Dr. Hubertus Thum, LL.M. is a Vienna-based lawyer specialized in distribution law, competition law and data protection law.
Here we take a look at how Corona affects rental fees, how (unfulfillable) supply contracts will be assessed, whether you as a franchisee are allowed to pay lower franchise fees, and why data protection should not be neglected even in times of Corona. Cybercrime does not take a holiday in times of crisis.
Rental fees affected by Covid-19?
Paragraphs 1104 and 1105 of the Austrian Civil Code states that the obligation to pay rent does not apply if the premises cannot be used or used completely because of an “epidemic.” If the business premises only have to be partially closed, a partial reduction of the rent is possible.
The SARS-CoV-2 virus has been classified as a pandemic by the WHO. In this respect, the current situation can most likely be regarded as covered by these paragraphs
Reduction of rent
The amount of the possible rent reduction depends on the degree of usability of the business premises according to the purpose of the contract. If a business premises cannot be used at all, e.g. due to an official order, no rent or lease is required to be paid according to § 1104 ABGB. If a limited use (e.g. for storing goods or for processing online orders) is still possible, only a proportionate reduction is justified. Whether the business premises is completely or only partially unusable depends on the purpose of the contract and the use agreed in the rental contract/leasing agreement.
Do you still have to pay “Betriebskosten” (building operating costs or management fees)? – In the absence of relevant case law, it is not yet clear whether operating costs payable to the landlord are also covered by the paragraphs mentioned. However, since the operating costs are not “rent”, they will probably still have to be paid. Direct payments to providers (electricity, internet etc.) usually cannot be reduced.
Cancellation of the rental agreement
In the case of obligatory closures such as an official order, as an alternative to a reduction in rent, you might also have the right to cancel the rental agreement entirely (Paragraph 1117 Austrian Civil Code).
Attention – Regardless of the above-mentioned paragraphs, these topics could have been previously excluded or modified in the rental agreement. So it is important to read the agreement carefully.
If the business premises are only closed “as a precaution,” but there is no official order to do so, it is unlikely that the rental payments can be suspended. The same applies if you are still allowed to keep the shop open but suffer considerable losses in turnover. In this case you will probably not be allowed to reduce the rent without the landlord’s consent.
What to do
Have your rental contract checked! If it does not contain an exclusion from §§ 1104, 1105 ABGB (Austrian Civil Code), it can be argued that you have the right to suspend rental payments for the period of an officially ordered closure. In any case, however, the rent should be transferred “unter Vorbehalt der Rückforderung” (reserving the right to claim it back). Otherwise, the landlord could argue that the rent reduction was (implicitly) waived. If you have to suspend or reduce the rent payments immediately due to lack of liquidity, inform the landlord of this reduction in writing in advance. Less potential for dispute arises if you at least transfer the “Betriebskosten” (building operating costs or management fees).
In the interest of preserving a good business relationship, it is advisable to contact the landlord in advance and find an amicable solution. If the tenant transfers less rent without prior notice and without comment, there is a risk of termination of the lease and an action for eviction.
|Rent in short |
Payment of the rent “unter Vorbehalt der Rückforderung” (reserving the right to claim the rent back)Have the rental contract checked
Termination of memberships due to Corona?
No more direct debits
If e.g. a fitness studio operator is unable to provide his services to the customer due to the official closures, the operator may no longer charge the customer without the customer’s consent: Memberships must be suspended, direct debit orders stopped.
The customer in turn, has the option of either agreeing to a later fulfillment of services or to withdraw from the contract by giving a reasonable grace period. If membership fees continue to be collected during the closure of the business premises (e.g. fitness studios), the customer can reclaim these amounts.
Duty to warn
The operator of the gym has a duty to warn the customer: In principle, he must inform the customer as soon as possible if he can no longer provide certain services. In the present environment, it may be arguable that the customer already knows about the situation due to media coverage. However, in the interest of good customer communication, the operator should approach the issue proactively.
Closure for “precautionary measures” – The legal position is relatively clear if there is an official mandate to keep the sites closed. However, if the fitness studio operator wants to keep the sites closed for “precautionary measures,” the legal assessment is much more difficult. In principle, contracts must be adhered to and cannot be unilaterally suspended without risking claims for damages. Even if precautionary measures are understandable, this does not mean that the operator is released from his obligation to perform.
Customers’ right of termination
Gym operators must also be aware that customers have a right of termination in the event of prolonged site closures. This right of termination cannot be excluded completely in the original terms and conditions. The fact that the closure is not the fault of the operator is irrelevant. Customers must announce the termination by giving a “reasonable period of notice.” How long a “reasonable period” has to last in the current situation can only be assessed on an individual basis. Closures of one week will not yet constitute a right of termination. In the case of closures of 3 weeks or more, however, from a customer perspective, a withdrawal from the contract might be possible under certain circumstances.
Customers must take a proactive step to cancel. If customers do not cancel proactively and do not contact the studio until it reopens, they usually no longer have the right of termination.
