Presentation of the provisions of the law on rent limitation in the housing sector in Berlin “Rent cap”

1. Entry into force

On 30 January 2020, the Berlin House of Representatives passed the law to revise statutory provisions on rent caps. Pursuant to Article 4 (1) Act on Rent Limitation for Housing in Berlin (‘MietenWoG Bln’), the law came into force on 23 February 2020.

2. Scope of application – Section 1 MietenWoG Bln

The law applies according to its Section 1 to housing, with the exception of

• housing which is publicly subsidized,
• housing for which public funding is used for modernizations and repairs and which is subject to rent control,
• housing which was ready for occupation for the first time as of January 1, 2014, or which, in individual cases, is otherwise permanently uninhabitable and unoccupied former housing that is restored for residential purposes at a cost equivalent to new construction,
• living space in a dormitory and
• housing rented out to or rented by a public legal entity or a recognized charitable or philanthropic organization for persons with urgent housing needs or (partial) care needs.

3. Rent freeze – Section 3 MietenWoG Bln

Section 3 MietenWoG Bln provides for a rent freeze. Existing rent is “frozen” at the level of the net rent owed on June 18, 2019 (reference date) for a period of five years from the date on which the MietenWoG Bln enters into force. This also applies to graduated or index-linked rental agreements.

If living space that has never been rented out as living space on the reference date is rented out for the first time between the reference date and the entry into force of the MietenWoG Bln, the rent effectively agreed between the parties will be deemed to be the relevant rent.

Where living space is rented out again after the reference date and the rental relationship continues at the time of the MietenWoG Bln entering into force, the rent effectively agreed between the parties will be deemed to be the relevant rent.

If the admissible monthly rent is less than EUR 5.02/square meter and the apartment has two modern features according to Section 6(3) MietenWoG Bln, the admissible monthly rent will increase by EUR 1.00/square meter in the event of re-renting, but to no more than EUR 5.02/square meter.

From January 1, 2022, the aforementioned maximum values will increase annually by inflation adjustment, but by no more than 1.3%. It must be taken into consideration, however, that the upper limits specified in Section 6 MietenWoG Bln must not be exceeded. The Senate Administration responsible for housing will determine the relevant percentage by statutory order.

The explanatory memorandum explicitly states that the Act is a prohibition law within the meaning of Section 134 German Civil Code. Thus, legal transactions are null and void to the extent that the ban has been violated. If exceeding the reference date rent was not approved (Section 8 Act MietenWoG Bln), tenants may reclaim the excessive rent paid without legal grounds in accordance with the provisions of enrichment law. In addition, the authorities may intervene in the event of violations of the MietenWoG Bln.

4. Rent caps for new rentals – Section 4 MietenWoG Bln

Section 4 Act on the MietenWoG Bln contains regulations on rent caps for new rentals. Where living space is rented out again after the MietenWoG Bln has entered into force, or if living space that has never been rented out as living space before is rented out for the first time, then, notwithstanding the provisions of Section 3 Act MietenWoG Bln, rent exceeding the rent caps according to Sections 6, 7 MietenWoG Bln is prohibited for this specific and all subsequent rental relationships, irrespective of location and features of the apartment. If the reference date rent according to Section 3 MietenWoG Bln is lower than the rent caps according to Sections 6, 7 MietenWoG Bln, the reference date rent will apply. Where the reference date rent is higher than the rent caps resulting from Sections 6, 7 MietenWoG Bln, only rent in the amount of the relevant rent cap may be demanded.   

Section 6(1) MietenWoG Bln links the rent cap to first-time readiness for occupancy and certain features (collective heating and bathroom) as listed.

If the living space is located in a building with no more than two apartments, the rent cap according to Section 6 MietenWoG Bln will be increased by a 10% surcharge.

For modern apartments, the rent cap will be increased by EUR 1.00 if the apartment has at least three of the following five features:

• barrier-free passenger elevator accessible from the apartment and from the entrance to the building,
• fitted kitchen,
• high-quality sanitary equipment,
• high-quality flooring in the vast majority of living spaces,
• energy consumption characteristic value of less than 120 kWh/year and square meter.

5. Excessive rents – Section 5 MietenWoG Bln

Section 5 Act MietenWoG Bln contains rules on capping excessive rents, providing for a ban on excessive rents. According to the explanatory memorandum to the law, the scope of application is limited to rents that are not already capped by law. The provision provides for capping only in existing tenancies, thus for tenancy contracts on housing that has not been re-let or rented for the first time after the Act has entered into force.

