Student residences in Austria: investment opportunities in a flexible framework

Klaus Pfeiffer
Weber & Co, Vienna
k.pfeiffer@weber.co.at

Introduction

As of 1 July 2024, the Republic of Austria has approximately 9.2 million inhabitants and a student population of approximately 400,000. Roughly 4.3 per cent of the Austrian population are students, of which a substantial number does not live with their parents. Major student agglomerations are located in Graz, Innsbruck, Linz, Salzburg and Vienna. The Austrian gross domestic product (GDP) per capita in 2023 was comparable to Finland, Ireland or Sweden and well ahead of the large member states France, Italy, Poland and Spain making Austria an attractive place to study and remain for work after completion of the degree.

Residential leases are generally subject to the Austrian Tenancy Act (Mietrechtsgesetz), unless a full or partial exception applies. If the Tenancy Act applies in full (for instance, if the property is an Art Nouveau building in Graz, Salzburg or Vienna) rent, service charge, the minimum term, the limitation of termination rights, as well as the obligations for maintenance and repair, are mandatory.

Leases for student residences, however, fall outside the scope of the Tenancy Act and are only subject to the more flexible Student Residence Act (Studentenheimgesetz). The act applies to all operators of student residences in Austria irrespective of whether or not they are for profit and whether or not they were granted any federal or regional subsidies.

In Austria, the development and operation of student residences may be more lucrative than simple residential units with lower rents. Student residences can also make remoter city areas more interesting, thus attracting new businesses and start-ups. It is time to think about student residences as an asset class and as a lucrative investment in the major cities.

Requirements for operators

Operators can choose their legal form freely as there are no specific requirements under the Student Residence Act. The most common choice is the Austrian limited liability company (Gesellschaft mit beschränkter Haftung), but limited or unlimited partnerships, joint-stock companies or even foreign entities are permissible. The purpose of the company can be for profit (gewerblich) or non-profit (gemeinnützig), which may also lead to tax benefits for the operator.

An operator may use the entire building, or only parts, for student residences. The primary purpose, however, must be the provision of student homes and not hotel accommodation or accommodation for expats, young professionals or university staff. The premises can be newly erected, or an existing building can be converted. No minimum room number applies.

Apart from articles of association, the operator must also enact a statute which becomes part of the lease with the student, and which sets out the framework in the student residence: scope of business, administration, rights and obligations for users, academic year and payment details including deposit must be regulated. The statute can only be amended with the student association’s consent.

A student association (Heimvertretung) must be established in every student residence with more than 30 residences and consists of at least three representatives. The student association is elected every two years by all students in the student residence.

Requirements for leases

Different to the Tenancy Act where a minimum term of three years for residential leases applies, leases in student residences must be executed for 12 months only (new students may request an initial term of 24 months). As the academic year is the same for everyone, leases regularly terminate on the same end date except for students who leave prematurely (in particular exchange students).

Rent can be agreed upon freely unless the operator is non-profit. If the operator is a non-profit, then rent must equal expenses and the operator is barred from making any profit. The student association has a right to annually review the calculation base and to request adjustments to the monthly rent. The monthly rent must comprise all elements including service charge, heating, electricity, VAT and, if necessary, a payment for future maintenance and repair, and must not be adjusted during the contractual year (even in the event of high inflation or high electricity costs). Changes are possible after 12 (24) months.

Operators are free in choosing their contracting party. If the Federal Republic of Austria granted subsidies, the operator, however, must allocate rooms based on the financial situation of the students, their progress at university and the distance of their home to the university. Also, the operator must renew the existing leases if the requirements under the statute are met.

Students can terminate a lease at any time with effect as of the end of the following month. The operator, on the other hand, may only terminate for justified reasons such as non-payment of rent, lack of use of the room, subleasing or completion of the university degree. Any party can initiate proceedings in court if they disagree on termination.

If the student residence could not be occupied before the commencement of the academic year, the operator is allowed to provide accommodation to non-students during the academic year as well. Such guest agreements are only subsidiary. Non-profit operators are allowed to charge market rent and may enhance their funds for the operation of business.

In addition to guest agreements, operators are also allowed to execute short-term leases during the lecture-free period (different at various universities but generally at Christmas and in February, July, August and September) as part of a hotel business with additional services. Both non-profit and for-profit operators are allowed to charge market rent for such short-term leases.

Final remarks

Both the Austrian Tenancy Act and the Student Residence Act are mandatory and cannot be waived to the detriment of the tenant (student). In addition, consumer protection laws apply.

Compared to the Tenancy Act, the Student Residence Act allows more flexibility in agreeing on the terms of the lease and the remuneration. Especially in central Vienna and other historical cities in Austria, rent under the Tenancy Act is capped at a maximum amount making it more difficult for the landlord to carry out necessary maintenance and repair works. This is not the case for student residences.

From a construction law perspective, student residences do not depend on a minimum useable space and can fall short of 30 square metres (ie, the usual minimum under construction laws in Austria). Different to apartments, homes in student residences do not necessarily trigger an obligation to build parking spaces or, alternatively, payments to the city if parking spaces are not provided.

The downside of the Student Residence Act is that students are encouraged to group in student associations and as such have a right to review and to be heard under certain conditions, especially if the operator is non-profit. However, any lease or contract can be put under scrutiny in or outside of court making this disadvantage of minor importance.

All in all, the Student Residence Act provides a meaningful framework for leases in Austria and the term of one year allows the necessary flexibility to adapt to any changes in legislation or case law. Student residences can constitute an interesting investment in Austria, especially if the buildings are convertible to other future uses (eg, office or residential).