Real estate in the private foundation: what the board must observe

Section 1 PSG defines the private foundation as a separate legal entity. The endowed assets are used, administered and realised to serve the lawful purpose determined by the founder. Once property has been transferred effectively, it no longer belongs to the founder or the beneficiaries. It belongs to the private foundation.

A family decision to endow real estate does not by itself transfer ownership. Under section 431 ABGB, title to immovable property passes through registration in the land register. The acquisition instrument, declaration permitting registration, authority to represent the foundation and registrable documents must all be consistent. Existing mortgages, easements, leases and disposal restrictions remain part of the legal position.

The foundation declaration determines the purpose served by the assets and the bodies involved in material measures. A family residence, an income producing apartment building and operating premises can have very different functions. For each property, the board should record how it serves the purpose and which funds are needed for maintenance, financing and administration.

Under section 17 PSG, the foundation board manages and represents the private foundation, pursues the foundation purpose and complies with the declaration. Each board member must act economically and with the care of a conscientious manager. For real estate, the relevant information extends beyond the price. Condition, income, vacancy, financing, tenancy law, building law, insurance and future marketability all shape the decision.

In 6 Ob 160/15w and RS0130657, the Austrian Supreme Court describes the requirements for protected business discretion. A decision must not be driven by extraneous interests. It must rest on appropriate information and, viewed at the time, clearly serve the interests of the legal entity. The board member must reasonably be entitled to believe that the decision benefits the foundation.

That discretion does not cover an excess of authority, self dealing, a breach of mandatory law or disregard of the foundation documents. A valuation cannot cure a resolution adopted by the wrong body. At the same time, proper care does not always require the most expensive possible investigation. The depth of information must fit the importance, complexity and risk of the particular property decision.

Our article on the foundation board’s duties of care explains the general decision standard. The board liability self-check helps organise decision materials, conflicts and missing records.

Before a purchase, the foundation needs a reliable property file. It should include a current land register extract, the seller’s title, encumbrances, easements, leases, deposits, arrears, the building file, permitted condition, energy records, insurance and known damage. For condominium property, the condominium agreement, utility value records, reserve fund and collection of owners’ resolutions are also relevant.

The economic assessment brings together price, transaction costs, financing, maintenance, major investment and realistic income. A property may fit the family narrative and still overburden the foundation if renovation and debt service consume funds needed for the purpose. The board should record realistic alternatives, such as retaining liquid investments, buying another property or using an appropriate property company.

Where existing family real estate is endowed, the legal basis, value, encumbrances and any consideration must be stated clearly. Tax consequences and land register fees depend on the particular structure and should be aligned with tax advice and transaction drafting before signature. The foundation law decision remains distinct. After taxes and financing, the asset must still fit the purpose and investment strategy.

If a beneficiary occupies foundation property, the legal basis must be identified first. A lease on traceable market terms differs from free or reduced cost use as a distribution. Mixed arrangements involving low rent, service charges paid by the foundation or private investment by the occupant must be recorded in full economic terms.

A distribution requires beneficiary status and support in the foundation declaration. The board does not decide solely on the basis of family proximity. It reviews purpose, the competent decision maker, scope of use and the effect on the foundation. Section 17(2) PSG also limits benefits to beneficiaries where they would reduce the claims of the foundation’s creditors.

The agreement should address duration, rent, service charges, maintenance, alterations, subletting, insurance events, return and compensation for improvements. A market comparison shows the economic advantage granted by the foundation. The tax treatment of that advantage and any distribution in kind must be assessed separately. Board resolution, contract and tax treatment should describe the same arrangement.

Comparable beneficiary situations should also be addressed in the reasons for the resolution. This does not require identical treatment of every family member. The board should nevertheless be able to explain why a particular person receives a particular property on particular terms for a defined period.

A sale is not automatically proper because a buyer offers an attractive price. The board must explain why disposal fits the purpose and investment strategy, how the proceeds will be used and which risks arise from holding or selling now. An independent valuation, a documented marketing process or several credible offers can provide the economic basis.

The authority review starts with the foundation declaration, rules of procedure and any approval rights. If a supervisory board exists with the relevant scope, section 25(1) PSG refers to section 95(5)(2) AktG. Acquiring, disposing of or encumbering real estate outside the ordinary course should then occur only with supervisory board consent. For a supervisory board appointed under section 22(1)(2) PSG, section 25(2) PSG restricts the statutory remit to matters concerning the unified management or direct control of domestic corporations or cooperatives. The foundation declaration may extend that remit under section 25(4) PSG.

Not every property sale requires court approval. If a foundation without a supervisory board contracts with a member of its own foundation board, section 17(5) PSG requires approval by all other board members and by the court. Where a supervisory board exists, it represents the foundation in contracts with board members. Economic proximity to the founder or a beneficiary must still be disclosed and reflected in valuation, resolution and contract terms even where this special rule does not apply.

The transaction file should cover price, selection of the counterparty, conflicts, brokerage, warranties, release of encumbrances, escrow completion and use of proceeds. Our guide to family wealth and succession complements the longer term asset planning.

Care is not limited to major transactions. For each material property, the board needs a current overview of leases, vacancy, service charges, insurance, technical inspections, maintenance needs and financing. Responsibilities of the board, property manager and technical advisers must be clear. Oversight and fundamental decisions remain with the board.

A multi-year maintenance plan helps distinguish necessary works from value enhancing projects and purely private family wishes. For major measures, the budget, permits, procurement, construction progress and acceptance should be recorded. If a project departs materially from the resolution, the decision base must be updated rather than approved retrospectively in general terms.

The financial statements and management report should reflect the actual property strategy. Valuations, provisions, unresolved damage, rent losses and material obligations should not disappear into separate files. The foundation auditor needs a consistent picture across accounting, contracts and board minutes.