The Berlin Rent Cap

Info 1 2/2020

THE BERLIN RENT CAP

Main Provisions and Practical Tips

1 Rent freeze or limitation of 4 Regulations in case of rent increases for existing leases landlord’s hardship 2 Rent caps when re-letting 5 Subsidies for tenants in case of landlord’s hardship 3 Reducing an excess rent

BERLINER MIETERVEREIN madochab / photocase.de THE BERLIN RENT CAP MAIN PROVISIONS AND PRACTICAL TIPS

On 23 February 2020 the law entitled “Gesetz zur Neuregelung Rent Freeze and Limitation of Rent Increases re- gesetzlicher Vorschriften zur Mietenbegrenzung“ [Law on the Re- garding Existing Leases vision of Legal Provisions regarding Rent Limitation] published in 1.1 Rent Cap – until 31 December 2021 no higher rent as the one the Law Gazette of Berlin 2020, page 50 – briefly called the “Rent effectively agreed on the effective date 18 June 2019 Freeze“ – came into effect after it had been passed end of January With the entry into force of the law the rents are principally frozen. by the Berlin House of Representatives. It represents a law of the Basis for the rent freeze is the so-called net rent effectively agreed on federal state of Berlin creating rent limitations based on its federal 18 June 2019. This effective date on which the Berlin Senate Ad- authority for housing. It prohibits exceeding of these caps and in- ministration passed its resolution on the rent cap’s basic points was cludes fines for breach of this law. The law is effective for a period chosen to prevent expected rent increases as soon as the rent caps of five years. Civil-law agreements between tenant and landlord are announced. Upon the tenant’s request a landlord must inform thus are no longer valid if they go beyond the rent caps defined by him/her at any time of the rent agreed or owed on the effective date. public law of the federal state of Berlin. “Normal“ rent increases of the net rent referring to existing leases are The rent freeze law consists of four sections: thus excluded up until 31 December 2021 regarding all leases of • rent freeze or limitation of rent increases (1.1 – 1.3) privately financed residential accommodations. This rent freeze also • rent limitation after modernisation (1.4) applies to stepped rent and index rent leases. There is, however, an • rent limitation when re-letting – conclusion of a new lease (2.) exception in case of modernisations which is explained in subsection 1.4. Refer to tips 1,3 & 5. • reduction of high rents (3.) Exceptions to these new rent caps may apply if the limitation consti- 1.2 Rent Increases between the Effective Date and the Entry into tutes a hardship for the landlord (4). This, however, may also entitle Force of the Law the tenant to receive a rent subsidy (5). A rent increase agreed upon after the effective date is not effective for future periods – i.e. up until expiry of the rent freeze law. From Note: the date of entry into force of the law only the rent agreed on 18 The rent freeze law does not apply to publicly funded residential June 2019 – i.e. before the rent increase - is owed. accommodations (social housing) and not to flats repaired or mod- If it is possible to reclaim the amounts of a rent increased and paid ernized with public funds and which are subject to rent control. In in the period between the effective date and the law’s entry into addition, the law does not apply to new buildings which became force cannot be answered for sure. This question must be resolved ready for occupancy for the first time on or after 1 January 2014 by the courts. Refer to tip 2. and not to former living space permanently uninhabitable or vacant 1.3 Increase of the Effective Date Rent starting January 2022 which was restored for residential purposes with expenses corre- From January 2022 on, rent increases of up to 1.3% of the sponding to newly built space. The law also excludes residential net rent agreed on the effective date are permitted based on units in dormitories and living space held by publicly recognized a random sample taken by the Federal Statistics Office on welfare institutions. 31 December of the previous year. The ultimately admissible percentage will be determined by a legislative decree of the com- petent Senate Administration. The currently applicable civil-law prerequisites for increasing rents must however still be reviewed. DEFINITIONS: Refer to tip 3.

• The term “rent” means the net rent ex- 1.4 Rent Caps in case of Rent Increases after Modernisation cluding any operating and heating costs The new rent freeze law also limits rent increase possibilities after (“Nettokaltmiete”) but including for exam- a modernisation. The according construction measures are firstly ple surcharges for furniture and fixtures. limited to an energetic improvement of the building, eliminating barriers and facilitating access to the flat and secondly by capping • The “effective date rent” is the rent effec- the rent increase to a maximum of 1€/m2 per month. In the future, tively agreed on 18 June 2019. modernisation costs can therefore only entail a rent increase in Ber- lin if the modernisation • Rent caps are the rental amounts listed in • is mandatory by law (e.g. the installation of smoke alarms or the table(s) of the rent freeze law (includ- replacement of a heating system that is older than 30 years) ing surcharges and deductions). • constitutes thermal insulation of the building envelope, the basement ceiling or the top floor or roof, • includes the replacement of the heating system and at the same time optimises the same or • eliminates barriers (by removing thresholds, widening doors or remodelling bathrooms).

