Rent control with a new bite

The new year 2019 brings several changes. On November 30, 2018, the German Bundestag approved the planned amendment to tenancy law to ensure that apartments remain affordable despite steadily rising rents. This amendment essentially tightens the rent control measures and reduces the modernization surcharge starting in January 2019.

Instead of the previous eleven percent, only eight percent of modernization costs may be passed on to tenants annually in the future. Contrary to initial plans, the new modernization surcharge applies not only in metropolitan areas with high rents, but nationwide.

Cap on modernization costs

To prevent tenants from being unduly burdened by modernization, the monthly rent may not by more than three euros per square meter within six years of such a renovation . For apartments with a rent of up to seven euros per square meter, the cap is two euros.

“Modernizing out” is punished

“More and more often, tenants can no longer afford the rent for their apartment after extensive modernization and have to leave their familiar surroundings,” laments Justice Minister Katarina Barley (SPD) regarding the consequences of overpriced renovations.

To put an end to the abusive practice of "modernizing tenants out," landlords who drive away less affluent tenants through luxury renovations will face fines of up to €100,000. Even the abusive announcement of luxury renovations will be punishable. Furthermore, tenants will be able to claim damages.

Rent control tightened

Since the rent control law introduced in 2015 has so far remained ineffective, the Bundestag has decided on a tightening of the law: In order for new tenants to be able to check whether the demanded rent is permissible, landlords must in future inform them of the previous tenant's rent before the conclusion of the lease agreement without being asked.

In general, landlords in areas with housing shortages are allowed to charge up to ten percent more than the local comparative rent for new tenancies. Any contractual agreements to the contrary are invalid. To avoid being confronted with demands for repayment, landlords should therefore be absolutely aware of the upper limits .

Landlords claiming exemptions from the rent control law (e.g., due to prior modernization) must provide the reasons for these exemptions without being asked. If the landlord fails to comply with this obligation to provide information, the rent may not exceed ten percent above the comparable rent, even if there is a specific reason that would justify a higher rent. (However, landlords should be able to provide this information retroactively.)

Furthermore, it will be easier for tenants to challenge violations of the rent control law. However, only rent payments due after the complaint can still be reclaimed.

The individual federal states decide in which cities and regions the rent control law applies. The qualified rent index indicates the local comparative rent. The change feared by the housing industry has also occurred here: In order to lower the rent index, the reference period is being extended from four to six years. (If older rents are included in the increases, this results in a decrease in the price level used as a basis for current rents.)

Exceptions to the rent control law

To avoid deterring investors, the rent control law does not apply to new buildings, but only to the re-letting of existing apartments. The owner can therefore set the rent for a newly constructed apartment independently of these regulations.

The same applies to modernization measures: To ensure the costs are worthwhile for the landlord, the first letting after a comprehensive modernization is exempt from rent control. If the agreed rent is permissible, landlords can grandfathering rights , even if the rent is above the price cap.

New property tax regulations?

In April 2018, the Federal Constitutional Court ruled that the existing method of calculating property tax was unconstitutional and that the standardized property values, which had been in place for over 50 years, were "completely outdated." The legislature now has until the end of 2019 to enact new regulations.

Sources: mietrecht-reform.de, finanztip.de, spiegel.de, haufe.de, deutsche-handwerks-zeitung.de, sueddeutsche.de, news.immowelt.de, faz.de, immobilien-zeitung.de