In April 2021, the Berlin rent cap was overturned by the Federal Constitutional Court, as the judges ruled that the law was not compatible with the German constitution. In this article, you will find out what the law on the rent cap contains, what effects it has for tenants and landlords and what the consequences of the abolition of the law now mean for tenants in particular, but also for landlords.
What is the rent cap?
The term “Mietendeckel” is used colloquially for the “Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin”. The official abbreviation is MietenWoG Bln. A law that was passed by the Berlin House of Representatives on January 30, 2020 and came into force on February 23, 2020 with retroactive effect to June 18, 2019.
In a total of 11 paragraphs, it was determined how, for example, the rent caps in the Berlin area are to be calculated in concrete terms, how excessive rents are to be dealt with and how a rent freeze is to be enforced. Responsibilities, tasks and powers were distributed.
The rent cap law was introduced with the aim of preventing excessive rents in the capital and making it illegal for rents to rise. The rent cap was drawn up on February 11, 2020, came into force on February 23, 2020 and was to be valid until February 23, 2025. It was thus limited to a period of 5 years.
The rent cap covered all apartments in Berlin that were occupied for the first time before 2014. Exceptions that were excluded from the rent cap were apartments that were publicly subsidized. These include, for example, council apartments, apartments in halls of residence and social housing. Another exception is apartments that were built before 2014, but which were deemed to be new builds following extensive refurbishment and renovation work.
It is estimated that between 340 and 512 thousand apartments were affected by the rent cap in Berlin. Rent increases that were implemented between June 18, 2019 and February 23, 2020 had to be reversed. Rents that were above the rent caps had to be reduced.
The law on the rent cap: content & what has changed?
The law dealt specifically with the level of cold rents in Berlin, including surcharges.
Section 3 dealt with the rent freeze. Rent increases that were implemented after June 18, 2019 had to be reversed. This also included rent increases that had already been contractually agreed in advance. This was the case for graduated rents, for example. The fixed maximum values were to increase annually from January 1, 2022. The basis for calculation should be the inflation rate, which is determined each year by the Federal Statistical Office. The upper limit was to be a maximum of 1.3 percent. At the same time, however, the upper rent limits listed in Section 6 were not to be exceeded.
The specific rent ceilings were set out in Section 6 in the form of a rent table. The influencing factors were the year in which the apartments were first occupied and their furnishings. These factors resulted in rents of between €3.92 and €9.80 per square meter.
| wdt_ID | Nummer | Erstmalige Bezugsfertigkeit der Wohnung und Ausstattung | Mietpreis pro Quadratmeter |
|---|
Source: MietenWoG Bln
If it was a building with a maximum of two apartments, the upper rent limit increased by 10 percent. In addition, €1 more per square meter could be charged as rent if certain modern features were met.
Nine months after the introduction of the law, and therefore from November 2020, excessive rents were to constitute an active violation of the law. A fine was to be expected. A rent was officially excessive if it was 20 percent above the rent cap.
Rent cap effects: New landlord obligations
Section 3 (1) stipulated that tenants should have the right at any time to ask the landlord for written information about the rent for the last rental. The rent level could also be requested for a specific reference date and the landlord was obliged to provide the requested information. In the case of a new tenancy, landlords should provide potential tenants with this information without being asked before the tenancy agreement is concluded.
For existing tenancies, landlords should inform tenants of the permissible rent level no later than two months after the law comes into force, i.e. by April 2020. For new tenancies, this had to be done before the contract was signed.
Violations of the law occurred, for example, if the landlord did not comply with their duty to provide information, rents were increased after the introduction of the law or excessive rents were not reduced. Such an administrative offense could be accompanied by fines of up to 500 thousand euros.
Why was the rent cap overturned?
The Federal Constitutional Court declared the rent cap unconstitutional in its ruling of March 25, 2021. The basis for this decision was not the substantive constitutionality and thus the question of whether rent caps may be set by law at all. The Federal Constitutional Court did not explicitly comment on this aspect. Formal constitutionality was the trigger for the decision that invalidated the law on rent caps in Berlin. The Berlin House of Representatives did not have the authority to introduce such a rent cap and to pass the MietenWoG Bln.
