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Germany: States Implement Federal Rent Control Act

(Aug. 3, 2015) On June 1, 2015, a new federal act on rent control entered into force in Germany. The Tenancy Law Amendment Act authorizes the individual German states to enact regulations to designate “tight housing markets” in which a rent cap will apply. Twelve of the 16 German states (Länder) have implemented the Act or are planning to do so in 2015 or 2016; three states have actually applied it thus far. ((Silke Kersting & Anja Stehle, Controversial Rent Cap Kicks In, HANDELSBLATT GLOBAL EDITION (July 23, 2015) [registration required to read the whole article]; Gesetz zur Dämpfung des Mietanstiegs auf angespannten Wohnungsmärkten und zur Stärkung des Bestellerprinzips bei der Wohnungsvermittlung [Mietrechtsnovellierungsgesetz] [MietNovG] [Act to Absorb the Rent Increase in Tight Housing Markets and to Strengthen the Purchaser Principle for Real Estate Brokerage] [Tenancy Law Amendment Act] (Apr. 21, 2015), BUNDESGESETZBLATT [BGBl.] [FEDERAL GAZETTE] I at 610.)

The “rent brake” (Mietpreisbremse) prohibits landlords in areas that have been designated as “tight housing markets” from charging rent that is more than 10% above the local average for a comparable property. The prohibition only applies to new leases. (Breaking Bad, ECONOMIST.COM (Apr. 4, 2015).)

Features of the Legislation

The Tenancy Law Amendment Act amends and adds new provisions to the section of the German Civil Code that deals with tenancy law. (Bürgerliches Gesetzbuch [BGB] [Civil Code], Jan. 2, 2002, BGBl. I at 42, 2909; 2003 BGBl. I at 738, as amended, §§ 535-597, GERMAN LAWS ONLINE (unofficial English translation).) Existing leases already faced a rent cap of not more than 20% of the average local rent charged within a three-year period. (Civil Code § 558). Under the new provisions, the rent for a new lease in an area that has been designated by a German state as a tight housing market cannot exceed 10% of the local average rent. (Id. § 556d.)

Exclusions apply to properties built after October 1, 2014, or to apartments that have been fully modernized. (Id. § 556f.) An apartment is considered fully modernized if the extent of the modernizations is comparable to a new property. (Mietpreisbremse: Fragen und Antworten [Rent Brake: Questions and Answers], Federal Ministry of Justice and Consumer Protection website.) If the rent charged to the last tenant was above the 10% limit, a landlord is allowed to demand from a new tenant a rent up to the amount charged in the last lease. (Civil Code § 556e.)

The Tenancy Law Amendment Act also amends the regulations on real estate brokerage. (Gesetz zur Regelung der Wohnungsvermittlung [Act to Regulate the Real Estate Brokerage], Nov. 4, 1971, BGBl. I at 1745, 1747), as amended, GERMAN LAWS ONLINE.) Originally, landlords were allowed to and frequently did pass on the costs of hiring a real estate broker to the future tenant. Under the new provisions, the person who hires the real estate broker has to pay for his or her services. Any agreement to the contrary is void. (Act to Regulate the Real Estate Brokerage, § 2 ¶ 1a.)

Implementation of the Legislation

The three German states that have already introduced rent control this year are the city-states Berlin and Hamburg and the state North Rhine-Westphalia. In North Rhine-Westphalia, the new rent control rules do not apply to the whole state, because only 22 municipalities and cities within the state, including Cologne, Düsseldorf, and Bonn, were designated as tight housing markets. Nine more states have announced concrete plans to introduce rent control in 2015 or 2016. Two other states, Saxony and Saarland, are considering their options. Only Saxony-Anhalt and Mecklenburg-West Pomerania do not have plans to implement the legislation, because of the high vacancy rate of units in the local housing market. (Kersting & Stehle, supra.)

Reactions to the Legislation

The German Federal Minister of Justice, Heiko Maas, characterized the rent control measures as a success and stated that “according to the first available statistics, the rent brake is working.” (Interview Rhein-Neckar Zeitung [RNZ]: ‘Den ersten Daten zufolge wirkt die Mietpreisbremse’ [Interview RNZ: ‘According to the First Available Statistics, the Rent Brake Is Working’] (July 24, 2015), Federal Ministry for Justice and Consumer Protection website.)

Others are more critical of the new rules. A group of experts testifying in front of the Legal Affairs and Consumer Protection Committee of the Deutscher Bundestag (German Parliament) generally supported the aim of the Act to make rents more affordable, but doubted that it would in fact be suitable for fighting housing shortages and high rents. They added that the comparison criterion “local average rent” was too imprecise and that a formal, benchmark rent index would be more appropriate. (Experten üben Kritik an Mietpreisbremse [Experts Criticize the Rent Brake ] (Dec. 3, 2014), Deutscher Bundestag website.)