Lexploria

Applications Nos. 10522/83, 11011/84 and 11070/84

Leopold MELLACHER and others

against

AUSTRIA

REPORT OF THE COMMISSION

(adopted on 11 July 1988)

TABLE OF CONTENTS

I. INTRODUCTION

(paras. 1 - 20) ....................................... 1

A. The applications

(paras. 2 - 6) ................................ 1

B. The proceedings

(paras. 7 - 15) ............................... 1

C. The present Report

(paras. 16 - 20) .............................. 3

II. ESTABLISHMENT OF THE FACTS

(paras. 21 - 48) ..................................... 4

A. The particular circumstances of the cases

(paras. 21 - 53) .............................. 4

1. Application No. 10522/83

(paras. 22 - 31) .............................. 4

2. Application No. 11011/84

(paras. 32 - 43) .............................. 5

3. Application No. 11070/84

(paras. 44 - 53) .............................. 7

B. Relevant domestic law

(paras. 54 - 101) ............................... 8

1. The development of the rent control

legislation until 1981 (paras. 54 - 62) ......... 9

2. The 1981 Rent Act (Mietrechtsgesetz)

(paras. 63 - 86) ................................ 11

a) Provisions on rent control

(paras. 66 - 78) ............................ 12

aa) Square metre rent

(paras. 67 - 70) ........................ 12

bb) Continued application of earlier rent

restrictions (paras. 71 - 73) ........... 13

cc) Moderation of agreed rent

(paras. 74 - 76) ...................... 13

dd) Text of the relevant rent control

provisions (paras. 77 - 78) ........... 14

b) Provisions on the maintenance of buildings

(paras. 79 - 82) .......................... 19

c) Provisions on the termination of tenancy

contracts (paras. 83 - 84) ................ 20

d) Procedural provisions (paras. 85 - 86) .... 20

3. Criticism of the legislation and review of

its constitutionality (paras. 87 - 97) ........ 20

4. Assessment of the value of real property

(paras. 88 - 101) ............................. 22

III. SUBMISSIONS OF THE PARTIES

(paras. 102 - 171) .................................... 24

A. The applicants

(paras. 102 -136) ............................. 24

1. Article 1 of Protocol No. 1

(paras. 104 - 134) ............................ 24

a) General (paras. 104 - 126) ................ 24

b) Concerning the individual cases

(paras. 127 - 134) ........................ 28

2. Article 14 of the Convention

(paras. 135 - 136) ............................ 30

B. The Government

(paras. 137 - 171) ............................ 30

1. Article 1 of Protocol No. 1

(paras. 137 - 168) ............................ 30

2. Article 14 of the Convention

(paras. 169 - 171) ............................ 36

IV. OPINION OF THE COMMISSION

(paras. 172 - 231) .................................... 37

A. Points at issue

(para. 172) ................................... 37

B. Article 1 of Protocol No. 1

(paras. 173 - 227) ............................ 37

1. Nature and scope of the interference

with the applicants' property rights

(paras. 173 - 199) ............................ 37

2. Justification of the interference

with the applicants' property rights

(paras. 200 - 225) ............................ 42

Conclusions

(paras. 226 - 227) ............................ 47

C. Article 14 of the Convention

(paras. 228 - 230) ............................ 47

Conclusion (para. 230) ........................ 47

D. Recapitulation

(para. 231) ................................... 47

Partly dissenting opinion of Mr. H.G. Schermers ............... 48

APPENDIX I : HISTORY OF THE PROCEEDINGS ................. 50

APPENDIX II : DECISION ON THE ADMISSIBILITY .............. 53

I. INTRODUCTION

1. The following is an outline of the cases as submitted to the

European Commission of Human Rights, and of the procedure before the

Commission.

A. The applications

2. The applicants in the first case, Leopold and Maria Mellacher,

a married couple, are residing in Feldkirchen. The applicants in the

second case, Johannes, Ernst and Anton Mölk and Maria Schmid, are all

members of the same family and are residing in Innsbruck. The

applicants in the third case, Christiane Weiss-Tessbach and Maria

Brenner-Felsach, are residing in Vienna. All applicants are Austrian

citizens.

3. The applicants in the first case are represented by

Rechtsanwalt Dr. H.G. Medwed of Graz, the applicants in the second

case by Rechtsanwalt Dr. L. Hoffmann of Innsbruck, and the applicants

in the third case by Rechtsanwalt Dr. O. Weiss-Tessbach and

Rechtsanwalt Dr. F. Leon, both of Vienna, who have subsequently

instructed Rechtsanwalt Dr. G. Benn-Ibler of Vienna.

4. The applications are directed against Austria whose Government

were represented by their Agent, Botschafter Dr. Helmut Türk of the

Federal Ministry of Foreign Affairs.

5. The applicants in the first and second cases are joint owners

of apartment houses in Graz and Innsbruck respectively. The

applicants in the third case are the owner and usufructuary of an

apartment house in Vienna. All applicants complain that their

contractual rents were reduced by judicial decisions under new

legislation restricting rents. The relevant decisions were based on

Section 44 paras. 2 and 3 of the 1981 Rent Act (Mietrechtsgesetz,

Fed. Law Gazette No. 520/1981), which entered into force on 1 January 1982.

6. The applicants claim that the reduction of their rents

amounted to an unjustified interference with their right to the

peaceful enjoyment of their possessions as guaranteed by Article 1 of

Protocol No. 1 to the Convention. The applicants in the second case

further allege that the reduction was discriminatory and contrary to

Article 14 of the Convention, read in conjunction with Article 1 of

Protocol No. 1.

B. The proceedings

7. Application No. 10522/83 was introduced on 5 August and

registered on 12 August 1983. Application No. 11011/84 was introduced

on 22 May and registered on 19 June 1984. Application No. 11070/84

was introduced on 4 July and registered on 6 August 1984.

8. The Commission began its examination of the admissibility of

Application No. 10522/83 on 14 May 1984, but decided to adjourn the

further consideration. The examination of admissibility was resumed

on 4 December 1984, when the Commission had also before it

Applications Nos. 11011 and 11070/84. The Commission decided to give

notice of all three applications to the respondent Government, in

accordance with Rule 42, para. 2 (b) of its Rules of Procedure, and to

invite them to submit before 22 March 1985 their observations in

writing on the admissibility and merits of these applications.

9. The Government submitted observations concerning the first

case on 4 March 1985 and observations concerning the other two cases

on 19 March 1985. The applicants in the first case submitted

observations in reply on 11 April 1985 and the applicants in the

second and third cases on 9 May 1985.

10. The Commission decided on 8 July 1985 to join the cases

and to invite the parties, in accordance with Rule 42, para. 3 (b) of

the Rules of Procedure, to a hearing on the admissibility and merits

of the applications.

11. The hearing was first scheduled for 6 March 1986, but at

the Government's request postponed. At the hearing on 8 May 1986

the parties were represented as follows:

- the Government by their Agent, Botschafter Dr. Helmut Türk,

Head of the International Law Department, Federal Ministry of Foreign

Affairs, who was assisted by Ministerialrat Dr. Wolf Okresek, Federal

Chancellery, Constitutional Law Department, and Ministerialrat

Dr. Robert Tschugguel, Federal Ministry of Justice, Advisers;

- the applicants in the first case by Rechtsanwalt Dr. Hans

Günther Medwed and Rechtsanwalt Dr. Gerold Kleinschuster, Graz; the

applicants in the second case by Rechtsanwalt Dr. Ludwig Hoffmann,

Innsbruck; the applicants in the third case by Rechtsanwalt

Dr. Gerhard Benn-Ibler, Vienna.

12. Following the hearing, the Commission declared the

applications admissible. The text of this decision, approved by the

Commission on 16 July 1986, was on 22 October 1986 transmitted to the

parties who were invited to submit before 31 December 1986 any

supplementary observations on the merits which they wished to make.

The Government and the applicants in the third case subsequently

requested extensions of this time-limit which were granted by the

President (until 28 February 1987 for the Government and 20 January 1987

for the applicants).

13. The applicants in the first case submitted their observations

on 17 November 1986, the applicants in the second case on 13 January

and the applicants in the third case on 19 January 1987. The

Government submitted their observations on 26 February 1987. The

applicants in the first case submitted observations in reply on

17 March 1987.

14. On 10 December 1986, 9 May, 8 July and 11 December 1987 and

7 May 1988 the Commission considered the state of proceedings.

15. After declaring the cases admissible, the Commission, acting in

accordance with Article 28 (b) of the Convention, placed itself

at the disposal of the parties with a view to securing a friendly

settlement of the cases. In the light of the parties' reaction, the

Commission now finds that there is no basis on which such a settlement

can be effected.

C. The present Report

16. The present Report has been drawn up by the Commission in

pursuance of Article 31 of the Convention and after deliberations and

votes, the following members being present:

MM. S. TRECHSEL, Acting President

G. SPERDUTI

G. JÖRUNDSSON

A. S. GÖZÜBÜYÜK

A. WEITZEL

J. C. SOYER

H. G. SCHERMERS

H. DANELIUS

G. BATLINER

H. VANDENBERGHE

Sir Basil HALL

17. The text of this Report was adopted on 11 July 1988

and is now transmitted to the Committee of Ministers of the Council

of Europe, in accordance with Article 31 para. 2 of the Convention.

18. The purpose of the Report, pursuant to Article 31 of the

Convention is:

i) to establish the facts, and

ii) to state an opinion as to whether the facts found

disclose a breach by the State concerned of its

obligations under the Convention.

19. A schedule setting out the history of the proceedings before

the Commission is attached hereto as Appendix I and the Commission's

decision on the admissibility of the applications as Appendix II.

20. The full text of the parties' submissions, together with

the documents lodged as exhibits, are held in the archives of the

Commission.

II. ESTABLISHMENT OF THE FACTS

A. The particular circumstances of the cases

21. The facts are not in dispute between the parties. They may be

summarised as follows:

1. Application No. 10522/83

22. The applicants in the first case jointly own a block of flats

in Graz with several apartments leased out to tenants.

23. They bought this house in 1978 from the compensation for

another real property which had been expropriated. They considered

this to be a safe investment having regard to the legislation then in

force which allowed to freely negotiate the rent in any new tenancy

contracts. There were several unoccupied apartments in the house at

the time of acquisition and this was reflected in the price which the

applicants had to pay for the house.

24. Of the seven apartments in the house two were let to tenants

whose contracts had been concluded before 1968 and whose rent was

accordingly frozen at the level of 1914 (AS 23.75 and AS 23.80 monthly

rent respectively). Five apartments were subsequently let under

freely negotiated contracts pursuant to the 1967 legislation. One was

let for a limited period of time (on the basis of a monthly rent of

AS 1,300.-) and thus could not be struck by a measure of rent reduction

under Section 44 of the 1981 Rent Act. The other four contracts were

concluded on a permanent basis and could be subjected to such

measures, but so far only one tenant has requested a reduction. In

the other three cases the tenants allegedly wish to await the outcome

of the present proceedings before they apply for a reduction. It

would bring the rent down from AS 750.- to AS 232.-, from AS 2,850.-

to AS 546.- and from AS 1,841.60 to AS 314.- respectively.

25. The apartment in respect of which a reduction was requested

consists of two rooms and a kitchen (with a total surface of 40 m²).

It was let on 15 September 1978 under a freely negotiated tenancy

contract according to Section 16 para. 1 of the 1922 Rent Act as

amended in 1967. The rent in this particular case was set at

AS 1,870.- per month.

26. In application of the 1981 Rent Act, the tenant of the above

apartment on 5 February 1982 applied to the competent Arbitration

Board (Schlichtungsamt) of the City of Graz to reduce his rent

to AS 330.- (= 150% of the regular rent for class D) as from

1 March 1982. After holding a hearing on 25 May 1982, the Board on

7 June 1982 allowed the application.

27. The applicants, dissatisfied with this decision, took

the case to the courts, and the Board's decision thereby lost its

effect. The tenant claimed that the apartment was in class D because

when he rented the apartment it was without running water and toilet

facilities. These facilities were subsequently installed in the

apartment at the tenant's cost.

28. By a decision of 22 October 1982, the District Court

(Bezirksgericht) of Graz confirmed that the apartment was in class D

and that under Section 16 para. 2 of the Rent Act the regular monthly

rent therefore should not exceed AS 5.50 per m². Under Section 44

para. 2, the rent had to be reduced to 150% of the regular amount,

i.e. AS 8.25 per m², the total rent thus being AS 330.-. The

overcharge as from 1 March 1982 (AS 12,320.-) had to be paid back to

the tenant by virtue of Section 37 of the Act.

29. The applicants appealed claiming in particular that the

restrictions resulting from the application of Section 44 of the Rent

Act were unconstitutional. They invoked the Commission's decision on

Application No. 8803/77 (Dec. 3.10.79, D.R. 17 p. 80) concerning the

earlier rent protection legislation and argued that the Commission had

found the restrictions under that legislation to be at the very limit

of permissible interferences with property rights. The new

legislation, being more restrictive, was in the applicants' view not

permissible. The reduction of a freely and lawfully negotiated rent

amounted to an expropriation of the landlord's property without

compensation. For these reasons, the applicants suggested that the

appellate court refer the matter to the Constitutional Court for an

examination of the constitutionality of the relevant legislation.

30. In addition, the applicants claimed that in the absence of a

specific request by the tenant, the Court should not have ordered

the reimbursement of the overcharged rent, and that the amount to be

reimbursed was exaggerated because it included tax which the

applicants had already paid but could not recover from the revenue

office.

31. The Regional Civil Court (Landesgericht für Zivilrechtssachen)

of Graz, however, rejected this appeal on 18 February 1983. It did

not feel prompted to seize the Constitutional Court with the question

of the constitutionality of Section 44 of the Rent Act, having regard

to the Constitutional Court's case-law concerning similar issues. As

regards the reimbursement, the Regional Court found that under the

applicable provisions it had to be ordered ex officio, and the

question of taxation was not in issue in the civil proceedings.

2. Application No. 11011/84

32. The applicants in the second case jointly own an apartment

house in Innsbruck as a community of heirs. There are 15 apartments

in this house of which 4 were let before 1968 on the basis of rent

frozen at the level of 1914 (monthly rent AS 32.-, 90.-, 640.- and

212.- respectively). The other 11 apartments and business premises

were let under freely negotiated contracts pursuant to the 1967

legislation, and could thus be made subject of measures of rent

reduction under Section 44 of the 1981 Rent Act. However, so far only

one tenant has requested such a measure. The other tenants (i.e. two

firms with monthly rents of AS 25,120.50 and 4,655.- and eight private

tenants with monthly rents of AS 3,660.-, 3,300.-, 3,093.-, 2,873.-,

2,735.-, 2,082.-, 1,827.- and 1,229.- respectively) allegedly wish to

await the outcome of the present proceedings before making analogous

requests.

33. The apartment in respect of which a reduction of rent was

requested has a total surface of 68 m² and consists of three rooms

and a kitchen, plus toilet and water facilities accessible through the

corridor outside the apartment. It was let on 7 December 1972 under a

freely negotiated tenancy contract according to Section 16 para. 1 of

the 1922 Rent Act as amended in 1967.

34. The rent in this particular case was set at AS 800.- per

month until August 1975, and at AS 1,500.- per month as from

1 September 1975 having regard to certain investments to be made by the

tenants (including in particular the transfer of the water

installations to the apartment). The rent was furthermore subject to

an indexing provision on the basis of the consumer price index for

1966. As of April 1983, the rent would therefore have been AS 2,985.-

per month. For reasons not explained by the parties, the tenants

actually paid AS 1,308.30 as from November 1982.

