Commercial lease or business lease? Another groundbreaking decision by the Supreme Court provides clarity

Legal basis and practical effects of the demarcation

According to § 1091 ABGB, rent differs from lease essentially in the way in which the property is transferred:

• Rent is the transfer of an object for use in return for payment.
• Lease, on the other hand, is described as a transfer for use and for the production of fruit in return for payment.

This means that in addition to the provision of premises or operating resources, the leasehold agreements also provide the opportunity to generate income.

A key difference is that the Tenancy Act (Mietrechtsgesetz, MRG) only applies to commercial leases and not to leasehold agreements. This means that many of the (protective) regulations under lease law do not apply to leasehold agreements. In addition, for example, a rent reduction due to unusability pursuant to Section 1096 ABGB is only indispensable in the case of a commercial lease. The consequence of the correct classification was already evident during the coronavirus pandemic: in times of restricted business operations due to lockdowns, tenants were entitled to an interest reduction, but leaseholders were not.

Another significant difference lies in the assumption of costs and charges: In the case of a commercial lease, the landlord bears all costs and charges incurred, whereas in the case of a leasehold agreement, the tenant is generally responsible for these (Section 1099 ABGB).

The distinction between commercial leases and business leases is therefore not just a theoretical question, but has a significant impact on the drafting and interpretation of contracts and the rights and obligations of the contracting parties.

Delimitation criteria

But how can you correctly assess whether a rental or leasehold agreement exists? This decision is based on various factors. A business lease can generally be assumed if a living business is the subject of the contract. In addition to the premises, the lessor must also provide the lessee with what is essential for the operation of the business and its economic continuity: operating and business resources (equipment and warehouse), customer base and business license. The existence of an operating obligation or the agreement of a turnover-based rent are also indications of a leasehold agreement. If, on the other hand, there are only physical items that are provided for use, e. g. The inventory of a business that has already been closed down, this is generally a lease.

In its decision of 19.12.2024, the Supreme Court clarified that it depends on the totality of the circumstances of the individual case and that existing contracts must be examined for their economic significance as part of a comparison of the typical characteristics of the contract types.

In the underlying case, the lessor provided a property designed for the operation of a hotel following the conversion of an apartment building. The tenant was responsible for the design, furnishing and organization of the hotel operations. The lessor had no interest in running the hotel itself and was only responsible for providing the rooms. Although the contract was described as a "leasehold agreements", the Court of Appeal qualified the contract as a commercial lease as the lessor did not transfer any essential operational tasks or rights. The Supreme Court upheld this decision and stated that the agreement on the operating obligation and the restitution of a "living business" had no economic relevance for the lessor. It therefore came to the conclusion that the mere transfer of business premises was in the foreground and therefore a lease of business premises existed.

Conclusion

The distinction between commercial leases and business leases is not always clear-cut and therefore requires a close examination of the content of the contract and the practical use of the property. An overall assessment of the circumstances of the individual case is always necessary; there is no general "formula" for making the correct distinction. If some of the criteria in favor of one type of contract are missing, this does not necessarily mean that the other type of contract exists. In any case, the Supreme Court has clarified that the mere designation of a contract as a leasehold agreement does not automatically make it such if it does not otherwise also have the character of a lease. It therefore always depends on the economic orientation and the actual use of the property.

The extensive case law of the Supreme Court on the issue of delimitation helps to set clear standards to enable a correct legal assessment of contracts. In order to avoid legal uncertainties, it is advisable to analyze the specific features of the respective contract in detail and to seek legal advice.

Celina Lola | Associate

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