"New" warranty rules finally come into effect

Last summer, Austria implemented the Digital Content Directive¹ ("DCD") and the Sale of Goods Directive² ("SGD"). The Austrian General Civil Code ("ABGB") and the consumer protection Act ("KSchG") were therefore amended and a new act – the centrepiece of the legislative reform – was created: the Consumer Warranty Act (Verbrauchergewährleistungsgesetz; "VGG"). Since those changes will come into force on 1 January 2022, this short summary about the most significant changes will serve as a reminder.

The VGG applies to contracts between consumers and businesses concluded for

• the purchase of movable tangible objects (including those that are yet to be manufactured) – "goods";
• "goods with digital elements"; or
• the provision of digital services in exchange for consideration either in money or personal data.

Excluded are inter alia contracts for the purchase of living animals, electronic communication services, health services, gambling services or financial services.

As usual in the B2C area, contractual agreements deviating from the provisions of the VGG are only permissible in favour of the consumer.

Although the focus of the legislative reform is on contracts between a business and a consumer, certain changes also apply to contracts between businesses or contracts between consumers. Unless explicitly stated otherwise in this summary, the mentioned changes of the implementation only apply to contracts between consumers and businesses (B2C).

The theory: outline of the most significant changes

1. Right to warranty if data is provided as consideration
   
   Until now, it was unclear whether consumers were entitled to warranty claims if their consideration was not money but the provision of data. This is now clarified for contracts on the provision of digital services by explicitly including these contracts in the scope of application of the VGG.
   
   
2. Creating more legal certainty on "goods with digital elements"
   
   Goods with digital elements are goods that contain or are connected to digital products in such a way that the goods cannot fulfil their functions without these digital products (e.g. Smart TVs, smart fridges or smart watches).
   
   The VGG clarifies how goods with digital elements need to be classified under warranty law. A related amendment is the introduction of the obligation to update.
3. Introduction of an obligation to update
   
   The "classic" warranty concept is that someone (the seller) is liable for defects of goods that already existed at the time of the handover to the buyer.
   
   By introducing an updating obligation, the warranty for digital services and goods with digital elements goes beyond this classic warranty concept. With the entry into force of the legislative reform, the supplier of such digital services or goods with digital elements must provide all updates that are necessary to maintain the lack of defects. This obligation to update exists in the case of the one-time (or several times single) provision of a digital service (e.g. in the case of the provision of an e-book, movie, photo, etc.) as long as the consumer can reasonably expect this. In the case of continuous provision of the digital service (e.g. a two-year contract for cloud storage, streaming services or an unlimited membership of a social media platform), the obligation to update exists for the duration of the obligation to provide the service.
   
   The obligation to update can only be excluded if individually agreed upon.
   
   The obligation to update also applies to contracts between businesses (B2B).
   
   
4. Subjective and objective requirements
   
   The VGG now clarifies by law what is meant by objectively required characteristics in more detail (Section 6 VGG). Objectively required characteristics are understood to mean, for example, the usual characteristics or those to be expected based on a sample, a specimen or a test version.
   
   The business needs to deliver goods to the consumer that meet the subjective and objective requirements in order not to be liable for the lack of conformity. To conform with the sales contract, the goods must inter alia be fit for the purpose which that type of good would normally be used for. If there is a deviation from such objective requirements, the business must specifically inform the consumer of this upfront and obtain the consumer's express and separate acceptance of this deviation when concluding the contract. Otherwise, the delivered good/service may be considered defective.
   
   
5. Warranty rights no longer have to be asserted in court
   
   Currently, the right to terminate the contract (previously "conversion"; in German "Wandlung") and the right to a price reduction must be asserted at court. With the effectiveness of the VGG, these rights can be asserted "simply" by declaration, which is not bound to any particular form.
   
   This also applies to contracts between two businesses (B2B).
   
   
6. Extension of limitation period
   
   Up to now, rights under the warranty for movable goods must be asserted in court within two years. With the entry into force of the legislative reform, warranty rights will only become time-barred three months after the expiry of the two-year warranty period.
   
   This new rule applies to B2B, B2C and C2C contracts.
   
   
7. Presumed period for reversal of burden of proof extended
   
   In principle, the warranty obligation only covers defects that are already present at the time of handover. However, until proven otherwise, it is presumed that a defect was already present at the time of handover if it becomes apparent within six months after handover. This presumption period is now extended to one year in the B2C area.
   
   
8. Extension of recourse of transferor liable under warranty
   
   When a business provides a warranty, its right of recourse against its predecessor is limited to the remuneration paid by the business under the contract with its predecessor. Therefore, not all expenses incurred by the business to fulfil its warranty obligation towards the transferee may be covered. With the entry into force of the legislative reform, the right of recourse must in any case cover the costs of remedying the defect, even if these costs exceed the remuneration.
   
   This change is only applicable to contracts between businesses (B2B).
   
   
9. Right to amend the contract
   
   In the case of continuous digital services, the business may be granted the right to amend the contract for good cause in the contract. The amendment and the reason must be specifically stated in the amendment clause. This must not result in an additional cost burden for the consumer and the consumer must be informed clearly and comprehensibly about the change and their option to terminate the contract or to keep the digital service unchanged without additional costs if the digital service continues to comply with the contract. The consumer may terminate the contract free of charge if their access or use is more than slightly affected by the change, if the consumer is not given the option to keep the digital service unchanged without additional costs and the digital service continues to comply with the contract. This right to amend the contract under Section 27 VGG is applicable to contracts concluded after 31 December 2021.
   
   
10. Special consumer law provisions on default
    
    The withdrawal of a consumer from a contract due to the business's default now requires two successive declarations, namely (i) the demand for performance with a grace period and (ii) the declaration of withdrawal. The setting of a grace period can therefore no longer be combined with the conditional declaration of withdrawal.
    
    In the case of a delay in the provision of digital services, no grace period is required, but the consumer can also withdraw from the contract only after a demand and waiting for a short period of time or the agreed grace period.
    
    Another difference to the general right of default exists in the case of fixed-date transactions (Fixgeschäfte), because the contract does not lapse automatically, but only through a declaration of withdrawal by the consumer.

Conclusion

These legal changes aim to strengthen consumer rights. They even "try" to create legal certainty through some legal clarifications. Even though those legal clarifications are highly appreciated, the legal reform itself raises some open questions, e.g. by introducing a new contract for digital services. This means that SaaS-providers and online merchants might have to adapt their business model to the new rules. Also, a separate consumer protection law is again being introduced. This makes it more difficult for businesses to keep track of their obligations, as these are not all contained in one legal act but are "scattered" throughout many laws. The EU Commission's agenda even flags further reforms in EU consumer protections in the next five years, particularly in green and digital transformation and online enforcement. Stay tuned, we will keep you up to date.

¹ Directive (EU) 2019/770 on certain aspects concerning contracts for the supply of digital content and digital services. 
² Directive (EU) 2019/771 on certain aspects concerning contracts for the sale of goods. 

authors: Veronika Wolfbauer, Peter Ocko