35. On 4 October 1982, in application of the 1981 Rent Act, the

tenants applied to the competent Arbitration Board (Schlichtungs-

stelle) of the City of Innsbruck to reduce the rent to 150% of the

regular rent for class D. The Board allowed the application by

a decision of 6 April 1983.

36. However, the applicants then took the case to the courts, and

the Board's decision thereby lost its effect. A new decision had

accordingly to be taken by the District Court of Innsbruck.

37. Before the District Court, the applicants argued in particular

that the apartment in question was in class B. Although the

improvement of standard had not been financed by themselves, but by

the tenants, the improvements at the tenants' costs had been agreed in

the original contract and had led to a reduction of the rent for the

initial period. The tenants objected that the costs of their

investments had by far exceeded the amount by which the rent had

temporarily been reduced.

38. The District Court held on 22 June 1983 that the chargeable

rent was in fact to be based on class D because the apartment had been

in this class when the tenancy contract was concluded and the standard

had not been improved by the landlords. It accordingly reduced the

rent to AS 561.- as from November 1982. At the same time, it ordered

the applicants to pay back to the tenants the overpayments received

since that time (amounting to some AS 4,000.-).

39. The applicants appealed against this decision, claiming in

particular that the application of the new legal provisions to them

amounted to an expropriation or other disproportionate interference

with their property rights as guaranteed by Article 5 of the Basic Law

(Staatsgrundgesetz 1867) and Article 1 of Protocol No. 1 to the

Convention. They suggested that the question of constitutionality

should be referred to the Constitutional Court. Apart from that they

again claimed that the chargeable rent should in any event be based on

class B and not class D.

40. The Regional Court (Landesgericht) of Innsbruck partially

allowed the appeal by a decision of 15 November 1983. It found that

the District Court had failed to take into account the indexing

provision of the initial contract. Apart from that it confirmed the

District Court's decision.

In particular it found that the apartment had rightly been classified

as a class D apartment having regard to its standard at the time of

the conclusion of the tenancy contract.

41. The Regional Court had no doubts as to the constitutionality

of the applicable legislation. Section 44 of the 1981 Act provided

for an expropriation which was in conformity with the requirements of

the Constitution and of the Convention. The public interest served

by this legislation was the safeguarding of stable, socially and

economically justified housing rents for apartments which as a rule

served the urgent needs of those broad sectors of the population who

depended on tenancy contracts. Such apartments were often provided by

the landlords without any considerable expenditure of their own. In

those circumstances it could hardly be maintained that the legislator

had not acted in the public interest. Insofar as the legislation did

not provide for any compensation for the landlords in respect of the

above expropriation, the Court referred the applicants to the

possibility to claim such compensation in the appropriate proceedings,

i.e. non-contentious proceedings under the Railway Expropriation Act

(Eisenbahn-Enteignungsgesetz).

42. Following this suggestion of the Regional Court, the

applicants made an application to the District Court of Innsbruck on

28 December 1983 in which they claimed compensation from the State for

legal expropriation, in the amount of AS 26,600.- (concerning the

14-month period between November 1982 and December 1983). The

application was rejected on 5 July 1984 and the applicants did not

appeal in time against this decision. Their subsequent application to

be granted leave to appeal out of time was finally rejected by the

Innsbruck Regional Court on 3 April 1986.

43. The applicants also filed an appeal against the Regional

Court's above decision of 15 November 1983 claiming that the

applicable legislation was unconstitutional. On 6 March 1984, the

Supreme Court (Oberster Gerichtshof) rejected this appeal as

inadmissible. It found that the appeal was directed against that part

of the Regional Court's decision which had confirmed the District

Court's decision. An appeal against a decision of an appellate court

was, however, admissible only insofar as it had not confirmed the

decision of the court of first instance or if the appellate court

itself had granted leave to appeal in view of the fundamental

importance of the legal issue involved. In the present case leave to

appeal had not been granted. In these circumstances there was no room

for dealing with the applicants' arguments, in particular as regards

the alleged unconstitutionality of the 1981 Rent Act.

3. Application No. 11070/84

44. The applicants in the third case are the owner and the

usufructuary (Fruchtniesser) of a house in Vienna with several

apartments leased out to tenants. Six further premises in the house

are let for other than dwelling purposes under freely negotiated

contracts (Section 16 para. 1 sub-para. 1 of the 1981 Rent Act).

45. Of the ten apartments let to private tenants two come under

the provisions on the freeze of rent at the level of 1914; two are

renovated apartments for which a freely negotiated rent is admissible

under Section 16 para. 1 sub-para. 2; and two are class B apartments

with a surface of more than 130m² for which a freely negotiated rent

is admissible under Section 16 para. 1 sub-para. 4.

46. The remaining four apartments come within the scope of the

maximum rent provisions of the 1981 Rent Act: In one case a new

tenancy contract was concluded in 1986 under Section 16 para. 2 on the

basis of square metre rent for class B (monthly rent AS

2,200.-), and in the other three cases freely negotiated rent

agreements which now may be affected by measures of rent reduction under

Section 44 were concluded in 1971, 1978 and 1979 respectively. Two of

the tenants concerned who occupy class B apartments (monthly rent AS

6,132.25 and 5,847.- respectively) have not asked for a reduction of

their rent. The third tenant has done so.

47. The relevant apartment consisting of six rooms, a kitchen, a

corridor, a room with washing facilities and a toilet (total surface

200 m²) was let on 1 April 1979 under a freely negotiated tenancy

contract according to Section 16 para. 1 of the 1922 Rent Act as

amended in 1967. The rent was set at AS 3,800.- per month, subject to

an indexing provision on the basis of the consumer price index for

1976. The rent had risen to AS 4,236.51 by January 1982.

48. In application of the 1981 Rent Act, the tenant of the above

apartment wrote to the house administration on 23 December 1981 asking

them to reduce his rent to AS 3,300.- (= 150% of the regular

rent for class C) as from 1 January 1982. The applicants' lawyer

replied on 13 January 1982 that the request was unjustified.

49. On 19 February 1982, the tenant applied to the competent

Arbitration Board (Schlichtungsstelle) of the City of Vienna to reduce

the rent to AS 3,300.- as from January 1982 according to the above

legal provisions. After holding a hearing on 24 February 1982, the

Board decided on 28 May 1982 to allow the application.

50. The applicants, dissatisfied with this decision, took

the case to the courts, and the Board's decision thereby lost its

effect. The applicants observed in particular that the tenant had in

his original application referred to a square metre rent of AS 16.50,

i.e. the rent corresponding to class B apartments. They submitted

that this qualification of the apartment was correct and that the

reduction of the rent was inadmissible in the case of apartments of

class B exceeding a surface of 130 m² (Section 16 para. 1 sub-para. 4

of the Act). They further submitted that the house was situated in a

zone of protection of monuments, and that the reduction of the rent

was inadmissible also under Section 16 para. 1 sub-para. 3. The tenant

contested these arguments.

51. After holding several hearings, the District Court of Vienna

City (Bezirksgericht Wien - Innere Stadt) decided on 31 August 1983 to

reduce the rent to AS 3,300.- per month as from 1 January 1982. It

held that the apartment had in fact been in class C at the date of the

conclusion of the tenancy contract because the bathroom had not been

fully equipped, and that Section 16 para. 1 sub-para. 4 of the Act was

therefore inapplicable. Section 16 para. 1 sub-para. 3 was likewise

inapplicable because it had not been proven that the house was

situated in a zone of monument protection. It was true that the

applicants had made considerable investments (in the total amount of

AS 563,745.-), but this did not change the situation.

52. The applicants appealed from this decision alleging in

particular that the apartment had been wrongly classified in class C,

and that Section 16 para. 1 sub-para. 3 applied.

53. The Regional Civil Court (Landesgericht für Zivilrechtssachen)

of Vienna rejected the appeal by a decision of 13 December 1983. It

found that the District Court had correctly assessed the evidence and

had rightly concluded that neither Section 16 para. 1 sub-para. 4 nor

Section 16 para. 1 sub-para. 3 of the Act were applicable. In

particular it had not been proven that the investments made by the

applicants had been financed from other means than their rent income

which they were legally obliged to use for maintenance purposes. It

had therefore not been shown that they had borne a considerable

financial risk of their own. In these circumstances the legal

conditions for reducing the rent were fulfilled.

B. Relevant domestic law

1. The development of the rent control legislation until 1981

54. A system of rent control has existed in Austria since World

War I. The 1922 Rent Act (Mietengesetz, Fed. Law Gazette No. 872/1922)

which, subject to numerous amendments, remained in force until 1981,

provided for the freezing of rents at the 1914 level (Section 2). The

landlord was entitled to levy extra charges on account of current

costs of administration, taxes, and special equipment (Betriebskosten,

Sections 4 and 5). In case of the conclusion of new tenancy contracts

he could ask for a supplement not exceeding a maximum amount laid down

in the law (Neuvermietungszuschlag, Section 16 of the pre-1967 version).

55. The landlord was obliged to use the rent income for the normal

maintenance costs of the building but he was not obliged to carry out

any improvement measures (Section 6), which, however, could be

undertaken with the agreement of the tenants concerned subject to a

supplement to the rent to be paid by them (Section 5 first sentence).

If the necessary maintenance costs were not covered by the rent income

of the last seven years, the landlord could ask for an increased

amount of rent (erhöhter Hauptmietzins) to be fixed by the court for a

period not exceeding ten years. In that case the landlord was

required to use the entire additional rent income during that period

for the necessary maintenance measures (Section 7).

56. The 1922 Rent Act further provided for an important number of

restrictions on the landlord's right to terminate tenancy contracts

(Sections 19-23). In principle, such contracts could be terminated

only for important reasons (Section 19 para. 1). The law specified

what was to be regarded as an important reason within the meaning of

this provision (Section 19 para. 2) and in practice the grounds of

admissible termination of contract were interpreted in a restrictive

manner. The contract did not terminate when the tenant died. The law

provided for a right of succession (Eintrittsrecht) of near relatives

(spouse, children and adoptive children, brothers and sisters) and

other persons who had lived in the household of the tenant (Section 19

para. 2 sub-para. 11). When the landlord or near relatives wished to

use the apartment in question the contract could only be terminated if

there existed an "urgent need" (which in practice was interpreted as

meaning a "genuine emergency"), and if adequate alternative

accommodation was put at the disposal of the tenant (Section 19

para. 2 sub-para. 6).

57. However, the above restrictions, in particular the

restrictions on the claimable amount of rent, were not of universal

application. No rent restrictions applied to apartments in buildings

constructed after 1917 and to certain other apartments including

apartments newly created after the entry into force of the 1922 Act

(Section 1). A split housing market was therefore created which

privileged the owners of newly constructed houses or apartments whose

rental claims were subject only to the limitations resulting from the

general provisions of the Civil Code (Allgemeines Bürgerliches

Gesetzbuch) concerning the law of contracts.

58. Under the German rule in Austria a price stop was introduced

also in respect of certain tenancy agreements which did not come

within the scope of the 1922 Rent Act (Mietzinsregelungsverordnung,

Gesetzblatt für das Land Oesterreich, No. 159/1938). The price stop

was maintained by Austrian legislation introduced in 1954

(Zinsstoppgesetz, Fed. Law Gazette No. 132/1954). In respect of

tenancy contracts existing on 30 June 1954 the freely negotiated rent

resulting from an earlier agreement could no longer be increased

unless this was authorised by a judicial decision taken by analogous

application of the relevant provisions of the 1922 Rent Act concerning

rent increases. However, no restrictions applied to new contracts in

respect of apartments which did not come within the scope of the 1922

Rent Act, i.e. first of all apartments in new houses.

59. In 1967, an amendment of the Rent Act (Mietrechtsänderungs-

gesetz, Fed. Law Gazette No. 281/1967) brought about an important

liberalisation also in respect of apartments which came within the

scope of this Act. As from 1 January 1968 rent restrictions were

continued only for earlier tenancy contracts which remained in

force, including contracts maintained on the basis of the right of

succession of another person than the original tenant. Here the

freeze of rent continued to operate on the basis of conversion of each

Crown of the 1914 rent into 1 Schilling for apartments and into 2

Schillings (3 Schillings as from 1 January 1969) for business

premises. However, the parties could fix a higher rent by mutual

agreement once the contract had lasted more than six months. New

contracts were no longer subjected to any restrictions on the amount

of rent even in respect of apartments which had previously been

subject to rent control, provided that these apartments were relet

within 6 months after the entry into force of the new legislation, or

6 months after vacation by the previous tenant (Section 16 para. 1,

new version). The landlord was obliged to use at least half of his

additional rent income for maintenance purposes (Section 16 para. 2).

60. The liberalisation of the market led to relatively high rents

even for newly let apartments in old houses. The continued freeze of

rent applied to existing contracts favoured a tendency for the

perpetuation of old contracts, and a corresponding scarcity of

vacancies in this category of apartments which had repercussions on

the free market for new contracts. The relatively high amount of

rent which could now be obtained for newly let apartments in old

houses was also favoured by the existence of high rents in the market

for newly constructed apartments which were exempted from the system

of rent controls already before 1968. In 1981 a landlord could obtain

on the free market up to thirty times the amount of rent frozen at the

1914 level.

61. The unfavourable development of the housing market led to the

re-introduction of rent controls for so-called substandard apartments

in 1974. By a further amendment to the Rent Act (Mietengesetznovelle,

Fed. Law Gazette No. 409/1974) fresh restrictions were introduced for

new leases of such apartments. While the existing contracts in

respect of these apartments remained unaffected (even if they were

based on a free agreement concluded since 1968), new contracts could

be concluded as from 1 August 1974 only on the basis of a legal

square metre rent of AS 4.- (Section 16 para. 3 of the Rent Act as

amended in 1974). As this amount was regarded as insufficient by many

landlords, they preferred to leave vacant apartments in this category

unoccupied, a fact which put an additional strain on the housing

market and tended to favour higher rents for the remaining categories

of apartments.

62. Apart from the above rent control provisions which affected

mainly apartments in old houses constructed before World War I, the

Austrian legislation prior to 1981 also included rent control

provisions applicable to certain houses constructed at a later date,

in particular houses constructed with public subsidies (Wohnbauförde-

rungsgesetz 1968, Fed. Law Gazette No. 280/1967) or by non-profit

housing associations (Wohnungsgemeinnützigkeitsgesetz 1979, Fed. Law

Gazette No. 139/1979). This legislation contained detailed

regulations on the calculation of rents which were based on the

principle that they may not exceed the costs incurred by the owner.

It has not been affected by the 1981 Rent Act.

2. The 1981 Rent Act (Mietrechtsgesetz)

63. The 1922 Rent Act (Mietengesetz) has been abrogated and

replaced by a new Act (Mietrechtsgesetz, Fed. Law Gazette

No. 520/1981) which entered into force on 1 January 1982. It was

intended to bring about an overall reform of the law governing the

relationship between landlords and tenants.

64. However, like the previous Rent Act, the 1981 Act is not of

universal application to all tenancy contracts. Section 1 para. 2

exempts (i) premises let to certain types of enterprises, (ii)

premises let as official residences, (iii) premises let for less than

six months and (iv) premises let as secondary residences or for leisure

purposes. Section 1 para. 3 furthermore excludes the application of

the rent control provisions of the Act to buildings constructed and

owned by non-profit housing associations which in this respect are

subject to the special rent control provisions of the Non-Profit

Housing Act (Wohnungsgemeinnützigkeitsgesetz, cf. para. 62 above).