Excessive rent is deemed to be given if the upper limit admissible under Sections 6, 7 MietenWoG Bln is exceeded by more than 20%. The location of the residence is to be taken into account when the upper limit is computed. For simple and medium-quality residential locations, the cap is to be reduced by EUR 0.28 and EUR 0.09. For good locations, EUR 0.74 is to be added to the cap. The Senate Administration is authorized to issue statutory orders to determine the allocation of residential locations. Since this determination has not yet been made, it remains unclear which areas are considered simple, medium-quality or good residential locations.

The Senate Administration responsible for housing will monitor compliance with the ban. It may take all measures ex officio that are necessary to enforce it. According to the explanatory memorandum to the law, these measures are to include, in particular, administrative acts to determine the permissible rent.

It should also be noted that this provision will not enter into force until nine months after promulgation of the law (Article 4(1) MietenWoG Bln). Tenants may therefore only claim a reduction of the excessive rent after the aforementioned period and will not have to pay the excessive rent only from that point on. In contrast to the original draft law, an official reduction at the request of tenants is no longer provided for.

6. Information duties

In accordance with Section 2(3) sentence 3 MietenWoG Bln, tenants and landlords as well as persons acting on their behalf (the explanatory memorandum to the Act lists “persons such as property managers or other agents”) are obligated to provide the competent authority upon request with information and documents necessary for compliance with the statutory provisions. It constitutes an administrative offense if this obligation to cooperate is not, not correctly, or not fully complied with (Section 11(1) no. 1 MietenWoG Bln).

According to Section 3(1) MietenWoG Bln, landlords are to notify tenants in writing or in electronic form of the rent agreed or owed on the reference date unsolicited prior to the conclusion of a new tenancy and at any time at the request of the tenant or the competent district office. In accordance with Section 11(1) no. 2 MietenWoG Bln, landlords commit an administrative offense if they do not, not correctly, or not fully comply with the duty to inform in accordance with Section 3(1) MietenWoG Bln.

In addition, under Section 6(4) MietenWoG Bln, landlords are obligated to provide tenants unsolicited with information on the circumstances relevant to computing the rent cap within two months of the Act entering into force. Landlords have the same obligation towards new tenants prior to the conclusion of contracts. Landlords will have to provide this information to the Senate Administration responsible for housing at its request in any case. The failure to provide, the incorrect or incomplete provision of information constitutes an administrative offense (Section 11(1) no. 3 MietenWoG Bln).

Moreover, landlords must notify Investitionsbank Berlin of any increase in rent due to modernization measures carried out in accordance with Section 7 MietenWoG Bln (“Rent after modernizing”). If the notification is not made, not correct, not complete, or not made in time, an administrative offense is also deemed to have been committed (Section 11(1) no. 5 MietenWoG Bln).

7. Rent after modernizing – Section 7 MietenWoG Bln

According to Section 7 MietenWoG Bln, in cases of modernizing (including multiple modernizing) measures as listed, the rent in accordance with Section 3 and Section 6 MietenWoG Bln may increase “by no more than EUR 1.00 per square meter.”

8. Hardship cases – Section 8 MietenWoG Bln

At the landlord’s request and to avoid undue hardship, Investitionsbank Berlin may authorize higher rents for the current tenancy than permitted under Sections 3 to 6 MietenWoG Bln where this is necessary for reasons beyond the landlord’s control. The landlord may be responsible for reasons such as expectations of value appreciation, expected returns, financing costs not in line with the market, expected returns based on excessive rents even independently of this law and losses resulting from the division of economic entities.

Undue hardship is in particular deemed to be given if retaining the rent permissible under Section 3 to 6 MietenWoG Bln would lead to losses for the landlord in the long term or threaten the substance of the relevant economic entity. According to the law, losses are given if current expenses exceed income for the relevant economic entity. The substance of the economic entity is threatened where its income is no longer sufficient to maintain it.

9. Legal remedies – Section 10 MietenWoG Bln

According to Section 10 (2) MietenWoG Bln, legal remedies against official measures and decisions have no suspensive effect. Any such effects, where required, must be applied for by landlords.

10. Administrative offenses – MietenWoG Bln

Violations of the law are sanctioned with fines of up to EUR 500,000.00. In addition to infringements of the duties to cooperate, disclose, and provide information listed under No. 6, in particular the demand and acceptance of rent higher than permitted under Sections 3 to 7 MietenWoG Bln is also punishable (Section 11(1) no. 4 MietenWoG Bln).

In this context, it is questionable, among other things, how an acceptance can be prevented when tenants are paying the agreed rent that is higher than the rent allowed by the MietenWoG Bln. It is also unclear whether administrators commit an administrative offence if accepting excessive rents.

It also needs to be taken into account that Sections 9 to 11 MietenWoG Bln will also apply after the expiry of the law to the extent and as long as they are effective for the period of validity of this law (Section 4(2) MietenWoG Bln). The provisions on fines will remain in force after the law has expired, insofar as they relate to administrative offenses committed during the period of validity of the Act.