From Germany: New Tenancy Law

5 March, 2019

Residential properties have stricter regulations for rent increases due to apartment modernizations

Since January 1, 2019, stricter legal regulations have also applied when investors and landlords attempt to pass on the costs of modernizing apartments to tenants.

Rent reductions by the tenant due to modernizations

While costs for pure maintenance measures are always created by the landlord, he or she can still demand reimbursement of the costs for the modernization of tenants’ apartments by way of rent increases. However, new regulations now apply – landlords of apartments must always announce modernizations in writing three months before the start.

An e-mail may be sufficient, but must contain all necessary contents, in particular, information on when the modernization measures are to start and end and what is the specific subject of each measure (§ 555c German Civil Code). During this conversion period, tenants are entitled to reduce the rent, provided that the habitability is limited. If it concerns any energetic modernization of the apartment, measures are not entitled to rent reductions (§ 536 para 1a German Civil Code).

Rent increase possibilities by landlords

The following also applies to modernizations: Since the start of the year, the landlord can increase the annual rent by up to 8% (previously 11%) of the costs incurred for the apartment. For example, this includes building craftsman costs, ancillary building costs, architects’ and engineers’ fees. However, financing costs are not part of modernization costs which the landlord may pass on to the tenant (§ 559a German Civil Code).

There is also a new cap limit: In absolute terms, rents may not rise by more than 3 Euros per square meter within six years of modernization. In the case of apartments with a rent of up to 7 Euros, the landlord may only raise the rent by a maximum of 2 Euros.

Important: Correct calculation of modernization costs

The following also applies: If the landlord compiles the costs for calculating the modernization levy, he or she must, however, deduct saved costs for maintenance measures (§ 559 para. 2 German Civil Code). Landlords must be particularly careful because they are primarily responsible for proving that no costs for maintenance measures are included in the calculation of modernizations. In addition, subsidies which the landlord receives from the tenant or third parties must also be deducted correctly. If this is not done correctly, it may be that rent increases are impossible and unenforceable.

Source: Philipp Zschaler or Jasper von Detten, Andersen Tax & Legal in Germany, a member firm of Andersen Global