Section 1 para. 4 finally stipulates that only certain provisions

(concerning the termination of tenancy contracts, the right of

succession to tenancy contracts and maintenance contributions) shall

apply to (i) buildings constructed without public subsidies after 30

June 1953, (ii) houses with not more than two separate apartments and

(iii) freehold flats (Eigentumswohnungen) in buildings constructed

after 1945. In these cases the amount of rent can be freely agreed

without any restrictions.

65. As regards apartments and premises which come within the scope

of the Act, a fundamental change has taken place concerning the system

of rent control (cf. paras. 66-78 below). Further important

modifications of the earlier legislation concern the landlord's

obligations as to the maintenance of his property (cf. paras. 79-82

below). The provisions on termination of tenancy contracts have in

substance been maintained subject to certain minor amendments (cf.

paras. 83-84 below).

a) Provisions on rent control

66. But for the above exceptions (para. 64) all tenancy contracts

governed by the 1981 Act are subject to certain measures of rent

control. Three different types of such measures can be

distinguished:

- the general application of square metre rents to apartments

in old houses constructed before 1945 ("Althauswohnungen") as regards

new contracts (Section 16 paras. 2-4), and the possibility of tenants

request a reduction to 150% of these rents as regards existing

contracts which are based on a free rent agreement concerning such

apartments (Section 44 paras. 2-3);

- the continued application of the previous rent restrictions

in respect of existing tenancy contracts (Section 43 para. 2) subject

to certain modifications (Sections 45 and 46);

- the introduction of a measure of moderation in respect of

tenancy contracts where a free rent agreement is admissible (Section 16

para. 1).

aa) Square metre rent

67. The most important innovation of the 1981 Rent Act, and the

one which is at issue in the present cases, has been the extension of

the system of square metre rents (which in 1974 had been introduced in

respect of substandard apartments, cf. para. 61 above) to all

categories of apartments in houses constructed before 1945. Only if

certain specific conditions are fulfilled is it admissible to conclude

free rent agreements in respect of such apartments (cf. Section 16

para. 1).

68. If such conditions do not exist the rent applicable under any

new tenancy contracts must not exceed the legal amounts laid down in

Section 16 para. 2 of the Act. These are broken down according to

four different classes of apartments ("Kategoriemietzins") without any

further differentiation. The class is determined according to the

condition of the apartment at the date of the conclusion of the

tenancy contract (Section 16 para. 3). The applicable amounts are

dynamic in the sense that they are adjusted to changes in the official

consumer price index (Section 16 para. 4).

69. The system of square metre rents is not only the basis for any

new tenancy contracts, it may also affect existing contracts concluded

between 1968 and 1981 stipulating a freely negotiated rent. By virtue

of Section 44 para. 2 a tenant occupying an apartment under a

previously uncontrolled contract may apply to the competent

authorities for a reduction of his rent (Mietzinsherabsetzung) to 150%

of the regular amount calculated according to Section 16 paras. 2-4.

In such cases the rent agreement shall be invalidated concerning the

exceeding amount (Section 44 para. 3). The relevant provisions are

reproduced below at paras. 77 and 78.

70. However, these provisions being part of an overall

reform of the rent law must be seen in the context of the

further measures of rent control introduced by the 1981 Rent Act

which may be summarised as follows:

bb) Continued application of earlier rent restrictions

71. Where more far-reaching rent restrictions had been applicable

under the previous legislation, they have in principle been maintained

by the 1981 Rent Act (Section 43 para. 2). This concerns in

particular tenancy contracts concluded before 1968 on the basis of

rent frozen at the level of 1914, and contracts for substandard

apartments concluded after 1974 on the basis of the regular square

metre rent applicable at that time. Decisions authorising an

increased amount of rent under Section 7 of the 1922 Rent Act have

likewise been maintained.

72. However, if the rent does not reach two thirds of the

applicable square metre rent calculated according to Section 16

paras. 2-4, the landlord may levy the difference as a maintenance

contribution (Erhaltungs- und Verbesserungsbeitrag), provided that he

undertakes to carry out the necessary maintenance and improvement

measures within the next ten years. If he does not comply with this

undertaking, he must reimburse the tenant. A different calculation of

the maintenance contributions, which is more favourable to the

landlord, applies to premises let for other than dwelling purposes

(Section 45).

73. Moreover, the continued application of the earlier rent

restrictions is limited to the actual tenant and to certain persons

who are entitled to continue the tenancy after his death, namely

spouse, unmarried partner (Lebensgefährte) or near relatives under age

who have lived in the tenant's household (Section 46 para. 1). If

other persons entitled to continue the tenancy make use of this right,

the landlord may charge the applicable square metre rent

calculated according to Section 16 paras. 2-4 (Section 46 para. 2).

cc) Moderation of agreed rent

74. Agreements between the parties on the amount of rent are

admissible under the 1981 Rent Act in respect of (i) all tenancy

contracts concluded for other than residential purposes, (ii) tenancy

contracts concluded for residential purposes as regards apartments in

houses constructed after 1945 and certain apartments in houses

constructed earlier if specific conditions are fulfilled (for details

see Section 16 para. 1 of the Act, reproduced at para. 77 below).

75. However, the rent agreed in these cases may not exceed the

appropriate amount which is justified by the particular conditions of

the property in question (cf. the introductory phrase of Section 16

para. 1). If it does, it may to this extent be invalidated by a

judicial decision (Section 16 para. 5 in conjunction with Section 37

para. 1 sub-para. 8).

76. This applies not only to new contracts, but also to existing

contracts stipulating a freely negotiated rent (cf. Section 43

para. 1).

dd) Text of the relevant rent control provisions

77. Section 16 of the 1981 Rent Act read as follows at the time of

the facts at issue (it has subsequently been amended in certain

respects):

(German)

"Vereinbarungen über die Höhe des Hauptmietzinses

(1) Vereinbarungen zwischen dem Vermieter und dem Mieter

über die Höhe des Hauptmietzinses für einen in Hauptmiete

gemieteten Mietgegenstand sind ohne die Beschränkungen des

Abs. 2 bis zu dem für den Mietgegenstand nach Grösse, Art,

Beschaffenheit, Lage, Ausstattungs- und Erhaltungszustand

angemessenen Betrag zulässig, wenn

1. der Mietgegenstand nicht zu Wohnzwecken dient; ...

2. der Mietgegenstand in einem Gebäude gelegen ist,

das auf Grund einer nach dem 8. Mai 1945 erteilten Bau-

bewilligung neu errichtet worden ist, oder der Mietgegen-

stand auf Grund einer nach dem 8. Mai 1945 erteilten

Baubewilligung durch Um-, Auf-, Ein- oder Zubau neu

geschaffen worden ist; ...

3. der Mietgegenstand in einem Gebäude gelegen ist,

an dessen Erhaltung aus Gründen des Denkmalschutzes, der

Stadt- oder Ortsbildpflege oder aus sonst vergleichbaren

Gründen öffentliches Interesse besteht, sofern der Vermieter

unbeschadet der Gewährung öffentlicher Mittel zu dessen

Erhaltung nach dem 8. Mai 1945 erhebliche Eigenmittel

aufgewendet hat;

4. der Mietgegenstand eine Wohnung der Ausstattungs-

kategorie A, deren Nutzfläche 90 m² übersteigt, oder eine

Wohnung der Ausstattungskategorie B, deren Nutzfläche 130 m²

übersteigt, ist, sofern der Vermieter eine solche Wohnung

innerhalb von sechs Monaten nach der Räumung durch den

früheren Mieter oder Inhaber an einen nicht zum Eintritt in

die Mietrechte des früheren Mieters Berechtigten vermietet;

5. der Mietgegenstand eine Wohnung der Ausstattungs-

kategorie A oder B in ordnungsgemässem Zustand ist, deren

Standard vom Vermieter nach dem 31. Dezember 1967 durch

Zusammenlegung von Wohnungen der Ausstattungskategorie C

oder D, durch eine andere bautechnische Aus- oder

Umgestaltung grösseren Ausmasses einer Wohnung oder

mehrerer Wohnungen der Ausstattungskategorie C oder D oder

sonst unter Aufwendung erheblicher Mittel angehoben worden

ist; ...

6. der Mietgegenstand eine Wohnung der Ausstattungs-

kategorie C in ordnungsgemässem Zustand ist, deren Standard

vom Vermieter nach dem 31. Dezember 1967 durch

Zusammenlegung von Wohnungen der Ausstattungskategorie D,

durch eine andere bautechnische Aus- oder Umgestaltung

grösseren Ausmasses einer Wohnung oder mehrerer Wohnungen

der Ausstattungskategorie D oder sonst unter Aufwendung

erheblicher Mittel angehoben worden ist; ...

7. das Mietverhältnis länger als ein halbes Jahr

bestanden hat.

(2) Liegen die Voraussetzungen des Abs. 1 nicht vor, so

darf der zwischen dem Vermieter und dem Mieter für eine in

Hauptmiete gemietete Wohnung vereinbarte Hauptmietzins je

Quadratmeter der Nutzfläche und Monat nicht übersteigen:

1. 22 S für eine Wohnung der Ausstattungs-

kategorie A, das ist eine Wohnung in brauchbarem

Zustand, deren Nutzfläche mindestens 30 m² beträgt, die

zumindest aus Zimmer, Küche (Kochnische), Vorraum, Klosett

und einer dem zeitgemässen Standard entsprechenden

Badegelegenheit (Baderaum oder Badenische) besteht, die über

eine zentrale Wärmeversorgungsanlage oder eine Etagenheizung

oder eine gleichwertige stationäre Heizung und über eine

Warmwasseraufbereitung verfügt;

2. 16,50 S für eine Wohnung der Ausstattungs-

kategorie B, das ist eine Wohnung in brauchbarem

Zustand, die zumindest aus Zimmer, Küche (Kochnische),

Vorraum, Klosett und einer dem zeitgemässen Standard

entsprechenden Badegelegenheit (Baderaum oder Badenische)

besteht;

3. 11 S für eine Wohnung der Ausstattungs-

kategorie C, das ist eine Wohnung in brauchbarem

Zustand, die zumindest über eine Wasserentnahmestelle und

ein Klosett im Inneren verfügt;

4. 5,50 S für eine Wohnung der Ausstattungs-

kategorie D, das ist eine Wohnung, die entweder

über keine Wasserentnahmestelle oder über kein Klosett im

Inneren verfügt oder bei der eine dieser beiden

Einrichtungen nicht brauchbar ist und auch nicht innerhalb

angemessener Frist nach Anzeige durch den Mieter vom

Vermieter brauchbar gemacht wird.

(3) Die Ausstattungskategorie nach Abs. 2 richtet sich

nach dem Ausstattungszustand der Wohnung im Zeitpunkt des

Abschlusses des Mietvertrags. ...

(4) Die im Abs. 2 genannten Beträge vermindern oder

erhöhen sich in dem Mass, das sich aus der Veränderung des

vom Österreichischen Statistischen Zentralamt verlautbarten

Verbraucherpreisindex 1976 oder des an seine Stelle

tretenden Index gegenüber dem Zeitpunkt des Inkrafttretens

dieses Bundesgesetzes ergibt, wobei Änderungen solange nicht

zu berücksichtigen sind, als sie 10 vH des bisher

massgebenden Betrages ... nicht übersteigen. ...

(5) Übersteigt der nach Abs. 1 vereinbarte Hauptmietzins

den für den Mietgegenstand nach Grösse, Art, Beschaffenheit,

Lage, Ausstattungs- und Erhaltungszustand angemessenen

Betrag, so ist die Mietzinsvereinbarung so weit unwirksam,

als sie dieses Höchstmass überschreitet. Ist der

Hauptmietzins nach den Bestimmungen des Abs. 2 und 3 zu

bemessen, so ist die Mietzinsvereinbarung insoweit

unwirksam, als sie das darnach zulässige Höchstmass

überschreitet.

(6) ... "

(English Translation)

"Agreements concerning the amount of the basic rent

(1) Agreements between the landlord and the tenant

concerning the amount of the basic rent for premises rented

under a head lease shall be permissible, irrespective of the

restrictions set out in para. 2, up to the sum appropriate

to the size, type, nature, situation, fittings and condition

of the property, if:

1. the rented property is not used for residential

purposes; ...

2. the property is located in a building which has

been newly constructed on the basis of a building permit

issued after 8 May 1945, or if the property has been

renovated by conversion, the addition of an extra storey,

the installation of fixtures or the building of an extension

on the basis of a building permit issued after 8 May 1945; ...

3. the property is located in a building which, for

reasons of public interest, should be preserved as a

historic building, in order to conserve the townscape or

landscape or on similar grounds, provided that, apart from

the grant of public funds, the landlord has himself made a

considerable financial contribution for its preservation

after 8 May 1945;

4. the rented property is a class A flat with a

usable floor-space of over 90m² or a class B flat with a

usable floor space of over 130m², provided that the landlord

lets a flat of this description within six months after it

has been vacated by the previous tenant or occupier to a

person not entitled to succeed to the rights of the previous

tenant;

5. the rented property is a class A or B flat in a

good condition, the standard of which has been considerably

raised by the landlord, after 31 December 1967, by combining

class C or D flats, by other large-scale construction

measures for the extension or conversion of one or more

class C or D flats or otherwise by means of considerable

financial expenditure; ...

6. the rented property is a class C flat in a good

condition, the standard of which has been raised by the

landlord after 31 December 1967, by combining class D flats

or by other large-scale construction measures for the

extension or conversion of one or more class D flats or

otherwise by the investment of considerable financial

expenditure; ...

7. the tenancy has been in existence for longer

than six months.

(2) If the conditions set out in para. 1 are not

satisfied, the basic rent agreed between the landlord and

the tenant for a flat rented under a head lease may not

exceed, per month and per square metre of usable floor-space:

1. AS 22.- for a class A flat, that is a habitable

flat with at least 30m² of usable floor-space, comprising at

least a room, a kitchen (kitchenette), hall, lavatory and

bathing facilities corresponding to the current standard

(bathroom or bathing recess) and which has central heating,

or single-storey heating, or comparable built-in heating and

a source of hot water;

2. AS 16.50 for a class B flat, that is a habitable

flat comprising at least a room, a kitchen (kitchenette),

hall, lavatory and bathing facilities corresponding to the

current standard (bathroom or bathing recess).

3. AS 11.- for a class C flat, that is a habitable

flat which has at least a water supply and an indoor

lavatory;

4. AS 5.50 for a class D flat, that is a flat

which has either no water supply or no indoor lavatory, or

which has these facilities one of which is not usable and

has not been repaired within a reasonable time after the

tenant has informed the landlord [of the defective state].

(3) The classes as described in para. 2 shall be

determined by the condition of the flat at the time of the

tenancy agreement. ...

(4) The amounts specified in para. 2 shall decrease or

increase in accordance with any changes which occurred in

the 1976 Consumer Price Index published by the Austrian

Central Office of Statistics (or the index replacing it) as

compared with the time when this Federal Act comes into

force. Changes not exceeding 10% of the previously

prescribed amount shall not be taken into account. ...

(5) If the basic rent agreed under para. 1 exceeds the

appropriate amount for the size, type, nature, situation,

fittings and condition of the property, the agreement as to

rent shall be invalid to the extent that it exceeds this

maximum. If the basic rent has to be calculated according

to the provisions of paras. 2 and 3, the agreement as to

rent shall be invalid to the extent that it exceeds the

maximum permitted in those paragraphs.

(6) ... "

78. The relevant parts of Section 44 of the 1981 Rent Act read as

follows:

(German)

"Überhöhter Hauptmietzins

(1) ...

