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Dipl.-Kfm. Christian Dürr - Immobilienmakler - Gründer von Isar Estate

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Founder: Dipl.-Kfm. Christian Dürr

 

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New legislation for the rent freeze

The picture shows a beautiful classical building and a law book

For you, as a real estate owner, it is quintessential to know whether you do or do not have to respect the rent freeze when letting your property in Germany. The rent freeze is generally mandatory when renting out an apartment in Munich unless one of the various statutory exceptions applies.

Since April 2020, the ‘Act on the extension and improvement of the regulations for a maximum rental fee’ has become effective. It is applicable for new rental agreements. The corresponding legal regulations are listed in the Bürgerliches Gesetzbuch (BGB), which is the German Civil Code.

 

In the case of a tight housing market, the respective German state governments have the possibility of proclaiming a mandatory rent freeze by legislative decree. This option has now recently been extended until the end of the year 2025.

 

With the recent legislative adaption, the legislator has further tightened the legal regulations at the expense of landlords.

 

In Bavaria, the rent freeze currently applies in 162 towns and municipalities, including the city of Munich.

Justification of the rent freeze

In the following cases, the legislator has given to state governments the possibility of ordaining a rent freeze:

 

  • The increase in rental rates or the average rental burden for the households of the region is significantly higher than the national average
  • The growth of the resident population is considerably higher than the number of newly built living spaces
  • High demand for accommodation in combination with low vacancy rates

Cap on the rental price

If the rent freeze is applicable, by law, the rental price shall not exceed the local customary comparative rent by more than ten per cent at the beginning of the rental agreement. In Munich, the customary comparative rent is determined by the Qualified Index of Rental Prices.

Example of the cap on the rental price

The following data is the basis for all the following examples:

Apartment in the city of Munich; Rent freeze is applicable; Construction year: 2005; living space: 100 m²; local customary monthly rent: 15 € per m² = 1500 €; new letting contract on 01.05.2020

 

→ Highest permitted rent: Local rent + 10 % = 1500 € + 150 € = 1650 €

 

Legal consequences for the violation of the rent freeze

For landlords, the legal consequences for the violation of the rent freeze have become much more severe since April 2020. Now, the tenant can retroactively claim a total refund of the rental fee, exceeding the legally permitted rent, from the landlord. For this, the tenant needs to contest the landlord’s violation of the rent freeze within 2.5 years after the start of the rental agreement. Further, the rental agreement must still be in place at the time of the refund being claimed.

 

For all rental agreements that are affected by the rent freeze but have been concluded before April 2020, the tenant can claim an adjustment of the rental fee. Only from the moment of the complaint, the tenant can claim a refund. This means that a retroactive claim for a refund from the landlord is not possible in such cases.

 

Example of a rent freeze violation

Instead of the maximal permitted rent of 1650 € (see example above), the apartment is rented out on 01.05.2020 for 2000 €. On 15.09.2022, the landlord receives a complaint regarding the violation of the rent freeze by the tenant.

 

→ The landlord has to refund the following amount to the tenant: (2000 € – 1650 €) x 28 = 9.800 €
From 01.10.2022, the rent must be adjusted to the maximal permitted rent of 1650 €.

 

Exceptions to the rent freeze

The legislator has fixed four exceptions for which the rent freeze is not mandatory. When the criteria for these exceptions are met, the landlord has the right to ask for a higher price than the customary monthly rental fee plus 10 %.

Information duty of the landlord

First of all, a very crucial point: Since January 2019, the landlord must inform the tenant in case of applying one of the four exceptions of the rent freeze. The new tenant has the right to learn on what legal grounds the landlord intends to set the rental fee higher than 10% above the usually permitted rental price. Before the conclusion of the rental agreement, the landlord has to convey this information in text form (e.g. fax or e-mail) without the tenant’s explicit request. For legal security, the information provided should also be mentioned in the rental agreement.