What to do
Active communication with the customers and possible goodwill offers could be an approach in the current situation in order not to loose customers unnecessarily. As a fitness studio, for example, you could give customers a choice between
- A Passive Option (customer does not have to do anything): Suspension of the contract without payment obligation for the period of the official closure and corresponding extension of the contract;
- An Active Option (customer must give consent): Suspension of the contract, but with direct debits continued as an upfront payment for the future services to be provided, corresponding with a contract extension plus additional services, like “free of charge” training as compensation for the upfront payment.
It would also be worth considering the option of offering customers the choice of suspending the contract not only for the period of the official closure but for an additional 1-2 weeks (or more).
|Memberships in short |
Avoid customer membership cancellations through active customer communication and goodwill offers.
Delivery difficulties due to Corona
If the supplier is unable to provide his services or deliver his goods through no fault of his own (e.g. due to official orders, closed borders, failures of his own suppliers, sick leave), a so-called “objective default” exists.
In this case the customer (e.g. retailer) of the Supplier may withdraw from the contract by setting a reasonable deadline. The Customer may only claim damages (including lost profit) if the delay in performance was due to the negligence of the supplier. Default interest shall, however, be due in the case of monetary claims. To repeat: In case of monetary claims, the default interest is due.
Duty to warn
If a contractual partner cannot (or can no longer) provide certain services, it must inform its business partners in order not to expose itself to possible claims for damages. Of course, this also applies to franchisors vis-à-vis their franchisee partners.
Who is a supplier or creditor?
The regulations apply not only to classic supplier-customer relationships, but also potentially to the relationship between franchisor/importer and franchisee/authorized dealer.
Reduction of the franchise fee
If the franchisor is no longer able to provide the franchisee with the services contractually agreed, the franchisee may be entitled to a reduction of the franchise fee and, in the event of a prolonged delay in performance, may even be entitled to terminate the franchise agreement, setting a reasonable period of notice. Legally, it is largely irrelevant that the franchisor is not at fault. Very relevant, however, are possible regulations in the franchise contract, which should be checked in advance.
What to do
Entrepreneurs are advised to have their contracts with important suppliers reviewed in order to correctly assess their own legal starting point. In order to avoid unnecessary disputes, it is advisable to approach the contractual partners and find amicable solutions.
Aid measures for affected companies
The government is trying to cushion the economically severe effects of the pandemic and thus counteract a wave of bankruptcy applications. To this end, numerous immediate measures have been initiated to help companies bridge the gaps. You can find a list of them on the website of the WKO.
Labour law in times of Corona
The coronavirus also presents companies with major challenges in terms of labor law. The government recently decided to ease the situation, by allowing companies to shorten working hours (“Kurzarbeit”) without having to go through a lengthy process at the AMS.
The most frequently asked questions and answers in this context can be found, for example, on the website of the Ministry of Social Affairs (in German).
The Austrian Trade Commission (WKO) also offers an extensive catalogue of FAQs including answers (in German).
|Delivery problems in short |
– Review key contracts.
– Point out delivery bottlenecks in advance to partners.
– Actively seek amicable solutions before risking legal disputes.
Data protection in times of Corona
Even in these trying times, the tiresome subjects of data protection and GDPR do not go away for companies. Here are a few important points that you should consider from a data protection perspective:
Be cautious with health data
Health data is classified as sensitive data (Article 9 GDPR). This naturally includes the processing of employee data related to the coronavirus (e.g. positive/negative test results of employees, health information about family members etc.). The processing of such data is subject to very strict standards.
Employer’s obligation to duty of care
Employers have a duty of care towards their employees. It can be argued that you may even be obliged (or at least entitled) to ask whether your employees have recently travelled to any high-risk areas, thus representing a risk for other employees.
Reporting of suspected COVID-19 cases
It is important that all data of your employees, especially in connection with health-related information, are processed in strict confidence and used only for the specific purpose for which they were gathered. The health authorities will provide information on who can be notified and in what form if you have a suspected case of COVID-19 in your company.
Deletion of data
If health-related data has been collected due to Corona, which are later no longer needed (e.g. due to the end of the pandemic), they must be deleted immediately at such time.
Home Office & Data Protection
Data protection regulations must also be enforced in home office settings. Pay particular attention to data security (e.g. a secure VPN connection).
The website of the DPA now contains some useful information and documents related to data protection & corona, such as
- A sample form for the data protection-compliant collection of private contact data of employees.
- Information sheet on data security and home office.
- FAQs on data protection and coronavirus.
Corona & Cybercrime
Data protection and data security should not be neglected, especially when all staff are working in a home office setting. UN Chief of Cybercrime & Anti-Money Laundering, Neil Walsh, warns in an official broadcast that cybercriminals are taking advantage of the current SARS-CoV-2 situation:
- Sending e-mails with “virus updates,” which then seek to gather your login and password details. Always verify the veracity of an email before you click on links or attachments.
- Maps/attachments which display the spread of the virus are being compromised with malware – downloading these can compromise your computer and the whole organization.
- Cybercriminals exploit online marketplaces – selling, for example, non-existent hand sanitizer.
|Privacy in short |
Do not neglect data protection because of Corona. Pay attention to data security for home offices. Beware of cyber-criminality.