(2) Der Hauptmieter einer vor dem Inkrafttreten dieses

Bundesgesetzes gemieteten Wohnung kann vom Vermieter die

Ermässigung des vorher vereinbarten Hauptmietzinses

begehren,

1. wenn für die Wohnung im Zeitpunkt der Verein-

barung über die Höhe des Hauptmietzinses die in § 16

Abs. 1 Z. 2 bis 6 genannten Voraussetzungen nicht vorgelegen

haben und

2. wenn der vereinbarte Hauptmietzins den Betrag um

mehr als die Hälfte übersteigt, der sich für die Wohnung

nach ihrer Grösse und Ausstattungskategorie im Zeitpunkt des

Abschlusses des Mietvertrags oder einer späteren, vom Ver-

mieter finanzierten Standardverbesserung nach § 16 Abs. 2

bis 4 als Hauptmietzins errechnet.

(3) Begehrt der Hauptmieter vom Vermieter die

Ermässigung des vereinbarten Hauptmietzinses, so ist ab dem

auf den Zugang dieses Begehrens folgenden Zinstermin die

getroffene Vereinbarung über den Hauptmietzins insoweit

rechtsunwirksam, als der Hauptmietzins das Eineinhalbfache

des Betrages übersteigt, der sich für die Wohnung nach ihrer

Grösse und Austattungskategorie (Abs. 2 Z. 2) als Haupt-

mietzins errechnet. Ist der Vermieter auf Grund einer

Wertsicherungsvereinbarung zu einer Erhöhung des Haupt-

mietzinses berechtigt, so kann er ... auch die Erhöhung

des ermässigten Hauptmietzinses begehren ... "

(English Translation)

"Exorbitant basic rent

(1) ...

(2) The tenant under the head lease of a flat rented

before this Federal Act came into force, may require the

landlord to reduce the basic rent which was previously

agreed if:

1. the conditions set out in Section 16 para. 1

sub-paras. 2 to 6 were not satisfied in respect of the flat

when the amount of the basic rent was agreed, and

2. the agreed basic rent exceeds by more than a

half the amount of the basic rent calculated under Section

16 paras. 2-4 for the size and class of the flat at the time

of the tenancy agreement or a subsequent improvement to the

standard of the premises, financed by the landlord.

(3) If the tenant under the head lease requires the

landlord to reduce the agreed basic rent, the agreement

concerning the basic rent shall be invalid as from the first

date on which rent becomes due following receipt of the

request, to the extent that the basic rent exceeds one and a

half times the amount calculated for the size and class of

flat (para. 2 sub-para. 2). If the landlord is entitled to

increase the basic rent under a guaranteed value agreement,

he may also require an increase in the reduced basic rent ..."

b) Provisions on the maintenance of buildings

79. The obligations of the landlord as to maintenance of buildings

have been extended by the 1981 Rent Act. He is obliged to keep the

building in a state of repair (Erhaltung) which corresponds to the

local conditions (ortsüblicher Standard) and to use the current rent

income obtained during the period of maintenance measures plus the

rent income of the last ten years for this purpose. If this is not

sufficient, he is obliged to use his own or borrowed capital, subject

to an appropriate interest rate, in order to cover the difference

(Section 3). In this context, the Act contains detailed accounting

provisions (Section 20) which, inter alia, allow the landlord to keep

for himself 20% of the costs spent for maintenance and improvement work

if it has been carried out without asking for increased rents under

Section 18 (Section 20 para. 1 sub-para. 2 b).

80. If the rent income of the last ten years and the expected rent

income of the following ten years is not sufficient to cover the costs

of imminent necessary maintenance measures, including the costs of the

landlord's own or borrowed capital, the landlord may claim an

increased amount of rent (erhöhter Hauptmietzins) from the tenants

which shall be determined by a judicial decision (Section 18).

81. If the rent income of the last ten years is sufficient, or if

it is not sufficient and the majority of tenants reach an agreement

with the landlord as to the financing of the difference, the landlord

is further obliged to carry out adequate improvement measures

(nützliche Verbesserungen, Section 4). Such improvements concern

inter alia the transfer of water installations and lavatories from

outside into the apartments, and the upgrading of class C and D

apartments (in some cases also by lumping together several apartments,

Section 5) which then will be subject to the square metre rent

according to Section 16 para. 2. The consent of the tenants concerned

is required, but refusal to consent to the upgrading of a class D

apartment constitutes a ground for the termination of the contract

provided alternative accommodation is put at the disposal of the

tenant (Section 30 para. 2 sub-para. 16).

82. The tenants may apply to the court for an order compelling

the landlord to carry out maintenance and improvement measures

(Section 6). However, they may also undertake such measures at their

own cost and the landlord's right to object to this is restricted in

certain respects (Section 9). If the tenant has carried out

improvement measures he can claim reimbursement from the landlord when

the contract is terminated (Section 10).

c) Provisions on the termination of tenancy contracts

83. The restrictions on the landlord's right to terminate tenancy

contracts (cf. para. 56 above) have in substance been maintained by

the 1981 Rent Act. In connection with the reformulation of the

relevant provisions (Section 30) certain relaxations were brought

about, e.g. where the landlord urgently needs an apartment for himself

or for near relatives (para. 2 sub-paras. 8 and 9) or where he wishes

to demolish, modify or improve a building (sub-paras. 14-16).

Generally the applicable standard is still a strict one.

84. The unilateral right of the spouse, partner or near relatives

to continue the tenancy after the death of the original tenant if they

have occupied the apartment together with him has been maintained

(Section 14), but only some of these persons can now profit from

the continued application of rent restrictions resulting from the 1922

Act while the others are required to pay rent calculated on the basis

of Section 16 para. 2 of the 1981 Act (cf. para. 73 above). The same

persons now have a right of succession without modification of the

rent already during the lifetime of the tenant if they have occupied

the apartment together with him and if he leaves (Section 12). A

tenant may exchange flats with another tenant without the consent of

the landlord if the competent court so decides (Section 13).

d) Procedural provisions

85. Certain measures affecting the tenancy, including a reduction

of rent under Section 44 of the 1981 Rent Act, require a judicial

decision. According to Section 37 the relevant procedure takes place

before the competent District Court in non-contentious proceedings

(Verfahren ausser Streitsachen).

86. However, in certain municipalities where this is justified by

the number of cases an administrative body may be set up to deal with

the matter in the first place (Section 38). In these municipalities

the court procedure can be instituted only after the administrative

decision has been given. The Court procedure is not construed as an

appeal against this decision, but as an entirely new procedure which

has the effect that the administrative decision is simply set aside

(Section 39).

3. Criticism of the legislation and review of its

constitutionality

87. The 1981 Rent Act was adopted after heated debates in

Parliament and in the media, in which representatives of the political

parties and interest groups took part. This discussion has continued

thereafter.

88. Harsh criticism was expressed in particular concerning the

extremely complicated structure of the legislation and the resultant

administrative difficulties created for the landlords. As regards the

introduction of square metre rents, the criticism focussed on

the appropriateness of this system as such, the lack of different-

iation according to the particular circumstances of the buildings

concerned especially as to regional market differences, and the low

amount of the regular rents which in many cases allegedly are not

sufficient to cover normal maintenance costs. It has also been

doubted in many quarters that it is justified to apply the system

of square metre rents to existing contracts and to leave it to the

tenants concerned to apply for a reduction.

89. In the latter respect it was disputed whether this measure

amounted to an expropriation and whether it was in conformity with the

Constitution (cf. Glassl, Die Mietzinsherabsetzung gemäss § 44 Abs 2

und 3 MRG in konventionsrechtlicher Sicht, Österreichische

Immobilienzeitung 1982 p. 4; Kassowitz, Mietzinsherabsetzung gemäss

§ 44 Abs 2 und 3 MRG und Bundesverfassung, Österreichische

Immobilienzeitung 1984, p. 156; Gutknecht, Das Recht auf Wohnen und

seine Verankerung in der österreichischen Rechtsordnung, Juristische

Blätter 1982, p. 173; Funk, Verfassungsrechtliche Fragen des

Mietrechtsgesetzes, in Korinek-Krejci, Handbuch zum Mietrechtsgesetz,

1985).

90. Nevertheless, this matter has apparently not been brought

before the Constitutional Court (Verfassungsgerichtshof). According

to the relevant provisions of the Federal Constitution (Bundes-

Verfassungsgesetz, Articles 140 and 144) the individuals concerned have

no possibility to seize this Court directly if the civil courts are

competent. The civil courts on appeal level can request a review by

the Constitutional Court if they have doubts as to the constitutionality

of a legal provision which they are required to apply in a particular

case (Article 89 para. 2 of the Federal Constitution in conjunction

with Article 140). However, as the present cases show, the competent

civil courts had no such doubts concerning Section 44 of the 1981

Rent Act.

91. This is borne out in particular by a decision of the Supreme

Court (Oberster Gerichtshof) of 3 July 1984 (50b 86/83, SZ 57/125)

where it was stated that Section 44 does not give rise to any doubts

concerning its constitutionality.

92. The Supreme Court considered that the legislation had for

historically justified reasons limited the parties' freedom to agree

on the amount of rent. In this respect it referred to the travaux

préparatoires of the 1981 Act according to which the most difficult

but also the most important part of the legislative reform was the

gradual and smooth adjustment of existing leases to the new system.

As regards this interference with existing tenancy contracts, the

Court observed that the renting of an apartment was a continuing

contract (Dauerschuldverhältnis) which in general was not entirely

exempt from adjustments and changes. The fact that the 1974 Amendment

had not interfered with existing contracts when introducing maximum

rents for substandard apartments had no bearing on the admissibility

of such a measure as part of the comprehensive reform of the rent law

by the 1981 Act.

93. In the Supreme Court's view there was no provision in the

Federal Constitution which in principle prevented ordinary

legislation from interfering with lawfully acquired rights. The new

provisions conformed strictly with the legislative policy of bringing

existing leases into line with the new system of landlord-tenant

relationships and were intended to ensure that the hiatus between the

old and new systems remained small. Section 44 was a suitable

instrument for achieving this aim. It enabled the landlord to receive

50% more rent than in case of re-letting and ensured that the tenant

would not have to pay an unduly high rent. This was in line with the

principles underlying Section 935 of the Civil Code (laesio enormis)

and the Consumer Protection Act.

94. The tenant's power to have the rent reduced must be regarded

in the whole context of the new legislation. By granting this right,

the legislature had neither acted arbitrarily nor exceeded its powers,

but had stayed within its margin of appreciation, in particular as the

new possibilities of the tenants were counter-balanced by a series of

provisions relaxing the freeze of rents at the 1914 level.

95. The Supreme Court considered that the reduction of rent

involved merely a limitation on property, and not an expropriation

within the meaning of Article 5 of the Basic Law on the Rights of

Citizens (Staatsgrundgesetz 1867) which authorises expropriations in

the general interest. While this Article also applied to limitations

of ownership rights, the legislation could enact such limitations in

the general interest without infringing the Constitution if they did

not affect the essential content (Wesensgehalt) of the fundamental

right of inviolability of property nor otherwise violate constitutional

principles. This was not the case as Section 44 was necessary in the

public interest and formed a well-balanced framework for adjusting old

legislation to new legislation.

96. The Supreme Court further observed that under Article 1 of

Protocol No. 1 to the Convention controls of the use of property must

be in accordance with the general interest. As the Constitutional

Court had confirmed, restrictions on property which complied with

these principles were not unconstitutional. Therefore the interference

with existing contracts was not incompatible with Article 1 of

Protocol No. 1 either.

97. The Supreme Court finally denied a violation of the principle

of equal treatment (Article 7 of the Federal Constitution) because it

considered that, taking the overall context into account, the system

of rent adjustment was objectively justified.

4. Assessment of the value of real property

98. The assessment of the value of real property in Austria is

governed by the Real Property Valuation Regulations (Realschätzordnung,

Imp. Law Gazette No. 175/1897). According to these regulations buildings

that are or can be rented in whole or in part as well as the open

areas attached to them are always subject to a dual assessment, i.e.

according to their capitalised rent proceeds and according to the

value of the land and building.

99. The rent proceeds must be determined not only in respect of

apartments which are actually let to tenants, but also in respect of

apartments which at the time are vacant. The annual payments of taxes

and other fiscal charges, the fire insurance premium and the annual

average maintenance costs are to be deducted from the gross rent

(Section 20 para. 2). The value of the land and buildings consists

of the sales price of the land (Section 17) and the value of the

buildings (Section 20 para. 1).

100. At the time of the facts of the present cases it was a

stringent legal requirement that the mean value of the above two

assessments be taken as the estimated value (Section 16 para. 3,

former version). Repair costs caused by the bad state of buildings

and exceeding the annual maintenance costs were deductable from this

value (Section 20 para. 3).

101. Section 16 para. 3 has been amended with effect from 1 January 1986

(Fed. Law Gazette No. 561/1985). Now the estimated value is to be

fixed within the range of the two aforementioned assessments and the

reason why it is closer to either one or the other must be given. The

surveyor thus has more latitude in his assessment.

III. SUBMISSIONS OF THE PARTIES

A. The applicants

102. The applicants in the three cases complain that their property

rights under Article 1 of Protocol No. 1 to the Convention have been

violated.

103. The applicants in case No. 11011/84 further allege a violation

of Article 14 of the Convention, read in conjunction with Article 1 of

Protocol No. 1, in that they were discriminated against in comparison

with certain other categories of landlords.

1. Article 1 of Protocol No. 1

a) General

104. The applicants claim that the reduction of the rent due to

them under lawfully concluded tenancy contracts cannot be described as

a legitimate measure to control the use of property in accordance with

the general interest. They generally consider the degree of

interference with the landlords' rights brought about by the 1981 Rent

Act as being disproportionate and in particular deny a pressing social

need justifying such an interference with existing rent agreements.

105. The applicants distinguish the present cases from Application

No. 8003/77 (Dec. 3.10.79, D.R. 17 p. 80) where the Commission

qualified restrictions under the earlier rent legislation as a

regulation of the use of property. They submit that, unlike the

applicant in that case, they were not affected by legal restrictions

which existed when they acquired the property nor could they hope for

a gradual reduction of the impact of such restrictions. In fact the

1981 Act introduced new and more far-reaching restrictions which

interfered with the substance of their property rights. While the

restrictions under the earlier legislation were considered as

proportionate to the aims of social policy permitted by the second

paragraph of Article 1 of Protocol No. 1, this could not be said of

the new additional restrictions under the 1981 Act even if they were

to be qualified as regulations of the use of property.

106. The applicants claim that these new restrictions

amounted to expropriation measures, and that they therefore come

within the scope of the first paragraph of Article 1.

107. The applicants consider that there has been a legal

expropriation of their contractual rights under the rent agreements,

and at the same time a de facto expropriation of the substance of

their real property.

108. Their contractual rights were based on the rent agreements

concluded before the entry into force of the 1981 Act in conformity

with the earlier legislation which had been in force since 1967. The

applicants claim that their contractual rights under these agreements

are "possessions" within the meaning of Article 1 of the Protocol.

The general principles of international law, to which Article 1

refers, concern a concept of "property" which extends to all

acquired or vested rights of economic value, including contractual

rights.

109. The applicants also refer to the case-law of the Austrian

Constitutional Court according to which the concept of "property"

means all private rights of economic value, including besides the full

right of ownership any part of this full right as a special right.

This also accords with the notion of "property" within the meaning of

the Austrian Civil Code. Section 353 of the Code defines property in

the objective sense as "everything which belongs to a person, all his

material and immaterial things", the latter including any rights of

economic value (cf. Sections 285, 292). According to Section 354

property in the subjective sense is "the right to dispose of the

substance and use of a thing at one's discretion, and to exclude any

other person therefrom".

