Granting of Rights and other Types of Transfer

Donation

A donation is the gratuitous transfer of an item (§ 938 ABGB). There are two different possibilities

Donations with actual transfer as well as debt-releasing donations are not subject to any formal requirements. For example, a grandfather gives his grandson a car and hands him the keys and vehicle documents. Or the grandson owes his grandfather €100.00, but the grandfather waives the repayment.

The donation without actual transfer (promise of donation) is subject to a formal requirement (notarial act).

The formal requirement represents protection against rash decisions or a warning function to prevent ill-considered promises of donation. Without a notarial act, a promise of donation is invalid. The notarial act is a written document of a notary.

In the context of the preparation of donation agreements, the granting of rights or securities for the donor, such as rights of residence, usufruct rights, encumbrance and disposal prohibitions or rights of first refusal, is not uncommon.

Right of Residence

The right of residence is a right of use and is noted in the land register in the C-sheet. The right of residence is the real right to live in a property or in the donated object (house, apartment, …). This right is a highly personal right and cannot be transferred to anyone; this right expires upon death.

In order to have the right of residence entered in the land register, a contract including the granting of rights and a cancellation declaration is required. The right of residence can be limited in time or for life.

A cancellation or deletion of a right of residence is very difficult in most cases without the consent of the right holder.

The right of residence can only be withdrawn from the legal owner if an “untenable situation” exists. There is also the possibility of “paying out” the right of residence; however, the prerequisite for this is the consent of the right holder.

In the event of a sale of the item with an attached right of residence, one must expect that the sold object loses value and, in addition, the right of residence remains in effect because it is a real right that is attached to the item.

The right of residential use without entry in the land register is only valid against the owner, but it does not protect against third parties. In order to ensure protection against third parties as well, an entry in the land register is required.

Usufruct

“Usufruct is the right to enjoy a third-party item, with preservation of the substance, without any restrictions.”

The usufructuary is the economic owner of the item and may receive all “fruits” (for example: apples from a tree, milk from a cow, rent,…)

In contrast to the right of residence, more rights are granted when granting a usufruct. The usufructuary may use or rent the item himself, but not encumber or sell it. He may keep all income that the usufructuary generates himself. However, he has the duty to maintain the item.

By law, the usufructuary is obliged to take care of repairs, additions and restorations to the item with the income from the usufruct. The maintenance, improvement, addition and restorations from own funds is only mandatory after explicit written agreement.

The transfer of the usufruct to a third party is legally possible, but expires with the death of the “original” usufructuary.

As with the right of residential use, the entry in the land register is not mandatory or only has an effect against the civil law owner without incorporation. The entry in the land register grants comprehensive protection also against third parties. In short, this remains in effect against a third party in the event of the sale of the property to a third party.

The usufruct is a highly personal right and also expires in the event of a transfer to a third party always with the death of the “originally” entitled party. It is not inheritable, unless the right was extended to the heirs of the usufructuary.

Encumbrance and Disposal Prohibition

If an encumbrance and disposal prohibition is attached to a property, the owner cannot sell or encumber it without the consent of the entitled party. With entry in the land register, it also has absolute effect against third parties.

However, the entry in the land register is only permissible if the prohibition was established between spouses, registered partners, parents and children, adopted children or foster children or their spouses or registered partners.

The encumbrance and disposal prohibition is a highly personal right, cannot be transferred and expires with the death of the entitled party.

If there is no family relationship (apartment purchase by life partners), the entry of an encumbrance and disposal prohibition in the land register is not possible from a legal point of view. However, if this is agreed with the intended goals, an alternative right of first refusal to the property can be established between the parties. This makes it impossible for the contractual partner to secretly sell the acquired property share to a third party.

Pre-emptive Rights

The right of first refusal legitimizes the person entitled to the right of first refusal to acquire an item before a third party. In the event of the sale of the encumbered property, the owner is obliged to notify the person entitled to the right of first refusal or to conclude contracts with third parties only with a suspensive condition.

A prerequisite for the redemption of the right of first refusal is that a binding offer or a contract exists between the owner and the prospective buyer. The offer must be proper, it must have all essential contents for the sale such as purchase price, rights and obligations etc.

After notification of the person entitled to the right of first refusal, the offer may no longer be changed. The person entitled to the right of first refusal now has 24 hours to “redeem” his right of first refusal for movable items, and 30 days for immovable items. However, if the offer is insufficient (e.g.: essential contents are not mentioned, the purchase price is not mentioned…) the redemption period does not begin.

According to the ABGB, the right of first refusal can only be redeemed if an item is sold, it does not apply to donations, exchanges, etc. However, if the item is donated or inherited, the right of first refusal remains in effect.

The right of first refusal is a highly personal right, which is not inheritable. The right of first refusal can expire for the following reasons:

Will

Waivers of Compulsory Portion

In order to ensure that no legal disputes arise after his death, the testator can obtain a waiver of the compulsory portion. The compulsory portion can be waived during lifetime or in the course of the inheritance proceedings. The waiver of the compulsory portion is subject to a formal requirement, the notarial act. The waiver of the compulsory portion is particularly recommended in the case of donations during lifetime. If the parents donate the single-family house to the child during lifetime and the father dies shortly thereafter, the mother can assert her compulsory portion claim against the child. However, if a waiver of the compulsory portion is present on the part of the mother, the child is secured.

In order to prevent disputes in this context between the beneficiaries of the compulsory portion, it makes sense to make waivers of the compulsory portion already during lifetime, especially in the case of property transfers. The beneficiaries of the compulsory portion have the right to demand monetary claims after the death of the testator if he has appointed someone other than an heir during his lifetime. In the event of a waiver, this claim is waived. The compulsory portion plays an important role in inheritance disputes.