How the buyer of a tenanted rental building steps into existing leases and how arrears, deposits and ongoing income are treated.
BRANDAUER Rechtsanwälte
Salzburg law firm for real estate, corporate law and civil proceedings
We review the court file and property documents, explain the likely legal and financial consequences, and agree the next step with you.
A tenanted rental building in a judicial auction confronts bidders, managers and tenants with a multi-layered review task. It is not only about building fabric and location; existing leases, outstanding rent, security deposits and the ongoing management after the award all shape the object.
On the legal side, the succession rules of the MRG and the ABGB provisions on the buyer stepping into lease relations set the framework. Economically, fruits and income of the property pass to the buyer from the award under section 207 EO. The treatment of arrears and security deposits follows from the individual lease and the applicable statutes.
Answer for the specific property. The result orders lease status, rent claims and security deposits.
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Without documented contracts and a clean MRG classification the valuation of the building is uncertain. Ask the manager or the court file for a structured overview; sort old and new contracts and check the applicability of rent ceilings.
Section 16b MRG requires the interest-bearing investment separated from the landlord’s other assets. From the amount and the actual investment the handover duties follow; there is no automatic cash access for the buyer.
Contracts, arrears, deposits and ongoing charges are ordered. Income, maintenance need and reserve can be planned realistically for the bid.
Where the lease falls within the MRG, tenant protection continues after the award. The buyer steps into the existing lease; termination grounds follow the MRG.
Where the lease is outside the MRG, the buyer steps into the existing lease under section 1120 ABGB. The wording, the land register entry and any termination rights shape the further course.
Agree with the buyer the cut-off date, access to rent accounts and forwarding of ongoing payments. Section 207 EO allocates fruits and income to the buyer from the award; earlier receipts should be documented.
Incomplete rent accounts and open charges lead to typical disputes. Combine cut-off date, arrears, deposits and statements into a structured handover file.
For the buyer the first question is which existing leases pass on. Section 2(1) MRG binds the successor in title to existing leases in the full scope of the MRG; tenant protection rules stay in place.
Outside the MRG, section 1120 ABGB applies. The buyer steps into the existing lease; for leases that are not recorded in the land register there is a statutory termination right with the applicable notice period. Section 1121 ABGB confirms that recorded lease rights are also effective against the buyer.
For bid preparation each lease must therefore be allocated to the correct rule. Only then can income and possible termination rights be assessed realistically for the buyer’s own account.
Rent arrears for periods before the award belong to the previous owner. They form part of their assets and do not automatically pass to the buyer.
Rent arrears do not become part of the distribution of the highest bid merely because the property is auctioned. They remain claims of the prior landlord against the tenants and are pursued under the general civil law rules. This creates no direct security for the buyer.
In practice a structured overview is helpful: which rental periods are open for which unit, who can enforce them and how pending proceedings should be handled. This overview protects both buyer and previous owner from allocation errors.
The overview orders the key items for buyer and previous owner.
| Item | Period before the award | Period from the award |
|---|---|---|
| Ongoing rent income | Claim of the previous owner | Claim of the buyer under section 207 EO |
| Rent arrears | Claim of the prior landlord against the tenants, not included in the distribution of the highest bid | Do not pass automatically to the buyer |
| Operating costs statement | Under the contract, MRG accounting rules and the basis of the claim | Under the contract, MRG accounting rules and procedural succession |
| Security deposits | Interest-bearing investment separate from landlord assets under section 16b MRG | Balance and allocation must be documented; the tenant restitution claim applies, no automatic cash access for the buyer |
| Repair obligations | According to the lease status of the previous owner | Under the MRG or the contract with the buyer as new landlord |
Actual allocation follows the individual lease, statutory tenant protection and the specific handover file.
Section 207 EO passes fruits and income of the property to the buyer with the award. For a tenanted building this means that rent payments falling due from the award onwards economically belong to the buyer.
The precise cut-off follows the award date. Payments for periods after the award are allocated to the buyer; payments for earlier periods remain with the previous owner.
For tenants a written notification of the change and the new payment details is helpful. Without such a note misunderstandings and double payments remain a risk.
Section 16b MRG governs the deposit within the MRG scope. The landlord must invest it in an interest-bearing way and separately from the landlord’s own assets and may set it off only under the contractual and statutory conditions.
For the buyer this means that the award does not automatically hand over cash. Deposits are not ordinary landlord assets but tied security funds. Succession into the landlord position and the later tenant restitution claim require the balance, the allocation and the entitlement to be documented and legally allocated.
Where records are complete, pledge declarations, savings certificates or bank statements are available. In practice unclear deposit records are one of the most frequent sources of conflict between previous owner, buyer and tenant and should be treated separately in the handover file.
Ongoing management requires the buyer to have access to rent accounts, operating costs statements and current maintenance processes. The manager or the previous owner should transfer these records in one bundle and consistently separate the cut-off date.
Whether a pending proceeding after the award concerns the previous owner or the buyer follows from the contract, the MRG provisions, the affected claim period and the procedural rules on succession. A mere reference to the award date is not sufficient for that allocation.
For tenants a consistent communication is helpful. Change of landlord, new account details and contact persons should be notified in writing to reduce misunderstandings and payment issues.
A rental building is not valued solely from the appraised value. Bidders should record contract structure, share of MRG contracts, income capacity and maintenance backlog individually. From that base a realistic picture of the return emerges.
Additionally arrears, eviction proceedings and open deposits should be considered. Where positions are unclear a written enquiry before the hearing is helpful. Enquiries at the hearing do not replace planned preparation.
The bid strategy should present expected cash flow, necessary reserves and transfer costs separately. That keeps the valuation transparent and predictable for later operation.
The sequence separates review, transfer and ongoing operation.
All leases, arrears and deposits are documented from the court file and management.
Rent levels, maintenance need and reserve are reflected in the bid budget.
Buyer and previous owner align the transfer of fruits and income.
Accounts, charges and deposits are combined in a structured handover file.
Change of landlord, new account details and contacts are notified in writing.
First statements and ongoing charges follow the applicable MRG or ABGB rules.
Tenant protection, eviction and continuation after the award.
Object, valuation date and conditions aligned.
Roles, deadlines and documents for the buyer.
Plan financing, transaction costs and reserve systematically.
Object file, leases and handover file.
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BRANDAUER Rechtsanwälte GmbH Giselakai 51 5020 Salzburg
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