110. The use of real property, such as an apartment house, by the

conclusion of tenancy contracts is in the applicants' view an

essential part of the ownership right. Its nature as a separate right

is shown by the fact that it can be transferred to another person than

the owner, e.g. by the creation of a right of usufruct as in the third

of the present cases. The usufructuary has the full right to decide on

the use of the property in question and he can conclude tenancy contracts

without the consent of the owner which will be binding on the owner

when the usufruct is terminated. If the right of an usufructuary to

use the property is a separate right, there is no reason why the same

right should not also be considered as a separate property if it

belongs to the owner of the real property in question.

111. The right in question is an existing right. It is not

conditional in the sense that it will come into existence only at some

future date (such as a right to inherit) or that it concerns a claim

which has previously been circumscribed by specific legislation (such

as the claim to fees considered in Application No. 8410/78, Dec.

13.12.79, D.R. 18 p. 216, to which the Government refer, cf. para. 140

below). It is a well-acquired right based on the legislation which

was in force in Austria between 1968 and 1981 and which allowed the

conclusion of freely negotiated rent agreements. The applicants were

entitled to trust that those agreements would be respected by any

future legislation.

112. In the applicants' submission there has been a legal

expropriation of their contractual rights under the rent agreements.

While the interference with their contractual rights has not been

brought about immediately by the legislation, which leaves the decision

to seek a reduction of rent to the tenant, it is nevertheless a legal

expropriation. In fact the tenant has been authorised by the

legislation to expropriate the landlord, and no discretion was left to

the authorities in this respect.

113. The applicants argue that the 1981 Act had a retroactive

effect in that it allowed the tenants to obtain a judicial decision by

which earlier agreements were partially declared void. In this way

the tenants were encouraged to commit a breach of contract in respect

of obligations which they had accepted under the said agreements. Such

a measure could not be in the public interest, in particular as the

applicants' acquired right to the rent was reduced very considerably

without their being able to obtain any compensation.

114. As regards the alleged de facto expropriation of the

applicants' real property, it is submitted that it belongs to the

substance of the ownership right in a block of flats to be able to

draw benefit from leases. This has been recognised by the Commission

in Application No. 8003/77 (loc cit). However, by the cumulation of

the various restrictions contained in the rent legislation, the

landlord is reduced to the state of a mere administrator of his

property. The philosophy underlying this legislation is that the

landlord shall not be able to obtain any profit from his property.

He must now in principle use the whole of the rent proceeds for the

maintenance and repair of the building while under the previous

legislation only half of the rent income from freely negotiated

agreements was to be reserved for maintenance purposes and no

obligations existed to improve the building. Moreover, the reference

period of rent income to be used for maintenance purposes has been

prolonged from 7 to 10 years.

115. Furthermore, the landlord's right to give notice to his

tenants is severely restricted. For instance, it is virtually

impossible to give notice to a tenant on the ground that a flat is

needed for housing purposes of the owner, while on the other

hand a very restrictive approach is taken when the ground of notice is

that the tenant does not really need the flat. The tenant's right to

transfer the tenancy contract to other persons is very broad, and a

tenant may exchange his flat for that of another person without the

landlord's consent being required. The landlord keeps no more than

the nudum ius, i.e. the title in the property; he is deprived of the

possibility to make an economically reasonable use of it.

116. By the introduction of new restrictions on the landlord, in

particular as regards his right to fix the amount of rent by agreement

with the tenant, the 1981 Act has led to a considerable reduction of

the value of the real property which in fact amounts to a de facto

expropriation of this property. According to the Real Property

Valuation Regulations the value of blocks of flats depends mainly on

the capitalised rent proceeds (Ertragswert), and this value has

considerably decreased following the introduction of new maximum

rents. In fact, the reduction of the rent to an amount which does not

exceed the maintenance costs has the effect that the value based on

capitalised rent proceeds is no longer a relevant factor for

determining the value of the real property. It will be assessed more

or less exclusively on the basis of the value of the land and

buildings. This means an enormous decrease of the sales value.

Buildings affected by the new restrictions are in practice very

difficult to sell.

117. The applicants contest the Government's submission that

restrictions on the sales value of apartment houses have always

existed in Austria. Such restrictions did not exist between 1968 and

1981 insofar as during this period it was possible to conclude free

rent agreements. They further observe that in each of the buildings

concerned in the present cases there are other tenancy contracts in

which a reduction of rent can be requested and that new leases will in

any event come within the scope of the even less favourable provisions

of Section 16 paras. 2-4.

118. The applicants claim that, while the formal right to mortgage

their real property for the purpose of obtaining a loan has not been

taken away, there has been an interference with their property rights

in this respect as well. The value of the real property having

decreased, there is no longer the same economic basis for taking out

a mortgage. In practice, loans can be obtained for mortgage only

if they are intended for maintenance or repair work. Loans for other

purposes would have to be paid back from other sources than the rent

income. The applicants finally refer to the difficulty of those

landlords who have contracted a loan under the earlier regime which

they now are unable to pay back from the reduced rent income.

119. The applicants submit that the measures complained of violate

the public interest. The legislation was criticised by

representatives of all political parties. It is against the public

interest to encourage tenants to violate the principles of good faith

and to commit breaches of contract. The measures complained of lack a

social justification and are disproportionate to the aim pursued.

120. The applicants find no urgent need for this legislation. The

housing shortage to which the Government refer does not in reality

exist. There are in fact some 100,000 - 150,000 unoccupied flats, and

a considerable proportion of these are in houses affected by the

legislation. Moreover, many of the flats coming under the legislation

are not really needed by the tenants because they frequently have more

than one flat. This is a consequence of the rent protection

legislation, i.e. of the combined effect of cheap rents and generous

application of provisions to protect tenants against termination of

their contracts or provisions enabling them to transfer their tenancy

rights to others. The legislation leads to a situation where the

landlords prefer to leave flats unoccupied rather than letting them at

an economic loss. There is also a trend away from rented apartments

to owning property. In 1982 already 52% of the population lived in

houses or apartments of their own. This shows that the economic and

social importance of the rent legislation is limited.

121. The proportion of cases in which rent reductions under Section

44 of the Act take place is very small. That the legislation was not

needed is also shown by the fact that the decision to seek a reduction

of the rent is left to the tenant, and that the legislation provides

for many exceptions. Also, it was not considered necessary in 1974

when square metre rents were first introduced for substandard flats to

interfere with existing rent agreements. The 1981 Act now allows to

interfere with such agreements even in respect of other categories of

flats.

122. The regular rents fixed by the 1981 legislation do not, in the

applicants' view, correspond to economic realities. A study prepared

by a private house-owner association shows that an average square

metre rent of AS 25.- is necessary to maintain houses. A survey of

rents paid on the free market discloses a level of rents which is

considerably above the legal rents but in no way exaggerated.

The general level on the market is only 20% above that applicable to

flats rented from municipalities which must be deemed to be based on

special social considerations and which nevertheless often do not come

within the scope of the rent protection legislation. It is not

justified in the circumstances to place a special social burden on

private house owners.

123. The applicants contest that calculation of the regular

rents is based on sound economic principles. The mode of

calculation explained by the Government was not used when the

legislation was being prepared. The Government had earlier stated that

there was no reliable calculation of average costs, and that it would

hardly be possible to make such a calculation since each house is in a

completely different condition. The applicants note that no

differentiation is made between individual houses according to their

particular conditions, nor any distinction with regard to regional

differences. The same level of rent is applicable in big cities and

rural areas, in the capital and elsewhere despite considerable

regional market differences.

124. The applicants claim that their tenants are able to pay

economically reasonable rents. The average income in Austria is

comparable to that in other Western European States, but the level of

rent envisaged by the legislation is very far below the standard in

those countries. It would be socially justified for a tenant to spend

about 20 to 25% of his income for rent. The Austrian legislation does

not make any social differentiation, every tenant can ask for a

reduction of rent irrespective of his income. It would be more in

line with a social housing policy to give subsidies to tenants who

really cannot afford the rent. The applicants observe that a system

of rent subsidies exists and that tenants who cannot afford the rent

may claim such subsidies. The proportion of expenditure for rent

which is considered as justified in this context is about 20-25% of

the income.

125. The applicants do not consider that the restrictions placed on

the landlord are counterbalanced by other measures in his favour.

These measures are in themselves insufficient because they do not

allow the landlords to adjust rents to an economically justified

level. The maintenance contributions under Section 45 of the Act cover

only two thirds of what the Government themselves consider as a

justified rent, and moreover must entirely be used for maintenance of

the building and must be repaid if they are not used for this purpose.

The same applies to the possibility of increasing rents under Section 18.

Therefore these provisions, too, involve disadvantages for the

landlord. The other improvements cited by the Government are

negligible. In any event none of the provisions allegedly improving

the situation of the landlord was applicable in the present cases.

126. In conclusion, the applicants submit that there was no public

interest which could justify the measures taken against them, in

particular the public interest to preserve property of private

house-owners was disregarded. The measures in question did not strike

the right balance between the public interests which may legitimately

be pursued by a social housing policy, and the individual interests of

the house-owners, and for this reason, too, these measures were wholly

disproportionate and contrary to Article 1 of Protocol No. 1 as

exceeding the margin of appreciation conceded by this provision.

b) Concerning the individual cases

Application No. 10522/83

127. The applicants stress that they bought the property in

question in 1978 from compensation for other real property which had

been expropriated. They considered this to be a safe investment

having regard to the legislation then in force which allowed the

conclusion of freely negotiated rent agreements for new tenancies.

They could make use of this possibility concerning several apartments

which were vacant at the time of acquisition. Accordingly there

are now several tenants apart from the one who has asked for a

rent reduction under Section 44 who could do the same depending

on the outcome of the present proceedings.

128. The applicants submit that the value of the building decreased

by some AS 184,000.- by virtue of a rent reduction in the one case at

issue. In this case the rent was reduced to one sixth of its original

amount. It is now no more than a token rent which corresponds to the

price of a simple meal for two persons in a cheap restaurant. The

applicants' monthly loss is about AS 1,500.-.

129. The tenant in question, however, could well pay a higher

rent. He had concluded the original contract in full knowledge of the

circumstances and could choose between different apartments because

there was no serious housing shortage at that time in Graz. The rent

agreement was fair and corresponded to the market conditions. The

tenant had to pay about 12-15% of his income for the rent, and this

was reduced to about 2-3%. The Government's argument that the earlier

amount was inappropriate cannot be followed. The tenant had

apparently considered the rent to be appropriate in the circumstances.

130. Should the other tenants also request a reduction of

their rent the total loss would be some AS 300,000.-.

Application No. 11011/84

131. The applicants stress that under the original tenancy contract

of 1972 a low rent (AS 800.-) had been agreed in order to allow the

tenants to improve the standard of the apartment by measures of their

own. The rent chargeable as from September 1975, i.e. AS 1,500.-, was

still in the lower range having regard to the fact that the apartment

is located in the centre of Innsbruck in a good area and that the

general level of rents in Innsbruck is high. The economic conditions

in the western parts of Austria are different from Vienna and this

case shows the shortcomings of the legislation as regards

consideration of regional differences. It cannot be justified that the

rent in this case was reduced to an amount per square metre and month

which roughly corresponds to the price of half a litre of petrol.

Several other tenants could also request a reduction of their rent.

Application No. 11070/84

132. A special feature of this case is the usufruct agreement

between the two applicants. They claim that the rent reduction

affected both the usufructuary's and the owner's right to the peaceful

enjoyment of possessions: the usufructuary's because she has for the

time being the exclusive right to use the property and to perceive the

current rent income; the owner's because after the death of the

usufructuary the right to use the property and to perceive the rent

income will revert to her.

133. The apartment house in question is situated in a good location

near the centre of Vienna. It has been renovated by the applicants at

considerable expenditure (more than AS 500,000.-). All the other

apartments in the house are in class B and the qualification of the

apartment at issue in the same category was refused only because the

bathroom was not fully equipped. If the apartment had been recognised as

coming within class B, no rent restrictions would have applied because

of its size.

134. The rent agreed was not excessive. For apartments in this

category and location a square metre rent of some AS 35.- can be

obtained at present. The rent agreed, revalorised according to the

consumer price index of 1976, would correspond to a square metre rent

of AS 26.80 which is considerably below the above amount. The tenant,

a practising lawyer, could pay a rent on this basis.

2. Article 14 of the Convention

135. The applicants in case No. 11011/84 complain that they were

discriminated against, contrary to Article 14 of the Convention, in

the enjoyment of their property rights because they were treated

differently from certain other categories of landlords, in

particular public house-owners. While the Rent Act does not formally

distinguish between public and private house-owners, in reality

public house-owners are treated differently because they usually

profit from the more favourable provisions of the Non-Profit Housing

Act.

136. The rent permissible under Section 14 of this Act

includes a profit of some 8% of the capital invested, while a similar

profit is not conceded to private house-owners affected by the

provisions of the Rent Act. While the income of the non-profit

housing associations may in principle be used for other purposes, the

rent proceeds of the private house-owners must be entirely used for

maintenance and repair. This amounts to discrimination against private

house-owners.

B. The Government

1. Article 1 of Protocol No. 1

137. The Government consider that the restrictions on property

contained in the 1981 Act cannot be regarded as a deprivation of

possessions within the meaning of the first paragraph of Article 1

of Protocol No. 1 to the Convention. They rely on the Commission's

decision on Application No. 8003/77 v. Austria (Dec. 3.10.79, D.R. 17

p. 80), where the Commission found the first paragraph of Article 1

not applicable to restrictions on property imposed by rent

regulations. The 1981 Act has in the Government's view not changed

the legal position on which the Commission based that decision. The

new Act did not interfere with the applicant's title as owners of the

property nor with the substance of their property. Further, there is

no shift of property to the State, but only a redistribution of

financial advantages as between the landlords and tenants. For this

reason, too, the rent reduction cannot be considered as an

expropriation.

138. This conclusion is not affected by the applicants' allegation

that they were deprived of a right attached to their property. Every

restriction on property means that some of the rights associated with

the ownership of the object, such as the right to financial benefit,

are reduced to a smaller or greater extent by the legislation. This

does not involve a deprivation of possessions contrary to the

Convention. The other subsidiary rights of ownership such as the right

to sell, bequeath or mortgage the property in question have remained

unaffected.

139. Even if the right to a rent under a tenancy agreement

concluded prior to the 1981 Act were to be considered as a protected

interest under Article 1 of the Protocol, the reduction of the rent is

only a restriction on property. Despite its reduction, the

contractual right subsists; it only loses some of its substance (cf.

Eur. Court H.R., Sporrong and Lönnroth judgment of 23 September 1982,

Series A no. 52, p. 24, para. 63).

140. The right to a fee under private law is protected only to the

extent it was agreed upon by contract or was provided for by law (Eur.

Court H.R., Van der Mussele judgment of 23 November 1983, Series A

no. 70, p. 23, para. 48). If remunerations or fees are determined by

statute, they are protected under Article 1 only up to the amount

provided for under the pertinent legal provision. The Commission held

that a legal reduction of such remunerations does not infringe Article 1

(No. 8410/78, Dec. 13.12.79, D.R. 18 p. 216). While in the present

cases the rent was not limited for certain tenancy contracts when they

were concluded, it was possible, according to the principles stated in

the above cases, to curtail these rents by new legislation.

141. The Government observe that apartment buildings in Austria have

always been of a reduced sales value. It is the pivotal social

concern of providing housing for a particular, financially weak social

stratum which makes such a restriction of ownership rights admissible.