THE BERLIN RENT CAP 2 If the modernisation represents one of the above mentioned con- In buildings with one or two flats the rent cap shown in the table struction measures, the landlord is entitled to increase the rent of (without modernisation) can be ten percent higher. Every two years existing leases and new leases (re-letting) provided that the effective after the law’s entry into force the Senate Administration of Urban date rent does not exceed the rent caps. In these cases the landlord Development and Housing must adjust the rent caps to the accord- can increase the rent by up to one euro per square meter per month ing real wage development. above the rent owed on 18 June 2019. Here again, the previously Rent increases even after modernisation requires further review of applicable civil-law prerequisites must be reviewed. the previous civil-law prerequisites – as e.g. the requirements to be As regards re-letting after the law’s entry into force the following met in the rent increase letter. If e.g. a financial hardship exists when regulations apply: If the vacant living space was modernized pur- the monthly rent is increased by one euro per square meter, this suant to the above conditions between the effective date and the may have an effect on the rent increase. conclusion of the lease, the rent caps can be exceeded as shown in Refer to tip 1. the table (see below) by up to 1 €/m2 monthly. In case of a modern outfit (see box) the rent can be exceeded by an additional 1€/m2 of the initial value listed in the table. This optional rent increase is also permitted if the modernisation measures took place after the date of re-letting. In these cases the rent caps below apply when re-letting and modernising the flat:

Table 1: Every two years maximum net rent after modernisation and without modernisation for flats with central heating and bathroom:

up to 1919- 1950- 1965- 1973- 1991- 2003- Year of completion 1918 1949 1964 1972 1990 2002 2013 without modernisation 6,45 6,27 6,08 5,95 6,04 8,13 9,80

2 after rent in €/m / modernisation 7,45 7,27 7,08 6,95 7,04 9,13 10,80 per month after modernisation with modern outfit* 8,45 8,27 8,08 7,95 8,04 10,13 11,80

Table 2: Maximum net rent after modernisation for flats with no central heating for flats with central heating or with bathroom: and no bathroom up to 1919- 1950- Year of completion up to 1918 1919 - 1949 1918 1949 1964

without modernisation 5,00 5,22 5,62 3,92 4,59

2 after rent in €/m / modernisation 6,00 6,22 6,62 4,92 5,59 per month

after modernisation with modern outfit* 7,00 7,22 7,62 5,92 6,59

*MODERN OUTFIT: A flat with modern outfit is considered as such if at least three of the following features exist: 1. passenger elevator accessible without threshold from the flat and from the house entrance 2. fitted kitchen 3. high-quality sanitary appliances 4. high-quality flooring in the majority of the living spaces 5. energy consumption level of less than 120 kWh/(m²a).

THE BERLIN RENT CAP 3 Rent Limitation when Re-letting (concluding a new lease) When concluding a new lease in an already existing residential building (re-letting) the net rent may not initially exceed the effective date rent, i.e. the rent agreed on 18 June 2019 with the former tenant of the flat. Where this effective date rent is higher than the rent cap amount shown in table 3 or 4, then however the maximum rent listed in the tables is the admissible rent which can be agreed when re-letting the flat. It is permitted to add to these basic amounts the surcharges for modernisation and modern outfit (see box). Wit- hout being asked by the future tenant before concluding a lease, the landlord must inform him/her of the rent of the previous tenant living in that same flat on 18 June 2019. If the flat was vacant at that time, the basis is the rent paid by the last tenant of the flat prior to the effective date. Refer to tips 1,4 & 5. There is an exception for low rents: If the previous rent was less than 5.02 euro per square meter monthly and the flat has a modern outfit (see box / only two features must however exist), the rent can be increased when re-letting by one euro per square meter but maximally to 5.02 euro per square meter per month. In buildings with maximally two flats the rent cap specified in the table (without modernisation) can be increased by ten percent. Every two years after the law’s entry into force the Senate Administration of Urban Development and Housing must adjust the rent caps to the according real wage development. GlobalStock / istockphoto.com

