Private foundation and apartment building: sale, beneficiaries and long term asset structure

When an apartment building sits within the assets of an Austrian private foundation, two review layers meet. On one side is the real estate transaction with land register, leases, building file, property management and purchase contract. On the other side is the foundation-law structure: the foundation deed, the management board, a supervisory board where required, the beneficiaries and the tax treatment of income and substance distributions.

This article sets out the topics. It covers the role of the management board under section 15 of the Private Foundation Act (Privatstiftungsgesetz, PSG), representation under section 17 PSG, the role of the foundation deed under sections 9 and 10 PSG, the audit by the foundation auditor under section 21 PSG and the outline of the corporate income tax treatment of real estate sales and distributions to beneficiaries. Specific tax rates and calculations are outside the scope of the article; those questions require tax advice case by case.

Why the private foundation is a separate review layer next to the real estate transaction

An Austrian private foundation is a legal entity of its own kind under the Private Foundation Act. It is established through the foundation deed, holds its own assets, pursues a purpose defined by the founder and is represented by the management board. Where an apartment building sits within this structure, additional questions arise that do not exist in a normal real estate transaction. The purchase contract must fit the foundation deed, the persons acting must decide and represent effectively, and the later use of the proceeds must not override the foundation purpose.

The timing often overlaps. A prospective buyer expects a quick signature, while the board is bound to its own decision-making process. The topic page Due diligence and data room organises the property documents; the foundation topic runs on top. Anyone who addresses both layers in parallel avoids late unwinding or an ineffective declaration.

In apartment building files held by a foundation, the law firm normally reviews both layers together: the foundation-law structure including representation power and the property-law structure including land register, tenancies and handover.

Foundation deed, management board and supervisory board

Under section 9 PSG the foundation deed consists of the primary foundation deed and, if drawn up, an additional foundation deed. It describes the foundation purpose, beneficiaries, bodies, investment principles and amendment or revocation paths. For selling an apartment building the foundation deed is therefore not a supplementary document but the decisive legal basis.

The management board consists of at least three members under section 15 PSG and manages and represents the foundation. External representation is governed by section 17 PSG. Where transactions between the foundation and a board member or other conflicts of interest arise, additional decision-making and documentation rules apply.

Not every private foundation has a supervisory board. Section 22 PSG defines when one must be established; section 25 PSG sets out its tasks and permits consent requirements for specified transactions. Where a supervisory board exists, the foundation deed may also require its consent to a real estate sale. The deed must therefore be read before signing to identify the competent body and required majority.

Selling the apartment building out of the foundation

A sale from the foundation's assets is first of all a standard real estate purchase contract with purchase price, handover, warranty, land register execution and escrow. In addition, a valid board resolution is required and, where the deed foresees it, the consent of the supervisory board. The resolution should record the buyer, purchase price, handover conditions and the intended use of proceeds and specify the representation power for signing.

On the tax side, capital gains realised by a private foundation are not subject to the Austrian real estate income tax but are captured within the corporate income tax framework. For certain business and non-business constellations the Corporate Income Tax Act provides for the so-called interim tax of a private foundation. Specific percentages, calculation bases and interactions with distributions to beneficiaries are their own topic and should be clarified with tax advisors before signing.

For the contract this leads to two recommendations. First, the binding of the transaction to the board resolution, supervisory board consent and representation evidence must be reflected clearly in the contract. Second, tax deadlines and the plan for using the proceeds should be addressed by the seller in parallel, so that the earmarking of proceeds is not decided under time pressure later. The topic page Apartment building sale organises the contract steps on the real estate side.

Beneficiaries, distributions and substance payouts

The circle of beneficiaries is defined in the foundation deed. Under section 5 PSG it may be defined directly by the deed or by a body appointed for that purpose. Distributions to beneficiaries are unilateral performances by the foundation from a civil law perspective; from a tax perspective they are usually subject to capital gains tax withholding, with special rules for so-called substance payouts. Here too the article states the review axes without fixing specific tax rates.

The timing sequence matters. Where a property is sold first and beneficiaries then receive distributions, the tax outcome may differ from a parallel or reversed sequence. If a sale and larger distributions are planned within the same calendar year, the sequence should be documented. The management board is bound by the foundation deed and the investment principles and may not accelerate or defer distributions arbitrarily.

For communication with the beneficiaries it is helpful to clarify expectations about sequence, frequency and composition of distributions early. Disputes typically arise when a sale increases the expectations of a family circle while the deed provides for a long-term reserve. Such points belong in a written order, not in short-term ad-hoc decisions.

Land register, representation and deed logic

The private foundation is registered as owner in the land register. A sale of an apartment building requires a declaration of consent to registration (Aufsandungserklärung) given by the board within its representation power. Representation under section 17 PSG must be evidenced at the time the deed is executed. The commercial register extract documents the registered representation power, while the internal resolutions must be reviewed in addition.

The declaration of consent to registration requires the precise identification of the right and the express registration consent under section 32 of the Land Register Act (GBG). Formal requirements for the document and its notarisation follow from sections 26, 27 and 31 GBG. For a sale of a foundation-held property, the reading of foundation deed, board resolution and land register document must therefore be joined.

Where a bank finances the buyer, the priority notation for an intended pledge under section 53 GBG becomes a practical instrument. The additional binding to the board resolution does not change the collateral structure but requires careful sequencing between resolution, signing and land register step.

Amendment, revocation and dissolution

Sections 33, 34 and 35 PSG govern amendment, revocation and dissolution of the foundation. The founder can reserve amendment or revocation rights in the foundation deed; after the founder's death, amendments are only possible within narrow limits. For an apartment building held by the foundation this means the timing is decisive. What can be reshaped during the founder's lifetime can often only be changed later with court involvement.

A revocation by the founder leads to dissolution under section 34 PSG. In such constellations the treatment of the property must be organised: does it remain in the assets and pass to the ultimate beneficiaries, or is it sold first and the proceeds distributed? Both paths have different tax and practical consequences.

For advisory practice it pays off to sketch amendment and dissolution paths on paper early and discuss them with the board, tax advisors and beneficiaries. Short-term reactions to a sale opportunity tend to produce friction that a considered upstream review avoids.

Practical flow and next steps

A transaction from or into a private foundation starts with a map of review axes: read the foundation deed, structure bodies and representation, gather property documents, clarify tax consequences, tie the draft purchase contract to the board resolution and plan handover and land register steps. The apartment building risk check orders the property-side starting point.

For document review the data room completeness check helps. On the foundation side the review of the foundation deed by the firm plus a parallel tax review are recommended. BRANDAUER Rechtsanwälte accompanies private foundations and their boards through acquisition, sale and structural questions on apartment buildings in Salzburg and the wider region.