Rent-free periods and fit-out contributions in an Austrian apartment building: income model, evidence and purchase price

Rent-free periods and fit-out contributions can materially change the income of an apartment building. The rent roll often shows only the amount charged after a particular date. A buyer therefore needs to know what was actually paid during the first months, which investment the tenant undertook and whether the arrangement is supported by a written document.

A reliable purchase-price review compares the contractual target income with the actual payment history. It separates rent-free months, tenant fit-out contributions, stepped rents and other incentives from rent prepayments, deposits and a later rent reserve. Only then can the buyer see which income is durable and which cost or obligation continues after closing.

Rent-free periods belong in the contract and payment review

A rent-free period may have different legal and commercial causes. The parties may agree a later start of the lease, a temporary waiver or an initial period without main rent. These arrangements can have a similar cash-flow effect but are not interchangeable. The document must show which performance is owed and when it begins.

ABGB Section 1094 focuses on agreement on the essential terms of a lease, in particular the property and price. It does not mean that a rent roll replaces the agreement. For the purchase review, the lease, amendments, side letters, email confirmations and actual payments should be read together. If the variation cannot be evidenced, the listed normal rent should not be treated as confirmed recurring income.

The article on buying an apartment building and reviewing the rent roll explains the general evidence chain. Rent-free periods require an additional monthly view showing agreed rent, waiver, payment, arrears and allocation after closing.

Separate fit-out contributions, tenant investment and rent

A fit-out contribution may be paid by the landlord, credited against rent or linked to work performed by the tenant. Its nominal amount is only one part of the review. Purpose, payment, invoices, ownership of installations, handback duties, maintenance and any lower opening rent should be recorded separately.

In OGH 7 Ob 14/22t, the court compared the agreed rent for unfinished attic space with the value of that unfinished space in an extension option. For a transaction review, the decision illustrates why the condition of the leased premises and the fit-out performance assumed by the tenant must be separated. A low rent is not automatically comparable with the rent for a completed unit.

The contribution also belongs in the handover file. The buyer needs to know whether an investment has already been settled, whether further payments are due and whether the tenant has a compensation or removal claim at the end of the lease. The article on effective-date settlement covers the wider payment allocation around closing.

Section 16 MRG and a defensible income assumption

Whether an agreed rent is permissible depends on the scope of the MRG and the specific unit. Section 16 MRG contains rules on the permissible main rent in its field of application. Size, equipment, location, term, contract date and special provisions must therefore be reviewed unit by unit. A period without payment does not by itself answer whether the later rent is legally permissible.

Section 16(10) MRG addresses time-limited increases to cover maintenance, useful improvements and subsidised renovation. It requires written form and an express agreement on amount and period, among other conditions. That rule must be distinguished from a voluntary incentive for a new letting. The data room should identify whether an amount is treated as main rent, credit, contribution or fit-out cost.

The income model should show at least three values: contractual normal rent, actual receipts and the rent that remains defensible after legal review. The difference is documented with its reason, period and evidence. One annual total hides whether the reduction is a temporary incentive or a lasting weakness.

A monthly income schedule makes the price effect visible

The schedule starts with each affected unit. For every month it records target rent, rent-free period, step, contribution, actual rent, service-charge advance and vacant days. A separate column identifies whether the figure comes from a lease, amendment, account, statement or management record.

The next step is a normalisation scenario. It shows when full normal rent is expected to start, whether the fit-out is complete and whether the tenant still has performance duties. A second scenario records what happens if completion is delayed, the letting begins later or a promised contribution remains unpaid. Assumptions should be connected to conditions rather than presented as certain future income.

The price effect follows from durable income, not from the highest amount shown in the rent roll. A capitalised valuation may be affected by initial months, fit-out expenditure, vacancy and the likelihood of stable normal rent. Legal review does not replace valuation, but it prevents unproven income from being treated as established.

Make the data room, guarantees and agreement match

For every incentive, the data room should contain the lease, amendments, fit-out agreement, payment records, invoices, handover records and current rent roll. A commercial unit may also require plans, permits, operating duties and a clear record of which installations form part of the premises. A generic label such as special condition is not enough.

The purchase agreement should regulate the economic treatment expressly. It should address buyer knowledge, the accuracy of annexes, further delivery of records, future contribution instalments and the situation where the agreement differs from the rent roll. Depending on the risk, the parties may need a guarantee, indemnity, purchase-price retention or closing condition.

The article on the disclosure letter in an apartment-building sale explains how known deviations are linked to evidence and a contract clause. A time-limited income incentive additionally requires a clear statement of when normal operation begins and who bears the risk until then.

Regulate closing and follow-up for incentives

The economic effective date may fall before or after practical handover. The agreement must therefore state who bears rent credits, contribution instalments, remaining work and later amendments. If the fit-out is completed after closing, the parties need rules on cost, access and acceptance evidence.

The tenant should have a clear contact after the ownership change. The buyer needs to know the promised terms but should not silently assume a different arrangement from the one documented in the lease and purchase agreement. Amendments made after the effective date should be dated and placed in the handover file.

A limited retention can be suitable for an open item. It must be tied to a defined document or performance and must not become a general security pot. The article on purchase-price retention explains purpose, release and follow-up rules.

Common errors with rent-free periods and contributions

A frequent error is applying the current normal rent to every month of the year. That removes the initial income gap from the model. Another is a fit-out contribution mentioned in an email but not linked to a payment, invoice, work item or handback rule.

Further problems arise when a step is treated as permanent rent growth, when the lease start does not match handover or when management supplies only an annual total. It is also risky to assume that a new owner may ignore an open arrangement without evidence. Leases, amendments and economic promises are not replaced by a new rent roll.

A practical review process for buyer and seller

The seller should first list every unit with rent-free periods, steps, contributions and other incentives. Agreements and payment records are then added. The property manager should confirm not only the current charge but also the historic pattern and open commitments. Technical records show whether a contribution is tied to a particular fit-out condition.

The buyer reviews each deviation using the same questions: What was promised, when was it paid, what performance is exchanged, how does it affect income and which duty continues after the effective date? This produces the income schedule. Only items with a sufficient evidence chain should be used as firm assumptions in price negotiations.

For a legal review, bring together leases, amendments, rent rolls for several months, tenant ledgers, contribution agreements, invoices, plans and the draft purchase agreement. This allows the legal analysis and the financial model to work from the same assumptions.