Table 3: Maximum net rent when re-letting flats with central heating and with bathroom: up to 1919 - 1950 - 1965 - 1973 - 1991 - 2003 - Year of completion 1918 1949 1964 1972 1990 2002 2013 without modernisation 6,45 6,27 6,08 5,95 6,04 8,13 9,80

after modernisation rent in €/m2/ or with modern 7,45 7,27 7,08 6,95 7,04 9,13 10,80

per month outfit* madochab / photocase.de

after modernisation with modern outfit* 8,45 8,27 8,08 7,95 8,04 10,13 11,80

Table 4: Maximum net rent when re-letting flats flats with no central heating flats with central heating or with bathroom and with no bathroom up to 1919 - 1950 - up to Year of completion 1919 - 1949 1918 1949 1964 1918

without modernisation 5,00 5,22 5,62 3,92 4,59

after modernisation rent in €/m2/ or with modern 6,00 6,22 6,62 4,92 5,59 per month outfit*

after modernisation 7,00 7,22 7,62 5,92 6,59 with modern outfit*

THE BERLIN RENT CAP 4 Reducing an Excess Rent Implementing Rent Reductions Reducing excess rents is possible at the earliest nine months after Landlords must lower the rent to the rent cap levels shown in table the law’s entry into force, i.e. starting 23 November 2020. 5 and 6 – otherwise they can be fined. If the landlords do not act A rent is defined as excessive if – considering the quality of the and do not lower the rent, then tenants should take action. No no- residential area – the admissible rent caps (plus equipment or mo- tification of the Senate Administration of Urban Development and dernisation additions) are exceeded by more than twenty percent. Housing is necessary but such a letter may be useful. Since the Entitlement to a reduction therefore also depends on the quality of Senate Administration can take all measures to enforce the demand the residential area. The rents listed in table 5 and table 6 demon- for reduction, this authority should be involved in case the land- strate the effects due to the quality of the residential areas: Simp- lord refuses to lower the rent. The Senate Administration can then le residential locations carry a subtraction of 0.28 euros, medium issue an administrative act or provide according information. Both quality locations a subtraction of 0.09 euros and good residential can be helpful in case of civil-law proceedings initiated against the locations an addition of 0.74 euros/m2 monthly and an addition of landlord. Should the Senate Administration issue a law-shaping ad- twenty percent. For rents below the net rents shown in the tables 5 ministrative act (which is in its discretion), the rent would be lowered and 6 no reduction is possible. Refer to tips 1 & 6. at the time of the receipt of the administrative act. As a parallel measure civil-law claims can be asserted. Refer to tip 6. To determine the quality of the relevant residential locations the Se- nate Administration of Urban Development and Housing can issue The amounts in the tables 5 and 6 below show from which rent a decree.Every two years after the law’s entry into force this Senate level on tenants are entitled to reductions. To enforce a reduction, Administration of Urban Development and Housing must adjust the the tenant must demand from the landlord to lower the rent to the rent caps to the relevant real wage development. amounts listed below. The Senate Administration of Urban Develop- ment and Housing is in charge of monitoring the admissible rents.

Table 5: Net rent of flats with central heating and with bathroom allowing a reduction: quality of up to 1919 - 1950 - 1965 - 1973 - 1990 - 2003- Year of completion residential 1918 1949 1964 1972 1990 2002 2013 area

simple 7,404 7,188 6,960 6,804 6,912 9,420 11,424 without modernisation medium 7,632 7,426 7,188 7,032 7,140 9,648 11,652 good 8,628 8,412 8,184 8,028 8,136 10,644 12,648

simple 8,604 8,388 8,160 8,004 8 ,112 10,620 12,624 rent in after modernisation €/m2/per or with modern medium 8,832 8,616 8,388 8,232 8,340 10,848 12,852 month outfit* good 9,828 9,612 9,384 9,228 9,336 11,844 13,848 madochab / photocase.de

simple 9,804 9,588 9,360 9,204 9,312 11,820 13,824 after modernisation medium 10,032 9,816 9,588 9,432 9,540 12,048 14,052 with modern outfit* good 11,028 10,812 10,584 10,428 10,536 13,044 15,048

According to the Senate Administration of Urban Development and Housing it is necessary to indicate prices per square meter with three digits after the decimal point in order to avoid distorting rounding differences. For buildings with maximally two flats different amounts apply.

