Protecting Competition in Leases to Affiliated Companies

Nov 21, 2025 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, hereinafter OGH) was called upon to determine whether a landlord would breach a contractual competition protection clause by leasing two distinct business premises, each under 500 m², to companies that, while formally independent, are economically interconnected within the same corporate group, if the cumulative area of both premises exceeds 500 m².

The plaintiffs, clothing store operators in a shopping mall owned by the defendant, agreed their consent was required for leases over 500 m² for clothing stores.

A later agreement set a contractual penalty for breaching the non-competition clause at 15% of turnover, with a yearly minimum of EUR 400,000.

Nevertheless, in 2015, the defendant leased commercial premises of less than 500 m² to a limited liability company for the operation of a women’s fashion store. In 2016, the defendant leased adjacent premises, also under 500 m², to a separate limited liability company for a men’s fashion store. It is important to highlight that both entities belong to the same corporate group, are overseen by the same managing director, and demonstrate substantial integration in terms of personnel, organisational structure, and economic interests.

The plaintiffs believed this action bypassed the agreed-upon competition protection, so they demanded nearly EUR 3 million as a minimum contractual penalty. They also requested information on turnover, a ruling on liability for future damages, and an order preventing further rentals to clothing retailers occupying more than 500 m². The defendant countered that it had leased two separate business premises, each under the area threshold and to different companies, arguing that this did not constitute a violation.

The court of first instance allowed the claim and ordered the contractual penalty, with this decision later upheld by the Vienna Court of Appeal.

The OGH determined that competition protection clauses pursuant to Sections 914 ff of the ABGB (Austrian Civil Code) should be interpreted based on the genuine intent of the parties and their underlying economic objectives. The purpose of the agreement was to shield the plaintiffs from competition posed by large-scale clothing retailers. It was explicitly designed to prevent evasion of its provisions, particularly through the segmentation of a large clothing store into separate women’s and men’s departments operated by different entities.

The OGH found it reasonable to treat the two leases, granted to closely related companies in the same group, as one single lease. The perception of the shopping mall customers does not matter; the key point is that the defendant’s actions led to an unfavorable competitive environment.

OGH 1 Ob 120/25s, 30 September 2025