 

If the landlord does not fulfil his pre-contractual obligation to inform the tenant as mentioned above, he is risking considerable financial consequences. In this case, the landlord will only be able to set a higher rental fee than usually permitted two years after (the time) he has fulfilled his duty to inform on informing the tenant.

 

Example of the landlord’s failure to provide information

The permitted rental fee due to a legal exception of the rent freeze is 2000 € per month. But the landlord has not informed the tenant until July 2020, although the rental agreement had been settled on 01.05.2020.

 

→ The landlord is not allowed to increase the rent from 1650 € to 2000 € per month until 01.08.2022. Therefore he cannot claim the following amount in the meantime: (2000 € – 1650 €) x 24 = 8.400 €.

 

The four exceptions to the rent freeze

 

1. Higher rent level in the previous lease

The first exception applies if, due to a lease concluded before the institutionalisation of the rent freeze, the previous tenant has been paying a higher rent than permitted by the rent freeze. In this scenario, the landlord has the right to apply the same rent level for the lease with the new tenant as for the previous one. However, in principle rent increases fixed within the last year before the termination of the rental agreement can not be taken into account, except for rent increases due to graduated and index-linked lease agreements.

 

Example of a previously higher rent level

– Rental fee of the previous tenant: 1750 € per month

– Termination of the lease on 01.03.2020

– Lease with the new tenant on 01.05.2020



 

→ Instead of 1650 €, the landlord may charge 1750 € per month.

 

2. Refurbishment measures in the last three years

The rental fee for a new lease may also exceed the local rent by more than 10 % in case of refurbishment measures having been completed within the last three years. This exemption applies if the landlord has not claimed the permissible rent increase in the previous lease or if the refurbishment was carried out during vacancy before the new contract.

 

In this case, the landlord may increase the rental fee by the amount that could be added to the rent during an existing lease based on a refurbishment measure. The maximum permitted refurbishment surcharge per year is eight per cent of the modernisation costs.

 

Example of an exemption due to refurbishment measures

Refurbishment costs in the last three years: 18.000 €

 

→ Annual refurbishment surcharge = 8 % x 18,000 € = 1440 €, this corresponds to 120 € per month

→ Permissible rent for new rental contracts: 1650 € + 120 € = 1770 €

 

3. New buildings

If an apartment is used and rented out for the first time after 01.10.2014, the rent freeze does not apply.

Example of a higher possible rent due to this third exemption

– A newly built apartment is used and rented for the first time on 01.05.2020.

– The landlord charges 1850 €.



 

→ The landlord has the right to do this, although the maximum amount is generally 1650 € due to the rent freeze.

 

4. Comprehensive modernisation measures

Modernisation costs of around one-third of a comparable new apartment will also suspend the rent freeze. This fourth exemption is only applicable for the first lease after the comprehensive modernisation.

Example of a comprehensive modernisation

Before the start of the lease on 01.05.2020, the landlord has extensively modernised the apartment.

 

→ Since the rent freeze is suspended, in this scenario the landlord may let the apartment at a higher price, e.g. for 1900 €. Otherwise, the highest possible rent would have been 1650 €, as shown in the earlier example.

 

The Bottom Line

Opinions differ as to whether the rent freeze makes sense or not. Everyone will find good arguments for their point of view. However, it is a fact that the rent freeze is effective in 162 towns and communities in Bavaria. To avoid misunderstandings and eventual problems, it makes sense for landlords to know the highest permissible rent they can ask from their tenant.

 

This blog article presents the main features of the rent freeze. Legal subtleties need to be analysed in detail in each case. Please feel free to contact us to rent out your property with our help.

 

 

 

Disclaimer

Despite careful research and checking of the sources, the author does not assume any liability for the accuracy and completeness of the information given in this blog article. In the case of unclear legal and tax questions, it is advisable to engage a lawyer and a tax consultant for legal clarification.

 

Author: Dipl.-Kfm. Christian Dürr

Picture credit: Shutterstock, 494058484, Africa Studio

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