BERLINER MIETER*INNEN VEREINT

THE BERLIN RENT CAP 5 Table 6: Net rent allowing a reduction for flats without central heat- for flats with central heating or with bathroom: ing and without bathroom:

quality of up to 1919 - 1950 - up to Year of completion residential 1919 - 1949 1918 1949 1964 1918 area

simple 5,664 5,928 6,408 4,368 5,172

without modernisation medium 5,892 6,156 6,636 4,596 5,400

good 6,888 7,152 7,632 5,592 6,396

simple 6,864 7,128 7,608 5,568 6,372 rent in after modernisation or with €/m2/per medium 7,092 7,356 7,836 5,796 6,600 month modern outfit* good 8,088 8,352 8,832 6,792 7,596

simple 8,064 8,328 8,808 6,768 7,572 after modernisation with medium 8,292 8,556 9,036 6,996 7,800 modern outfit* good 9,288 9,552 10,032 7,992 8,796

According to the Senate Administration of Urban Development and Housing it is necessary to indicate prices per square meter with three digits after the decimal point in order to avoid distorting rounding differences. Different amounts apply for buildings with maximally two flats.

Regulation in case of landlord’s hardship Subsidies for tenants in case of landlord’s hardship Where the rent caps resulting from the new law constitutes an un- If the Investitionsbank Berlin (IBB) confirms that an undue hardship due hardship for the landlord, the latter can apply for an adequate exists for the applying landlord and if the latter is therefore entitled increase of the rent(s). The landlord must apply for this at the Inves- to increase the net rent to a level above the caps specified in the titionsbank Berlin (IBB) which must decide on this case within three according law, the tenant may apply for a rent subsidy at the In- months after receipt of the application and inform both the landlord vestitionsbank Berlin (IBB) pursuant to the provisions of the Berlin and the tenant of its decision. The relevant criteria of hardship are Housing Act (“Wohnraumgesetz Berlin”). to be defined by the Senate Administration of Urban Development and Housing by way of a decree.

6 TIPS & TRICKS REGARDING THE RENT FREEZE

TIP 1 Information duties of the landlord Until 23 April 2020 landlords are by law obliged to inform tenants with existing leases about various features (year of completion, quality of the residential area, outfit of the flat etc.) to be able to determine the rent caps (tables 1-6). These must be checked. Based on this data, the tenant sees which entries in the table apply to calculate the maximum allowable rent. On request of the tenant the landlord must inform of the rent agreed on the effective date (18 June 2019). This also applies for new leases (re-letting) – and without being asked. The information must be given to the potential tenant before conclusion of the lease.

TIP 2 Handling rent increases agreed prior to the effective date on 18 June 2019 and prior to the entry into force of the rent freeze law on 23 February 2020 Rent increases effectively agreed upon in the above mentioned period were to be reviewed solely pursuant to the provisions of the Ger- man Civil Code (Bürgerliches Gesetzbuch = BGB). In case of an obligation to consent the tenant had to give his/her consent and pay the increased rent. From 23 February 2020 on, the landlord must however lower the rent to the level of the rent effectively agreed on 18 June 2019 since exceeding this rent applicable on 18 June 2019 is prohibited by law. If the landlord does not lower the rent or does not inform the tenant that only the lower rent has to be paid, the tenant has two options: 1. Starting 23 February 2020, the tenant only pays the net rent agreed on 18 June 2019 (note: money saved should first of all be set aside) or 2. the tenant pays the increased rent for the time being and files a complaint with a court to force the landlord to only demand the rent agreed on 18 June 2019. As a parallel measure, the tenant should ask the District Office to review the rent. The District Office can then calculate if the rent is too high and can impose a fine on the landlord.

DERTHE BERLINER BERLIN MIETENDECKEL RENT CAP 6 6 8TIP TIPPS 3 Rent & increases TRICKS until RUND 31 DecemberIM DIE MIETPREISBREMSE 2021 despite rent freeze: What to do. Despite the federal state’s prohibition of rent increases a landlord requests from a tenant the latter’s consent to a rent increase pursuant to the German Civil Code (BGB) by informing at the same time that the specifically claimed higher rent must not be paid at this point in time. If the rent freeze law’s constitutionality is confirmed then it is obvious that rent increases – except in case of modernisation measures – are prohibited until 31 December 2021. After that date, rent increases are only permitted up to 1.3% annually. It is however still unclear if a consent to a rent increase for a period after expiry of the rent freeze must be given, this being normally required pursuant to BGB. The Berlin Tenants‘ Association (BMV) is of the opinion that tenants are not obliged to give such a consent during the validity of the rent freeze. This is, however, a controversial matter. It is highly recommended to benefit from the BMV’s legal advice in order to get the latest information on current court rulings regarding this matter.

