropriate official authorisation. Otherwise, the use of the property may be prohibited by official order and a fine of up to EUR 40,000 may be imposed (sec. 13a par. 3 TROG).

In addition, in practice it often happens that the question of access or pipeline rights is not sufficiently clarified before the acquisition of an undeveloped plot of land. Less obvious are aspects in connection with any contamination or contaminated sites, which can have a huge impact on the value of the property, or the question of whether the property is located in danger zones (torrents, avalanches, etc.). A detailed examination of the property is particularly important here, as are the liability and warranty provisions in the contract.

Furthermore, the status of the land register (and the collection of deeds) must be checked in detail for every property transaction. In particular, the encumbrances (such as liens, life annuities, easements, building prohibitions, pre-emptive rights, etc.) on the property can be found in the C-sheet (encumbrance sheet). In general, the principle of public disclosure applies, i.e. all rights that are not entered in the land register, for example a right to walk and drive that is not recorded in the encumbrances, do not have to be tolerated by the purchaser in the event of ignorance. In this case, however, the purchaser must be in good faith. A detailed inspection of the property is therefore of central importance, as is an examination of the land register and the associated deeds.

The purchase of a condominium

The situation is different when purchasing a condominium (“Eigentumswohnung”). Here, the Austrian Condominium Act (WEG) and the respective condominium agreement regulate the legal relationships between the individual condominium owners.

A close examination of the condominium agreement is essential. Among other things, it may provide for individual billing modalities that deviate from the statutory provisions or certain usage regulations for common areas (“Allgemeinfläche”). If there is no deviating regulation, the expenses for the property are generally to be borne in proportion to the co-ownership shares. Deviating allocation keys or deviating settlement units are often provided for certain building structures or parts of the property. It is worth noting that the running (operating) costs for the underground car park are only borne by the owners of the parking spaces or the costs of a lift are only borne by those owners who can also use it.

Until the 2002 amendment to the WEG, garages, parking spaces, cellar compartments etc. were not usually classified as separate condominium objects. In this case, they are so-called “Zubehör”, which are areas/rooms not structurally connected to the actual condominium property but belonging to it (e.g. storage place) according to the Austrian WEG. Consequently, car parking spaces in older properties cannot be sold separately without further intermediate steps. In particular, the condominium agreement must also be carefully checked to ensure that the allocation of individual “Zubehör”-objects has been carried out correctly and that the supposed “Zubehör”-objects are not common areas that are incorrectly transferred in the purchase agreement.

According to sec. 5 par. 1 WEG, no more than two natural persons may jointly acquire residential property. This means that two persons can also be jointly registered as owners of a condominium property in the land register. They do not have to be in a close relationship. Their shares cannot be disposed of separately. They can only be jointly restricted, encumbered or subject to execution. If more than two people wish to acquire a residential property jointly, this is possible, for example, via an intermediate company.

Even after the purchase of a flat, there are some pitfalls for the owner. There are restrictions regarding the authorised use of the condominium property. On the one hand, the provisions of regional law must be observed, in particular the Tyrolean Town and Country Planning Act. On the other hand, the respective condominium agreement must also be consulted. The use of a flat as a business premises or letting via Airbnb etc. may constitute an unauthorised use if the public law requirements (in particular land-dedication) and the condominium agreement (on the intended use) do not permit this.

The role of the trustee

The trustee serves to balance the interests of both contracting parties. In order to guarantee complete security for both parties (the step-by-step principle (“Zug um Zug Prinzip”)), the purchase price is initially transferred by the buyer to a specially set up escrow account. The money only becomes available to the seller when the buyer’s ownership rights have been entered in the land register in accordance with the agreements in the purchase contract (e.g. unencumbered). Only when the trustee acts as an intermediary does neither party bear the risk of having to make advance payments.

To safeguard the money held in trust, the Tyrolean Bar Association created the Attorneys’ Trust Register back in 1995. This also provides insurance cover for the funds held in the trust accounts against unauthorised access by the attorneys.

Real Estate Income Tax

From the seller’s perspective, it is important to discuss whether property income tax (“ImmoESt”) is payable. This is generally the case for any acquisition against payment, i.e. not for gifts or inheritances. The last acquisition against payment must be taken into account: If the property was acquired before 31 March 2002, the real estate income tax is calculated as a lump sum on the basis of the sales price: Either at 4.2% of the sales price or, if the dedication of the property was changed after 31 December 1987 in such a way that it was possible to build on it for the first time after the last acquisition for consideration, at 18% of the sales price.

In the case of an acquisition after 31 March 2002, the difference between the sales proceeds and the acquisition costs is generally taxed at the special tax rate of 30%. The acquisition costs must be calculated taking various costs into account.

The sale of a property may be exempt from ImmoESt under certain circumstances, for example if the property served as the seller’s main residence for several years. Income from the sale of self-constructed buildings is also exempt from taxation if they have not been used to generate income within the last ten years. A number of legal provisions must be applied to the specific individual case. For this reason, ImmoESt must always be calculated on a case-by-case basis.

Real Estate Transfer Tax, Registration Fee

Real estate transfer tax (GrESt) amounts to 3.5% of the value of the consideration (note: this does not necessarily have to be the purchase price) and is payable on all property transactions (regardless of whether it is a plot of land or a flat). In contrast to ImmoESt, GrESt is also payable if the acquisition is free of charge. In this case, however, there is a double benefit: GrESt is then calculated on the value of the property. This is usually (significantly) lower than the market value. Furthermore, in the case of acquisition free of charge, the tax is 0.5% for the first EUR 250,000, 2% for the next EUR 150,000 and 3.5% thereafter. Transfers between close relatives as defined by law are always deemed to be free of charge.

The land register registration fee is 1.1% of the value of the right to be registered. In the case of preferential acquisition transactions, such as gifts within the family circle or corporate reorganisation transactions, the registration fee is generally calculated based on three times the (more favourable) unit value.

Other

In addition, costs for notarial or court certifications, cancellation and registration of liens, broker commissions and the costs of drawing up the contract must also be taken into account.

A concrete cost calculation can only be made on a case-by-case basis. As a rule of thumb, a rough estimate of incidental purchase costs totalling around 10% of the purchase price has been established. You should therefore always take the ancillary purchase costs into account in your financial planning when buying a property.