Property is not protected without limits, but it is being protected under

the condition of restrictions for social reasons.

142. The Government contest the applicants' assertion that owners

cannot obtain financial benefits from rented houses coming under the

1981 Act. If he does maintenance and improvement work, the owner can

use for himself without specific accounts 20% of the cost of such

work, these amounts to be taken out of the rents perceived (Section

20, para. 1 sub-para. 2 (b) of the Act). Moreover, he is free after

ten years to dispose of all rent income in so far as he has not used

the rents for maintenance and improvement work. Even within this

ten-year accounting period, the rents including interest are the

owner's property. Only his freedom to dispose of the rent proceeds is

restricted as a result of his obligation under the tenancy contract to

keep the leased premises usable for the agreed purpose (cf. Section

1096 of the Civil Code and Section 3 of the Rent Act). He must use the

rent during this period to maintain or improve the house if at least

one of the tenants requires him to do so under Sections 3 or 4 of the

Act.

143. In connection with the owner's obligation to maintain the

premises, the cost for raising outside capital and reasonable debit

interest on such capital, as well as a reasonable sum for interest

forgone (at capital market rates) where the landlord's own capital is

used, are deemed to be costs of maintenance work (Section 3 para. 3

sub-para. 1 of the Act). The owner thus is not deprived of the

possibility of making profit from his real property nor was the

legislation aimed at abolishing all entrepreneurial income. There is

no reason to speak of unprofitability, of the owner being forced to

abandon his property as being without value or of his having to bear

permanent losses.

144. The Government contest the applicants' assertion that a square

metre rent of AS 25.- per month is necessary to maintain a rented

house. The survey conducted in 1981 by a private interest group

contains components which have nothing to do with maintenance. There

is no reliable calculation of average cost, and it would hardly be

feasible to make such a calculation since each house is in a different

condition depending on its age, the intensity of previous maintenance

work, etc. Where the rent is not sufficient to maintain the house,

the required additional amount may be ordered to be raised even over

the tenant's objections for each house individually under the new

procedure permitting increases of rents (Sections 18 and 19 of the

Act).

145. The Government observe that the value of housing property has

recently increased and even big investors such as banks, insurance

companies etc. continue to acquire such property. The reason is that,

according to the applicable valuation principles (Realschätzordnung),

the value does not only depend on the rent proceeds (Ertragswert) but

also on other factors (Substanzwert). While the reduction of rent for

a flat in an apartment building will have an effect on the capitalised

rent income this effect must be rated insignificant because the

estimated value of the real property never corresponds to the

capitalised rent income alone but is an amount between the capitalised

rent income and the real estate value. Moreover, in the present cases

only one apartment was affected in each of the apartment buildings

concerned.

146. In practice it is possible to encumber half of the value with

mortgages for loans. Although under the system of the Rent Act only

loans for investments in the property can be repaid from the rent

income while loans for other purposes must in principle be repaid from

other sources, it is not justified to speak of an expropriation. The

substance of the property has not been affected.

147. In the Government's view, the 1981 Act therefore only contains

rules on the use of property within the meaning of the second

paragraph of Article 1.

148. This view is supported by the long-standing case-law of the

Constitutional Court (since decision No. 1123/1928) concerning the

rent legislation in Austria. While the Constitutional Court

has not expressed itself on the constitutionality of Sections 16 and

44 of the 1981 Rent Act, the Supreme Court in its decision of 3 July 1984

has dealt with this issue and has held that the legislation

involves no expropriation but only a restriction on property (cf.

paras. 91-97 above). In this decision the Supreme Court relied on the

Commission's decision on Application No. 8003/77 (loc cit.).

149. The Government invoke the Handyside judgment (Eur. Court H.R.

judgment of 7 December 1976, Series A No. 24) where the Court held that

those legal rules concerning the use of property are admissible which

a State considers necessary in accordance with the general interest

and that in this context the Contracting States are to be considered

as the sole judges of the necessity of any such interference.

150. The protection afforded to property in Article 1 is couched in

general terms and admits of more far-reaching restrictions through

national legislation than are admissible, for instance, under the

exceptions stated in Article 8 para. 2 of the Convention. It is

explicitly reserved to States to order restrictions in the general

interest. Article 1 thus places the determination of the substantive

content of the property rights largely in the hand of the national

parliaments.

151. This has been confirmed in the case of James and Others

(Eur. Court H.R., judgment of 21 February 1986, Series A No. 98). The

Government refer in particular to the following statements in paras.

46 and 47 of this judgment:

"Because of their direct knowledge of their society

and its needs, the national authorities are in principle

better placed than the international judge to appreciate

what is in the public interest...

The Court, finding it natural that the margin of appreciation

available to the legislature in implementing social and economic

policies should be a wide one, will respect the legislature's

judgment as to what is in the public interest unless that

judgment be manifestly without reasonable foundation....

Modern societies consider housing of the population to be a

prime social need, the regulation of which cannot entirely be

left to the play of market forces. The margin of appreciation

is wide enough to cover legislation aimed at securing greater

social justice in the sphere of people's homes, even where such

legislation interferes with existing contractual relations

between private parties and confers no direct benefit on the

State or the community at large."

152. The Government submit that the Austrian legislation at issue

in the present cases pursues objectives similar to those of the British

legislation at issue in the James and Others case which the Commission

and Court found to be in conformity with Article 1 of the Protocol.

In this respect they refer in particular to the considerations

concerning the general interest as set out in the Government Bill

proposing the 1981 Rent Act (see the decision on admissibility,

Appendix II, at p. 53).

153. The provisions of the Act minister to a basic need of society,

namely housing. Special protection of tenants is required in

particular because, unlike other groups of consumers, the financial

burden on them is far heavier and thus less fair if they have to pay

an unreasonably high amount of rent month after month for accommodation.

154. In this context special attention must be paid to the social

conditions which prevailed in Austria at the time of the introduction

of the new legislation, and which were characterised by extremely

different rents for the same type of apartments depending on the date

when the tenancy contract was concluded. There was indeed a scarcity

of cheap accommodation in Austria and many tenants had to leave flats

with free rent agreements because they were unable to afford the rent.

155. In order to ensure fair rents, Parliament in Section 16 para. 2

of the Act laid down, stating maximum amounts, what rents may not be

exceeded in new tenancy contracts so as not to overtax the resources

of people looking for an apartment who, in order to get it, might be

prepared to pay amounts which are unreasonably high taking into

account all relevant circumstances.

156. The square metre rents laid down in Section 16 para. 2 of the

Act are based on an average calculation. The starting point for this

calculation is the rent claimable for flats in new buildings

constructed with public subsidies under the Federal Housing Subsidies

Act (Bundes-Wohnbauförderungsgesetz) 1968 and the Non-Profit Housing

Act (Wohnungsgemeinnützigkeitsgesetz) 1979. This legislation contains

detailed regulations on rents which are based on the principle that

they may not exceed the costs incurred by the owner.

157. In 1981 the average rent under this legislation was AS 29.37

per square metre and 80% of this has been taken as the basis for the

class A rent under the 1981 Rent Act, the deduction of 20% being

justified by the fact that the flats covered by this Act are not new

and that the construction costs have generally been paid off. A

deduction of 25% has been made for each further class in view of its

lower standard. In this way account has been taken of the differences

existing between various types of flats. There is an objective

justification for fixing a lower maximum price for objects of a lower

quality than for objects of a higher quality.

158. It is true that no differentiation has been made in the system

of regular square metre rents according to the situation of each

building. The conditions in each case differ substantially both as

regards the state of maintenance and the maintenance costs. However,

it is indispensable for a rent control legislation to introduce lump

sums for the admissible amounts of rent. An individual consideration

of each case would compromise the implementation of such a regulation.

If, however, the rent fixed for class C and D apartments should not

suffice to cover the maintenance costs, the owner may ask for an

increased rent under Section 18.

159. As regards the various exceptions from the system of

square metre rents which are laid down in Section 16 para. 1 of

the Act, the Government submit that they concern very particular

exceptional situations where it is justified to attach far more

importance to economic considerations than in tenancy agreements

covered by Section 16 para. 2 where the emphasis is placed on social

circumstances. The priority of these economic considerations is

justified where the building does not primarily serve residential

purposes (Section 16 para. 1 sub-para. 1); where account must be taken

of the imperative necessity of amortisation of the capital invested

for the construction of new buildings (sub-para. 2; the deadline

applied in this respect - i.e. the distinction between buildings

constructed before and after 1945 - is justified because in the case

of the former no amortisation costs accrue any longer); where high

expenditure arises because of the public interest to preserve historic

buildings (sub-para. 3); where larger and higher rated apartments are

at issue which normally are occupied by people who need no special

social protection (sub-para. 4); where improvements are carried out by

the landlord which cannot be financed from increased rents according

to Section 18 and which serve the public interest in the modernisation

of apartment buildings (sub-paras. 5 and 6); and finally where a tenancy

contract has existed for more than 6 months and the tenant accordingly

is no longer compelled to look for shelter (sub-para. 7, which may in

particular be used to finance lesser maintenance and improvement work

by avoiding high interest loans).

160. The 1981 Act also provides for an intervention in rental

agreements concluded prior to the entry into force of the Act by

reduction of the rent at the tenant's request to 150% of the rents

listed in Section 16 para. 2 of the Act. Had no rule been introduced

in addition to Section 16 para. 2 to cover "old" tenancy contracts in

force on 1 January 1982, there would have been unjustifiable

discrimination between old tenants and new tenants. Tenants who signed

a contract before this date deserve the same protection in social

policy terms, being in the same situation where they had to pay any

price they could just barely afford, simply to get the apartment.

161. The interference with property complained of is reasonable and

does not transgress the margin of appreciation conceded to national

parliaments by Article 1. The Government refer to the Sporrong and

Lönnroth case (Eur. Court H.R., judgment of 23 September 1982, Series A

no. 52) according to which a reasonable balance must be struck

between the protection of the community's general interest and the

respect for property enjoined by Article 1.

162. In the Government's view paras. 2 and 3 of Section 44 of the

Act pursue a legitimate objective of social policy, namely the

protection of tenants' interests in a situation where reasonably

priced accommodation is scarce. There is no contradiction with the

public interest because, by ensuring fair prices and by conserving

houses worthy of preservation, an important service is rendered to

the general interest and it would be onesided to speak of unilateral

benefits to the tenant.

163. One of the aims of Section 44 paras. 2 and 3 of the Act is to

adapt old tenancy contracts to the whole system of reformed rental law

and to minimise the hiatus between the former and the new system.

Suitable machinery is introduced for making this adjustment. It is

conceded to the owner that he will get 50% more rent than he would if

the tenant terminated the tenancy and the apartment would thus

have to be re-let. On the other hand, the tenant is protected

from having to pay an excessive rent if he is not willing or able to

terminate the contract and rent an apartment elsewhere. In adopting

these transitional provisions, Parliament had in mind the provision of

Section 934 of the Civil Code (laesio enormis), a provision which was

on the statute books at the time when the tenancy contracts were

signed, and this is why Parliament allowed a reduction to one and a

half times the reasonable rent newly fixed in Section 16 para. 2 of

the Act.

164. This measure must be considered within the overall framework

of the reform rather than in isolation. The possibility for the

tenant to ask for a reduction under Section 44, which puts a burden on

the owner, is accompanied by a number of provisions easing the

previous stringent tie on the amount of rent claimable under old

contracts whose amount had remained unchanged since 1951. Thus there

is a possibility to charge a higher rent than hitherto in the case of

the succession of a new tenant (Section 46, para. 2). Further, the Act

introduces a new possibility for the owner to charge maintenance

contributions even against the tenant's will in addition to the rent,

where the previous rent is so low that it does not reach two thirds of

the amounts laid down in Section 16 para. 2 (Section 45).

165. Thus, Section 44 is only one of the measures introduced to

adjust tenancy contracts concluded prior to 1 January 1982 to the

overall system of the new Act. This Act is designed to bring rents

negotiated at different times closer together in the general interest,

taking into account the social policy objectives pursued. The rents

were changed in two directions at the same time, up as well as down.

166. The fact that the reduction depends on the tenant's decision

to make an application under Section 44 is explained by the private

law nature of the rent agreements. In private law relationships there

is generally no public interference ex officio. The fact that the

decision is left to the tenant also tends to limit the

interferences with existing rent agreements to cases where the

reduction is really justified. The legislation also provides that after

six months of tenancy a higher rent may be agreed, and tenants are

often prepared to accept a higher rent e.g. in view of necessary

maintenance and repair work because, in this way, they can avoid a

costly procedure under Section 18 of the Act to increase the rent by a

judicial decision.

167. The Government finally submit that the restrictions complained

of are such as not to call for compensation. In this respect the

Government rely in particular on Applications Nos. 9006/80 etc,

Lithgow and Others v. the United Kingdom, Comm. Rep. 7.3.84, claiming

that there existed specific grounds based on legitimate considerations

of public interest to exclude the grant of compensation.

168. In all circumstances, it cannot be said in the Government's

view that the principle of proportionality has been disregarded. There

was no substantial disproportion between the burden placed on the

individual and the public interest pursued by the legislation, namely

to adjust the rents to the aims of social policy and remove excessive

disparities between the rents claimed for equivalent apartments.

2. Article 14 of the Convention

169. The Government state that there is no difference of treatment

as between public and private house-owners. The 1981 Rent Act applies

to all house-owners alike, including public corporations such as the

Federation, the Provinces and the municipalities who in this sphere

act iure gestionis and are thus subject to exactly the same legal

treatment as private parties.

170. Nor does the Act delimit the scope of applicability of the

rent restrictions so as to cover mainly private house-owners while

public house-owners would normally not be struck by such restrictions.

The housing property of public corporations is usually organised in

the form of non-profit making housing associations which are exempted

from the provisions of the Rent Act but instead come within the scope

of the different rent restrictions of the Non-Profit Housing Act. Any

difference which may exist between the two systems of rent control is

justified by objective and reasonable considerations.

171. As regards the various exceptions from rent control laid down

in the Rent Act, the Government claim that they are in each case

justified by special circumstances (cf. para. 159 above).

IV. OPINION OF THE COMMISSION

A. Points at issue

172. The following points are at issue:

a) Whether the effects of the 1981 Rent Act on the applicants

amounted to a violation of their right to the peaceful enjoyment of

their possessions as guaranteed by Article 1 of Protocol No. 1

(Art. P1-1) to the Convention;

b) Whether the applicants in the second case were discriminated against,

contrary to Article 14 (Art. 14) of the Convention, in the enjoyment of their

property rights as guaranteed by Article 1 of Protocol No. 1.

B. Article 1 of Protocol No. 1 (Art. P1-1)

1. Nature and scope of the interference with the

applicants' property rights

173. Article 1 of Protocol No. 1 (Art. P1-1) reads as follows:

"Every natural or legal person is entitled to the peaceful

enjoyment of his possessions. No one shall be deprived of

his possessions except in the public interest and subject

to the conditions provided for by law and by the general

principles of international law.

The preceding provisions shall not, however, in any way

impair the right of a State to enforce such laws as it deems

necessary to control the use of property in accordance with

the general interest or to secure the payment of taxes or

other contributions or penalties."

174. The 1981 Rent Act interfered with rent agreements which the

applicants had validly concluded with their tenants on the basis of the

earlier legislation. After the entry into force of the 1981 Act the

monthly rent was compulsorily reduced by the competent courts to the

amounts of rent permissible under this Act.

