Legal problems with (holiday/leisure) houses in Austria: illegal home ownership, violation of the “Grundverkehrsgesetz”
The leisure home (Zweitwohnung) issue?
Many buyers sign contracts without knowing exactly that the vacation home they are about to buy may not be used as a vacation home or in the assumption that the consequences are not so risky or serious.
The competent authorities (Grundverkehrsbehörden) in Vorarlberg, Tyrol and Salzburg are increasingly cracking down on illegal home ownership. An example of this is the recent case before the Supreme Court in Austria, where the Supreme Court ruled that in the case of the so-called “Zweitwohnungen”, renting out to tourists is not allowed. See also: http://salzburg.orf.at/news/stories/2627544/. Our office handles many cases in which this issue plays a role. Often a solution is found to limit or nullify the damage. It is important to react promptly and professionally so that the case can be prepared properly. Especially timely and preferably even before the government agency has taken action. There may still be possibilities to have your home meet the legal requirements despite the specified permitted use (“Widmung”).
Fines and subsequently compulsory public auction
The consequence of a violation is a legal procedure in which the observed violation may give rise to the imposition of a fine of up to € 40.000,00 and then – in case of repetition / continuation – forced execution of the property by the Austrian State. The auction is the automatic legal consequence. The administration can therefore no longer decide on this itself. The official mills are set in motion and grind slowly but steadily. You then find yourself in a procedure where you have to defend yourself.
If the owner wants to sell the house because, the next problem arises: the economic value at the first sale was partly determined on the basis of rental income. Thus, the house is often worth much less.
Prospective buyers are often not or not sufficiently informed about these consequences. A commonly heard selling argument is “look, the neighbor is also a foreigner who has been using the house as a vacation home for years and does not live there, nothing has ever happened”.
Many cases show that lawyers and notaries do not sufficiently inform foreign buyers, some brokers also make a contribution. A possible cause is the communication problems that arise. The foreigner often thinks the communication in English is sufficient but unfortunately in practice, at least for the conclusion of a legal document, this proves to be insufficient.
Of course, this conduct of the advisors can lead to liability should the damage occur.
Contracts in German are signed by buyers without knowing exactly what is legally written. A kind of Russian Roulette. Of course, this conduct of the advisors can lead to liability should the damage occur.
Our office usually sees these issues when the problem has already arisen. Many buyers prove unwilling to invest in legal advice up front and therefore face the problems and legal additional costs or decrease in value of the property later.
A multiple of the cost of the advice in the preliminary stage is then the result.
Further questions and comments on purchasing property in Austria
- Did you know that the estate agent acts for both buyer and seller and often a 6% commission is charged?
- Did you know that once you have concluded the purchase, you are liable for tax in Austria even if you have included a resolutive condition for financing in the contract?
- Did you know that once you sign a written contract e.g. rental agreement in Austria you may have to pay 1% tax (Gebühren) on the determined value of the contract?
- Did you know that in Austria the lawyer can take care of the sales contract and the delivery of the property through registration in the “Grundbuch”?
- Did you know that once you have a house at your disposal in Austria and outsisde of Austria (eg your home country) you have to declare the income for tax purposes and that this income is exempted by the tax treaty?
- Did you know that the property is subject to Austrian inheritance law?
- Did you know that the profit of the sale after the purchase is taxed with 30 % in Austria?
- Did you know that the VAT is not unconditionally refunded when you buy a property, you have to make a positive budget to avoid that the tax authorities do not accept deductions and possible VAT deductions?
- Did you know that after a few years, the tax authorities carry out VAT audits and if there is no profit, the promised VAT deduction is reversed ?
- Did you know that the Liebhabereiverordnung (the VAT refund issue) is in our opinion contrary to the 6th EU -VAT Directive?
Vacation park problems (“Investorenmodellen Ferienwohnungen”)
Many prospective buyers buy (yet to be built) homes on vacation parks. Often returns are promised or presented that in practice prove to be unattainable. Also, a rental and park organization is promised that in practice does not always work. Consequence: returns fail, the park impoverishes, promised facilities such as central building, swimming pool, sauna, etc. are not built or are built much later, or the developer goes bankrupt.
The consequence for you is that the VAT not paid at the time is claimed from you, you get no return and even have to start paying, your investment drops significantly in value. If you wish to sell the property, this will not be easy.
All this happens. Of course, we also know of many parks where everything is perfectly arranged and the investment is worth the money.
All these elements must be examined in advance if you want to make your investment in a responsible way. Not to mention the conclusion of a financing with the bank. The amount of the financing should also be taken into consideration because it may affect the final yield and the 20% VAT that can ultimately be received back.
Costs of purchase
With the purchase you should take into account the following costs:
3.5% transfer tax
3% lawyer’s fee for the purchase agreement, registration in the land register and financial settlement of the purchase
1 % registration fee Grundbuch
1.2% mortgage costs on the mortgage loan obtained
3% brokerage fees, often from both the buyer’s and seller’s side
Various Gebühren, court fees etc . These costs are usually between 400 euros and 600 euros.