The rent cap introduced in 2020 was therefore unconstitutional. The judges of the Constitutional Court in Karlsruhe ruled that the responsibility lay with the federal government and not the state of Berlin. The rent freeze was enshrined in law in 2015. It is defined in Section 556 d et seq. of the German Civil Code (BGB) and is the most important weapon in the fight against excessive rents today. This means that tenants can reduce their rent if it is more than 10 percent above the standard local rent.
Rent cap overturned: What do landlords and tenants now have to consider?
The law on the rent cap in Berlin was declared illegal in March 2021 and therefore ceased to apply. It no longer has any influence on future rental agreements. In addition, the regulations will be reset to the starting point before the law was passed. If the landlord incurred rental losses during the period in which the rent cap was in force, they are entitled to a refund. For new rental agreements, the legal basis of the rent freeze from Section 556 d et seq. of the German Civil Code (BGB) applies.
In the next section, we will show you what the new regulations mean for tenants and landlords in concrete terms.
Consequences for landlords
The abolition of the rent cap has advantages for landlords. First of all, these arise from the legal basis for new rental agreements. Rents can be adjusted in line with the rent cap. In addition, there is a right to reimbursement of the rental income that has been lost as a result of the rent cap.
If there was a loss of rent because it had to be reduced due to the rent cap, the landlords can write to the tenants and demand back payment of the missed rent. The amount and deadline for back payments must be clearly stated in the letter. If the tenants are unable to pay the full amount immediately, installment payments can be agreed with the landlords.
Rent cap: What can tenants do?
Even if landlords were advised to request back payments from tenants in writing, the responsibility lay with the tenant. If the tenant did not initiate the payments themselves, they risked termination of the tenancy due to rent arrears.
The deadline for back payments was only 14 days, counting from the day on which the decision was known. This was April 16, 2021, so it was necessary for the tenant to contact the landlord as soon as possible and make the additional payment or arrange an installment payment. As the failure to pay the rent was not the responsibility of the tenants, but was based on a law, the tenants did not have to expect termination without notice. However, this was the case if the tenant was in arrears with the payment of two months’ rent plus ancillary costs. However, this required that the landlord had previously requested an additional payment. In most cases, the landlords took this into consideration, as the delay in rent payments was due to a change in the legal basis.
Not all tenants had to make additional payments. Some large rental companies in Berlin waived this requirement. Tenants were on the safe side if they had a written notice from the letting company waiving back payments.
Conclusion
The state of Berlin wanted to protect tenants from excessive rents by introducing a rent cap. However, this attempt has failed. With the help of loans, tenants are now being supported with the additional payments due.
It is interesting to note that the Federal Constitutional Court did not declare the rent cap unconstitutional in terms of content, but primarily in terms of form. The court emphasized that the structure of the German Civil Code (BGB) could certainly allow for a stronger limitation of rents. It is therefore not impossible to exercise control over rent levels in future with the help of statutory regulations.
FAQ
1. Are there rent caps in other cities?
No other city in Germany currently (as of 2021) has a rent cap. The level of rents is limited by the rent cap. Rent caps that were introduced in Lisbon or New York in the past, for example, had a negative impact on the investment spirit in both cities. Landlords and other investors poured significantly less money into modernization work, which led to many buildings falling into disrepair.
2. Which rents were affected by the rent cap?
In principle, to all rents from rental agreements that came into force before February 2020. The only exceptions were apartments that were first occupied after January 1, 2014 and apartments that had been completely renovated and were therefore valued as new builds. The rent cap also affected index-linked rents and graduated rents if these exceeded the rent cap.
3. Has the rent also been reduced for current rental agreements?
The new rent cap law was to come into full effect within nine months. If a rent was above the rent cap after November 2020, it could be reduced to the specified level by the tenant with the help of civil proceedings.
4. Were rent caps flexible?
In principle, the rent ceilings were specifically listed in a table and had to be adhered to. The rent ceilings could have been increased annually in line with inflation. However, by a maximum of 1.3 percent. This option would have come into force from January 1, 2022.
5. What was the penalty for violating the rent cap?
The aim was to enforce the rent cap everywhere within the first nine months of the law coming into force. In the event of a breach of the regulations, landlords could have been fined a maximum of 500 thousand euros. An infringement would have been, for example, setting the rent above the rent cap or not informing tenants and potential tenants of the amount of the rent set.