175. As in the James and Others case (Eur. Court H.R. judgment of

21 February 1986, Series A no. 98, p. 9 et seq), the essence of the

applicants' complaint is directed against the terms and conditions of

the contested legislation. It does not relate to the manner of

execution of the law by a State authority, be it administrative or

judicial. Indeed, one of the applicants' criticisms was that the

legislation does not allow scope for discretionary and variable

implementation according to the particular circumstances of each

individual property. The Commission must therefore direct its

attention primarily to the contested legislation itself, in order to

determine whether that legislation is compatible with Article 1 of

Protocol No. 1 (Art. P1-1). This does not mean that it will examine the

legislation in abstracto. The individual cases of rent reduction

complained of illustrate the impact in practice of the reform it

introduced and are, as such, material to the issue of its

compatibility with the Convention. In this respect, the consequences

of the application of the legislation in the three present cases are

to be taken into account. The Commission thus will adopt the same

approach as the Court in the above case (cf. paras. 35-36 of the

above-mentioned judgment).

176. The applicants allege that the reduction of the rents

amounted to a legal expropriation of their contractual rights

under the tenancy agreements which they had concluded with their

tenants and which they consider to be property rights within the meaning of

Article 1 of Protocol No. 1 (Art. P1-1). They further allege that this

reduction constituted a de facto expropriation of their real property, the

value of which was considerably depreciated by the measures in question. They

submit that they were thus deprived of their possessions and that the measures

complained of must accordingly be examined under the second sentence of the

first paragraph of Article 1.

177. The Government contend that the reduction of the rents merely

involved a control of the use of the applicants' real property in

accordance with the general interest, which must be considered under

the second paragraph of Article 1.

178. The Commission recalls that Article 1 comprises three

distinct rules. The first rule, which is of a general nature,

announces the principle of peaceful enjoyment of property; it is set

out in the first sentence of the first paragraph. The second rule

covers deprivation of possessions and subjects it to certain

conditions; it appears in the second sentence of the same paragraph.

The third rule recognises that the High Contracting Parties are

entitled, amongst other things, to control the use of property in

accordance with the general interest, by enforcing such laws as they

deem necessary for the purpose; it is contained in the second

paragraph (cf. Eur. Court H.R., Sporrong and Lönnroth judgment of 23

September 1982, Series A no. 52, p. 24, para. 61; James and Others

judgment of 21 February 1986, Series A no. 98, p. 29, para. 37).

179. The three rules are not, however, "distinct" in the sense

of being unconnected. The second and third rules are concerned with

particular instances of interference with the right to peaceful

enjoyment of property and should therefore be construed in the light

of the general principle enunciated in the first rule (James and

Others judgment, ibidem, p. 30, para. 37).

180. In the present case the Commission is first called upon to

determine whether the measures complained of come under the

deprivation rule in the second sentence of the first paragraph, or

under the control rule in the second paragraph. The Commission has

previously regarded rent restrictions as measures to control the use

of property within the meaning of the second paragraph of Article 1

(cf. No. 673/59, Dec. 28.7.61, Yearbook 4 pp. 286, 294 and, in

particular, No. 8003/77, Dec. 3.10.79, D.R. 17 p. 80). The latter

decision, invoked by the Government, concerned the previous rent

control legislation of Austria. There the Commission found "no

expropriation" and did not consider that the contested legislation

interfered with the applicant's title to the real property concerned,

or with the substance of that property. It concluded that "the

legislation cannot be considered as amounting to a deprivation of

possessions" (loc. cit. p. 83).

181. However, unlike the present cases, that case concerned rent

restrictions which had existed for a long time and which were

accompanied by a number of further restrictions on the landlord's

freedom to dispose of his property let to tenants such as, in

particular, restrictions on his right to give notice. Restrictions of

the latter type continue to apply under the 1981 rent legislation

which, in addition, introduced a right of the tenants to demand a

reduction of the rent claimable by the landlord in respect of existing

tenancy contracts. The applicants' tenants made use of this

possibility and obtained in each case a considerable reduction of the

rent previously agreed. The applicants claim that this involved a

retroactive legal expropriation of their contractual rights under the

rent agreements concluded by them before the entry into force of the

1981 Act.

182. The Commission notes, however, that the Act did not directly

affect the rents agreed upon, but that its application depended on a

request by the tenants to the competent authorities. These authorities

could declare the agreements partially void only as from the month

following the tenants' request. Thus it cannot be said that the

applicants were retrocatively deprived of rent proceeds which had

lawfully and finally accrued to them. They were only deprived of part

of their future rents.

183. The applicants claim that their contractual right to perceive

the monthly rent agreed upon as long as the rent agreements remain in

force is a separate property protected by Article 1 of Protocol No. 1

(Art. P1-1). The Government submit that the contractual right to a

certain amount of rent cannot be regarded as a separate property, but

only as a partial right derived from the ownership in the real

property.

184. The Commission recalls its case-law according to which

certain contractual rights of economic value may be assimilated

to property rights within the meaning of Article 1 of Protocol No. 1

(Art. P1-1) (cf. No. 8387/78, Dec. 4.3.80, D.R. 19 pp. 233, 237; cf. also

mutatis mutandis No. 5849/72, Müller v. Austria, Comm. Report 1.10.75,

D.R. 3 pp. 25, 31 concerning contractual rights acquired in connection

with a public social security scheme). However, different

considerations must apply to contractual rights such as those at issue

in the present cases, where the holder of the right is also the owner

of the real property concerned.

185. Here the ownership involves various possibilities to use the

real property. According to the particular use made, certain

rights flowing from the ownership come into existence. If each of

these rights were to be considered as a separate property susceptible

of deprivation of possessions within the meaning of the first

paragraph of Article 1 no room would remain for regulations to control

the use of real property under the second paragraph. The Commission

considers the right to use the property by concluding tenancy

contracts in relation to it as an aspect of the possession of the real

property at issue. This interpretation follows the structure of

Article 1 which distinguishes between property and its use.

186. The applicants' contractual rights to rent are therefore not a

separate property and cannot be considered in isolation. The measures

complained of must be examined as to their effect on the real

property.

187. The applicants claim that these measures amounted to a de

facto expropriation of their real property, the value of which was

considerably depreciated by the reduction of their rents.

188. The Commission notes that there has been no formal

expropriation of the applicants' real property. The owners have kept

the title of the property and the right to sell, devise, donate or

mortgage it, as well as the right to use it subject to the applicable

legal restrictions. Insofar as such restrictions existed prior to the

1981 Act and were, in substance, maintained by this Act, a question of

deprivation of possessions cannot arise.

189. With regard to new restrictions introduced by the above Act,

the Commission recalls that, according to the case-law, one must "look

behind the appearances and investigate the realities of the situation

complained of"; the Convention guarantees must be real, concrete and

effective (cf. Sporrong and Lönnroth judgment, loc. cit., p. 24,

para. 63; Lithgow and Others v. the United Kingdom, Comm. Report

7.3.84, para. 352).

190. On this basis the Court recognised in the Sporrong and

Lönnroth judgment (loc. cit.) that apart from formal expropriations

the second sentence of the first paragraph of Article 1 might also

extend to de facto expropriations which "can be assimilated to a

deprivation of possessions". This case-law has been confirmed in the

Erkner and Hofauer and Poiss cases (Eur. Court H.R., Erkner and

Hofauer judgment of 23 April 1987, Series A no. 117, p. 65, para. 74;

Poiss judgment of 23 April 1987, Series A no. 117, p. 108, para. 64).

The concept of "deprivation" within the meaning of Article 1 first

paragraph second sentence thus covers not only formal expropriations,

but also de facto expropriations, i.e. measures which can be

assimilated to a deprivation of possessions (cf. Sporrong and Lönnroth

judgment, loc. cit.) or which interfere with the substance of property

to such a degree as to amount to an expropriation (cf. No. 8003/77,

Dec. 3.10.79, loc. cit.).

191. On the other hand, certain measures leading to a loss of

property may nevertheless be regarded as a "control of use", or at

least as being so intimately tied to a "control of use" that they

continue to be covered by the second paragraph of Article 1 (cf. Eur.

Court H.R., Agosi judgment of 24 October 1986, Series A no. 108, p. 17,

para. 51; Handyside judgment of 7 December 1976, Series A no. 24, p.30,

para. 63).

192. The question in the present cases is whether the reduction of

the applicants' contractual rents was merely a constituent element of

the control of the use of their property, or whether it amounted to a

de facto expropriation.

193. The aim of the legislation clearly was to develop the control

of the use of real property let to tenants. The existing restrictions

involved limitations of the right to give notice to tenants (Section 30

of the Act) and the continued freezing of rent at a very low level

in respect of tenancy agreements concluded before 1968 (Section 43

para. 2). However, under the new legislation the latter tenancy

agreements could be modified, at the request of the landlord, by

obliging the tenants to pay maintenance contributions (Section 45).

The right of the landlord to ask for increased rent in order to cover

necessary repair work was also maintained in a modified form (cf.

Section 18 of the 1981 Act as compared to Section 7 of the 1922 Act).

194. The new restrictions included, in particular, the application

of square metre rents in respect of any future tenancy contracts

(Section 16 para. 2) and the possibility for the tenants of apartments

leased between 1968 and 1981 to ask for a reduction of the rent to

150% of these square metre rents (Section 44 paras. 2 and 3).

195. The applicants complain of measures of rent reduction taken

against them under Section 44 at the request of certain tenants, and

of the risk that other apartments may also be subjected to such

measures. They complain of Section 16 para. 2 only insofar as its

application would entail a further reduction of the rent in respect of

any apartments which might become vacant in future after the tenants

concerned had obtained a reduction of their rent under Section 44.

196. The Commission accepts that the introduction of new rent

restrictions both as regards existing and future contracts affects the

value of the real property concerned. However, it is not possible to

consider this effect in isolation, e.g. on the basis of a

capitalisation of the losses brought about by a tenant's request for

rent reduction under Section 44 as suggested by the applicants. The

legislation reformed the rent law as a whole and its depreciating

effect was, to some degree, counterbalanced by a revalorising effect

linked to the better possibilities for the landlord to make

investments for the maintenance and improvement of his real property

and to secure the financial participation of the tenants in such

measures. This effect cannot be left aside when assessing the

simultaneous depreciation brought about by the introduction of the new

system of square metre rents.

197. The Commission also notes that the impact of rent restrictions

for new contracts was delayed by the simultaneous operation of the

provisions protecting existing tenancy contracts, and the reduction of

rent in respect of existing contracts did not automatically affect all

free rent agreements concluded between 1968 and 1981, but only those

where the tenant requested a reduction. In practice this seems to

have been a rather limited number. Even if other tenants of the

applicants might make such requests in the future, it is not

economically justified to evaluate losses in the value of property

caused by an individual request for rent reduction on the basis of the

total number of apartments for which a rent reduction could be

requested.

198. The Commission therefore finds that the enactment of Section

44 of the Rent Act 1981 and its subsequent application to the

applicants, while affecting their real property and in particular the

possibilities of use which are commonly associated with ownership, did

not deprive them of the substance of their real property. Although a

considerable economic burden was imposed on them by the new measures

they also could take certain measures with a view to the

revalorisation of their property.

199. Thus, although the right to rent must be regarded as an

inherent element of real property, it cannot in the Commission's view

be said that the measures complained of amounted to a de facto

expropriation of the applicants' real property, and thus to a

"deprivation of possessions" within the meaning of the first

paragraph of Article 1 of Protocol No. 1 (Art. P1-1). It follows that these

measures must be considered as a control of the use of property which

comes within the scope of the second paragraph of Article 1.

2. Justification of the interference with the applicants'

property rights

200. The applicants claim in essence that the measures taken

against them were unjustified because they were not in the public

interest and because they were disproportionate.

201. The Government argue that the second paragraph of Article 1

"sets the Contracting States up as sole judges of the 'necessity' for

an interference" so that the task of the Convention organs is

restricted "to supervising the lawfulness and the purpose of the

restriction in question" (Eur. Court H.R., Handyside judgment of

7 December 1976, Series A no. 24, p. 29, para. 62).

202. The Commission observes that the relevant case-law has been

further developed since the above judgment. In the light of the

principles established it must examine in the present cases whether

the reduction of the rents was "lawful", whether it pursued a purpose

of "general interest" which was not manifestly without foundation, and

whether it was proportionate and therefore could be "deemed

necessary".

203. Article 1 para. 2 (Art. 1-2) recognises the right of the State "to

enforce such laws" as it deems necessary to control the use of

property in accordance with the general interest. Therefore only

measures which have a sufficient basis in the domestic legal system

are covered by this provision. The Court in the Handyside case has

identified the task of the Convention organs in this respect as

"supervising the lawfulness ... of the restriction in question"

(Handyside judgment, loc. cit.).

204. The Commission finds that the reduction of the rent was

"lawful". It was based on clear provisions in Section 44 of the 1981

Rent Act which left no discretion to the competent authorities.

Moreover, the reduction was found to respect Austrian constitutional

law and therefore must be regarded as lawful also in this respect.

Although the Constitutional Court was not seized with the matter, the

question of constitutionality was examined by the competent civil

courts including the Supreme Court, which had no doubts concerning the

constitutionality and lawfulness of this measure (cf., mutatis

mutandis, No. 7360/76, Zand v. Austria, Comm. Report 12.10.78, D.R. 15

p. 80, paras. 71 - 72).

205. The criterion of "general interest" in the second paragraph

of Article 1 is less strict. It is left to the national legislator to

determine the aims which it deems to be in the "general interest".

The national authorities accordingly enjoy a wide margin of

appreciation.

206. However, this does not mean that the international supervision

is excluded. The Convention organs will respect the legislature's

judgment as to what is "in accordance with the general interest"

unless that judgment be manifestly without reasonable foundation.

Although they cannot substitute their own assessment for that of the

national authorities, they are bound to review the contested measures

under Article 1 and, in so doing, make an inquiry into the facts with

reference to which the national authorities acted (cf. mutatis

mutandis James and Others judgment, loc. cit., p. 32, para. 46).

207. The Government claim that the 1981 legislation pursued a

legitimate aim of social policy, i.e. the protection of tenants'

interests in a situation of scarcity of cheap accommodation by an

overall reform of the rental law designed to bring rents negotiated at

different times closer together. The margin of appreciation allows in

their view to interfere with existing contractual relations between

private parties. The applicants see no public interest which could justify

the measures taken against them. They claim that the public interest

to preserve property of private house-owners at economically

reasonable conditions was disregarded.

208. The Commission notes that the earlier system had operated in

an unsatisfactory manner. It accepts that a situation of a sharply

divided housing market with a tendency to leave certain apartments

unoccupied could be regarded as socially unjustified. It therefore

was legitimate for the legislature, having regard to its wide margin

of appreciation, to adopt measures for restructuring the whole market

and harmonising the level of rent under tenancy contracts concluded at

different dates. In view of the importance of housing as a basic

social need it was also legitimate to seek to curb excesses of the

free play of market forces and aim at a general moderation of the

level of housing rents. At the same time it was legitimate to control

the practice of leaving apartments unoccupied and to promote the

standard of housing by maintenance and improvement measures.

209. In the application of the test of necessity under Article 1

regard must be had to the principle of respect for peaceful enjoyment

of possessions which is enunciated in the opening sentence of Article 1.

For this reason the Commission must also examine "whether a reasonable

relationship of proportionality [existed] between the means employed

and the aim sought to be realised", or in other words, "whether a fair

balance [was] struck between the demands of the general interest in

this respect and the interest of the individual or individuals

concerned" (Eur. Court H.R., Agosi judgment, loc. cit., p. 18,

para. 52; and mutatis mutandis, Sporrong and Lönnroth judgment, loc.

cit., p. 26, para. 69; James and Others judgment, loc. cit., p. 34,

para. 52; cf. also the Commission's approach in Applications

No. 7287/75, Dec. 3.3.78, D.R. 13 p. 30, and No. 8003/77, Dec.