TIP 4 Which rent must be paid when concluding a lease (re-letting) after the law’s entry into force? The landlord may maximally demand the rent agreed on the effective date on 18 June 2019 with the former tenant, unless this effective date rent exceeds the rent cap stipulated in the Berlin rent freeze law (refer to table 3 and 4). In this latter case this rent cap applies. The landlord is obliged to already inform the (future) tenant prior to the conclusion of the lease of the rent agreed on the effective date and of the data needed to calculate the rent cap. Should the landlord not comply with this request although asked to do so or demands a higher rent, then the tenant has two options: 1. The tenant continues to pay the higher rent, contacts the District Office and obtains information about the allowable rent. Based on this, the tenant – if need be – then requests the Local Court to determine and confirm the allowable rent in order to be able to reclaim the excess rent amounts paid until then. Neither the official information nor the administrative act of the District Office are prerequisites for judicial enforcement but can facilitate the procedure. 2. If the maximum rent is clear, the rent can immediately be reduced to the rent cap specified in the table. The amounts saved should be set aside. In addition, the landlord should be reproached for violating the rent cap law - pursuant to the German Civil Code where the rent is more than 10 percent higher than the customary comparative rent. By doing this, claims arising from the rent cap can be secured if the rent freeze law turns out to be entirely or in parts invalid.

TIP 5 Upon conclusion of a lease the landlord demands a significantly higher rent (so-called “shadow rent”) than the allowed capped rent. Others demand payment of the difference between the capped rent and the higher rent to a fiduciary account. What to do. Some landlords demand for new leases a higher rent than is admissible but declare at the same time that they will “waive“ this amount for the period of validity of the rent freeze law, and instead only “demand” a rent admissible pursuant to the applicable rent cap. According to the BMV’s opinion this is forbidden pursuant to the rent freeze law and such contract clauses should not be agreed between the parties. This matter will certainly be a disputed topic.

According to the BMV, the landlord is not entitled to request payment of the difference between the higher rent and the capped rent defined by the rent freeze law (“MietenWoG Bln”) to a fiduciary account. In general, the BMV recommends that tenants put aside the saved amounts if landlords claim rents above the cap and that they reduce the rent on their own until the law‘s constitutionality is reviewed by the courts. It is however not recommended to pay the difference to a fiduciary account set up for this purpose.

TIP 6 Reducing the rent starting 23 November 2020: How can tenants reduce rents which were already quite high on the effective date on 18 June 2019? The rent freeze law regulates an entitlement to reduction if the rent is 20 percent above the allowable cap shown in the table. This entitlement, however, exists no sooner than from 23 November 2020 on. From that date on, the landlord must lower the rent from his/her side – otherwise a fine may be imposed on him/her. If the landlord does not act accordingly and reduces the rent, tenants should take action. First of all it is recommendable to inform the Senate Administration of Urban Development and Housing that an excess rent is suspected and that the landlord is not willing to reduce it. The administration can then issue an administrative act or provide relevant information. Both may be helpful in case of civil-law proceedings initiated against the landlord. Should the Senate Administration issue a law-shaping administrative act (which is in its discretion), the rent would be reduced upon receipt of the act. It must be reviewed if it is reasonable to wait for the authority’s reaction or if it is better for the tenants to act without delay. There are two options: 1. Tenants request the landlord to reduce the rent or file a complaint if the request is denied. The complaint is lodged with the Local Court of their place of residence. The court then determines the allowable rent and reclaims the rent amounts paid in excess. 2. Tenants themselves lower the rent to the admissible cap and set the difference aside as a precaution. If the landlord does not accept the rent cap, then the latter would have to lodge a complaint to reclaim the difference. As long as the constitutionality of the law is not refuted it is very likely that the landlord cannot enforce a termination of the lease due to accrued rent arrears. Please discuss which option seems to be the better one in individual cases with BMV’s legal consultants.

THE BERLIN RENT CAP 7 LEGAL ADVICE FOR TENANTS To make an appointment call phone no: 030/22626-0, Appointments possible MO - TH between 9 - 20, FR between 9 - 17 and SA between 9 -13. For consultations without appointment, energy consulting and artist consulting, please call the above number.

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