3.10.79, D.R. 17 p. 80).

210. The Commission here notes that the methods chosen by the

Austrian legislature to achieve the above legitimate aims involved the

extension of rent controls. Fixed maximum rents were introduced for

further categories of apartments in pre-World War II houses and

applied not only to new contracts but, in a modified form, also to

existing tenancy contracts. However, the landlords could avoid the

fixed maximum rents for new contracts if they were ready to undertake

improvement measures. New incentives for improvement measures were

also created in respect of existing contracts.

211. The Commission notes that the proportionality of these

measures was disputed both in Parliament and in the general public

debate, mainly because of the introduction of the system of fixed

maximum rents and its application also to existing tenancy contracts.

However, it is inherent in the democratic process that different

political views on social justice prevail in various sectors of the

population and will be reflected in the law-making process. It is

understandable that the conflict of opinions will be the more

accentuated when an important piece of socio-economic legislation is

at issue which affects the interests of large groups. It nevertheless

remains the legitimate task of the competent legislative body to

determine the measures which it considers to be necessary in the

general interest (cf., mutatis mutandis, James and Others judgment,

loc. cit., p. 33 et seq., paras. 47 - 49).

212. In this context it was not unreasonable that the legislature

decided to restrict the free market because it considered that the

results had been unsatisfactory and socially unjustified. While the

right to the peaceful enjoyment of possessions includes the

possibility to use real property for purposes of financial investment

and individual security, the owner has no right to the existence of a

free market for the commercial use of his property. The introduction

of price controls, which here took the form of maximum square metre

rents, is a classical instrument of market regulation which cannot as

such be regarded as incompatible with the second paragraph of Article

1 of Protocol No. 1 (Art. P1-1). Likewise it is not excluded by this

provision that the legislator interferes with existing contracts

between private parties with a view to extending the price controls to

long-term financial obligations.

213. The Commission considers, however, that the interference with

the use of property requires a special justification where it concerns

contracts freely entered into. Because of the weight to be given to

acquired contractual rights of the landlords when striking the balance

with conflicting general interests, an interference with these

contracts can be considered as legitimate only if a clear need for the

protection of tenants calls for a modification of the contracts in

question. Furthermore, a test of necessity must also be applied as

regards the scope of interference with the landlords' contractual

rights.

214. The Government do not contend that the rents agreed in the

present cases between the applicant landlords and their respective

tenants were exaggerated. It thus appears that in each case the

amount of rent corresponded to the prevailing market conditions,

without the landlords having profited from a special situation in the

market for increasing the rent. However, the fact that the rent

corresponded to the market conditions does not mean that the

legislator could not legitimately consider this level as being

generally too high and socially unjustifiable. Furthermore, the

particular concern of harmonising the level of rent under agreements

contracted at different dates could also justify an interference with

existing tenancy contracts. The Commission therefore accepts that

there were special grounds of sufficient importance to warrant an

interference with existing contracts.

215. The applicants submit that the interference was

disproportionate from both the economic and the social point of view.

The regular rents are extremely low and do not even cover the normal

maintenance costs. They further allege that the rents have been

reduced far below the financial capacities of tenants.

216. The Government submit that the square metre rents laid

down in Section 16 para. 2 of the Act for class A apartments

correspond to 80% of the rent claimable for flats in new buildings

constructed with public subsidies which may not exceed the costs

incurred by the owner. The deduction of 20% is justified by

the fact that construction costs have generally been paid off as regards

apartments covered by this provision. A deduction of 25% has been

made for each further class in view of its lower standard. Where the

rent proceeds calculated on this basis are not sufficient to cover the

owner's costs he may ask for an increased rent under Section 18 of the

Rent Act. In the Government's view there is no substantial

disproportion between the burden placed on the individual and the

public interest pursued by the legislation, namely to adjust the rents

to the aims of social policy and remove excessive disparities between

rents claimed for equivalent apartments.

217. The Commission finds that the Government have not sufficiently

explained the 25% abatement in respect of each further class of

apartments in relation to class A where the rent for new contracts is

calculated in a manner which should normally allow the owner to cover

his costs. It has not been shown that the owner's costs for the

maintenance of class B apartments are 25%, those for class C

apartments 50% and those for class D apartments 75% lower. The

regular rents for the lower classes of apartments may therefore

involve an element of penalisation of the landlord who does not invest

in his property. It cannot be overlooked in this context that

investments are made difficult by the legislation, given the

far-reaching obligations placed on the landlord who decides himself

or who is compelled by his tenants to carry out maintenance and

improvement measures. The Commission further notes that the level of

regular rent may be far below the portion of income which the average

tenant is expected to pay for accommodation purposes even under the

Austrian legislation concerning rent subsidies.

218. The effect is somewhat mitigated in the case of rent reduction

under Section 44 because the rents applicable here are 50% higher than

under Section 16 para. 2. This means that coverage of average costs

will, as a rule, be achieved in respect of class B apartments.

However, the further 25% abatements for classes C and D again have

not been sufficiently explained.

219. The reduction of rent is accumulated with far-reaching

restrictions on the landlord's right to give notice to his tenants.

While the latter restrictions existed already prior to the 1981 Act by

which they were maintained, they have acquired a new quality by the

combination with the reduction of rents. Even if the landlord could

give notice to a tenant who has requested a reduction of his rent, any

new contract would now be based on the even lower level of rent under

Section 16 para. 2.

220. The Commission recalls that the situation in the present cases

is as follows (cf. paras. 22-53 above):

221. As regards Application No. 10522/83, the freely agreed rent

for the category D apartment in question was reduced from AS 1,870.- to

AS 330.-, i.e. to 17.6 % of the original amount. If the apartment in

question became vacant it could be let for only AS 220.-, i.e. 11.7 %

of the earlier rent. The applicants in this case had acquired the

property from the compensation for another real property which had

been expropriated and several other apartments may also be subjected

to a measure of rent reduction.

222. In Application No. 11011/84 the monthly rent for a class D

apartment was reduced from about AS 2,800.- to AS 561.-, i.e. 20 % of

the original rent. In the case of a termination of the actual tenancy

contract a new lease could be effected only on the basis of about

AS 365.-, i.e. 13.3 % of the original rent. Again there are several

other contracts in respect of which a reduction of rent could be

requested.

223. The Commission finds that in these two cases the reduction

of rent brought about by decisions under Section 44 of the 1981 Rent

Act was not proportionate, but excessive even having regard to the

State's margin of appreciation in the area of rent control

legislation. It has not been shown that in these cases the reduced

rent was sufficient to cover the applicants' necessary maintenance

costs, nor that an average tenant could afford no more than the

reduced rent. The reduction of rent in these cases is therefore not

justified under the second paragraph of Article 1 of Protocol No. 1

(Art. P1-1).

224. Finally, as regards Application No. 11070/84, the rent for a

class C apartment was reduced from AS 4,236.51 to AS 3,300.-, i.e.

77.9 % of the original rent. In the case of re-letting the rent

chargeable would be AS 2,200.-, i.e. 51.9 % of the original rent.

Again there exist several other tenancy agreements in respect of which

a reduction of rent could be requested.

225. However, the Commission considers that in this case the

reduction of rent by about 20 % can still be considered as

proportionate having regard to the State's margin of appreciation.

It has not been shown that the reduced rent no longer allowed the

applicants to finance the necessary maintenance costs. Although the

particular tenant could perhaps afford the higher rent originally

agreed, the rent was not reduced below the sum which an average tenant

could reasonably be expected to pay in the circumstances. The

Commission therefore accepts that the reduction of rent in this case

is justified under the second paragraph of Article 1 of Protocol No. 1

(Art. P1-1).

Conclusions

226. The Commission concludes unanimously that there has been a

violation of Article 1 of Protocol No. 1 (Art. P1-1) to the Convention in

Applications No. 10522/83 and No. 11011/84.

227. The Commission concludes by ten votes to one that there has

been no violation of Article 1 of Protocol No. 1 (Art. P1-1) to the

Convention in Application No. 11070/84.

C. Article 14 (Art. 14) of the Convention

228. The applicants in the second case (No. 11011/84) allege that

they were discriminated against, contrary to Article 14 (Art. 14) of the

Convention, in the enjoyment of their property rights as guaranteed by

Article 1 of Protocol No. 1 (Art. P1-1), in that they were treated

differently from other categories of landlords.

229. However, having found a violation of Article 1 of Protocol No.

1 (Art. P1-1), the Commission finds no further issue under Article 14 (Art. 14)

of the Convention in this case.

Conclusion

230. The Commission concludes unanimously that no separate issue

arises under Article 14 (Art. 14) of the Convention in Application No.

11011/84.

D. Recapitulation

231. The Commission concludes

- unanimously that there has been a violation of Article 1 of

Protocol No. 1 (Art. P1-1-) to the Convention in Applications No.

10522/83 and No. 11011/84 (cf. para. 226 above);

- by ten votes to one that there has been no violation

of Article 1 of Protocol No. 1 (Art. P1-1) to the Convention in Application

No. 11070/84 (cf. para. 227 above);

- unanimously that no separate issue arises under Article 14

(Art. 14) of the Convention in Application No. 11011/84 (cf. para. 230 above).

Secretary to the Commission Acting President of the Commission

(H. C. KRÜGER) (S. TRECHSEL)

Partly Dissenting Opinion of Mr. H.G. Schermers

1. In my contribution to the Liber Amicorum for Judge Wiarda

I expressed some reservations as to the scope of the right of property

as a fundamental human right. In many cases one may doubt whether the

rights of an owner should prevail over those of a tenant. But the

first Protocol to the Convention contains the right to the peaceful

enjoyment of one's possessions and it belongs to the task of the

Commission to see to it that the Article is properly respected.

2. The first paragraph of Article 1 prohibits in principle the

deprivation of possessions, which means the taking of property. A

difficult but fundamental question is to what extent a taking of part

of the value of property should be considered as deprivation of

property and therefore be permitted only if the rather severe

requirements of the first paragraph are met.

The second paragraph of Article 1 entitles the State to

control the use of property. Almost any restriction on the use of

property will diminish its value. The sheer existence of the second

paragraph therefore suggests that the first paragraph does not

prohibit all measures diminishing the value of property. To some

extent value of property may be taken away when the less severe

conditions of the second paragraph are fulfilled.

3. A deprivation of property under the first paragraph and a

control of the use of property under the second paragraph cannot be

sharply distinguished. A temporary prohibition to use or sell a house

for two weeks may seem a rather harmless restriction. A temporary

prohibition to use or sell the first strawberry or the first herring

of the year will mean an almost total taking away of its value.

Similarly, an admission ticket to the World Cup football finals

may be worth much before the match, but afterwards it only has some

souvenir value.

4. As it is impossible to distinguish clearly deprivation of

property from restrictions on the use of property we should rather

look at Article 1 as a whole. The Article then prohibits the

restriction of property rights unless the restriction is in the

general (public) interest. That is the basic rule which applies to

all Government measures which lead to a diminution in the value of

property. In addition to this basic rule the more severe requirements

of the first paragraph (the conditions provided by law and by the

general principles of international law) should also be met when there

is an actual taking away of property. The question of compensation,

so important for the application of the first paragraph, does not rise

in the present case. In my opinion there can be no question of the

Government compensating the owners for the reduction of the rent.

5. Here, the restriction is clearly provided for by law, and the

general principles of international law do not pose any particular

problems. The question of whether the first or second paragraph of

Article 1 applies is thus not relevant to the issue of whether the

measures were justified as the extra conditions are, in any event,

met. The only requirement that should in addition be fulfilled is

that the restriction should be in the general (public) interest.

6. I find it difficult to accept that this general (public)

interest was insufficient for justifying the law of 1981 in two of the

three cases, but sufficient in the third. If the general (public)

interest really requires these kinds of measures, then the limitation

of property must be acceptable in all three cases.

But I do not think that the general (public) interest requires

so general a measure. It may well be that some house-owners abused

the housing shortage by claiming an unreasonably high rent, but there

may also be cases where the rent agreed between the parties is

reasonable. The fact that many tenants have not used their right to

lower the rent demonstrates that, even those for whose benefit the

rules are made do not all consider these rules necessary. A

possibility to challenge excessive rents would probably have been

sufficient for the protection of the general (public) interest.

It should also be taken into account that the law

of 1981 does not affect the value of property in a more or less

indirect way, but that it directly takes away income from the

applicants without any evaluation of their individual cases. Once the

law has accepted freely negotiated prices, it seems contrary to

Article 1 to take away the agreed income without any review of

individual cases.

I consider the system as applied in Austria is contrary to

Article 1 of the first Protocol, irrespective of the question whether

the actual decrease of the agreed rent is 82.4% (potentially 88.3%)

(Application No. 10522/83), 80% (potentially 86.7%) (Application

No. 11011/84) or 22.1% (potentially 48.1%) (Application No. 11070/84).

I therefore have voted for a violation of Article 1 of the first

Protocol also in the third case.

APPENDIX

I

HISTORY OF PROCEEDINGS

Date Item

______________________________________________________________________

5 August 1983 Introduction of

Application No. 10522/83

12 August 1983 Registration of

Application No. 10522/83

22 May 1984 Introduction of

Application No. 11011/84

19 June 1984 Registration of

Application No. 11011/84

4 July 1984 Introduction of

Application No. 11070/84

6 August 1984 Registration of

Application No. 11070/84

Examination of Admissibility

14 May 1984 Commission's deliberations on

Application No. 10522/83

4 December 1984 Commission's decision to

invite the Government to

submit observations on the

three applications

4 March 1985 Government's observations on

Application No. 10522/83

19 March 1985 Government's observations on

Applications Nos. 11011/84 and

11070/84

11 April 1985 Applicants' observations on

Application No. 10522/83

9 May 1985 Applicants' observations on

Applications Nos. 11011/84

and 11070/84

8 July 1985 Commission's

decision to join the cases

and to hold an oral hearing

14 November 1985 Hearing fixed for 6 March 1986

5 December 1985 Government request

postponement

23 December 1985 Hearing fixed for 8 May 1986

8 May 1986 Hearing on admissibility and merits;

Commission's decision to

declare the applications admissible

16 July 1986 Commission approves text of

admissibility decision

22 October 1986 Admissibility decision

communicated to parties

Examination of the Merits

22 October 1986 Parties invited to submit

observations on the merits

before 31 December 1986

17 November 1986 Applicants' observations on

Application No. 10522/83

10 December 1986 Consideration of state of

proceedings

15 December 1986 Government request an extension

of the time-limit until

February 1987

22 December 1986 Applicants in Application

No. 11070/84 request an extension

of the time-limit until

20 January 1987

5 January 1987 President extends time-limit

for the Government until

28 February 1987 and for the

applicants in Application

No. 11070/84 until 20 January 1987

13 January 1987 Applicants' observations on

Application No. 11011/84

19 January 1987 Applicants' observations on

Application No. 11070/84

26 February 1987 Government's observations

17 March 1987 Applicants in Application

No. 10522/83 reply to

Government's observations

9 May 1987 Consideration of state of

proceedings

8 July 1987 Deliberations on the merits

11 December 1987 Consideration of state of

proceedings

7 May 1988 Consideration of state of

proceedings

11 July 1988 Further deliberations on the

merits; final votes; adoption of

the Report

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MELLACHER and OTHERS v. AUSTRIA

MELLACHER and OTHERS v. AUSTRIA