Rent control legislation for residential leases in Berlin

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On 22 October 2019, the Berlin Senate, after exhaustive discussion, passed a draft bill on new rent control legislation for residential leases in Berlin with the votes of the parties of the governing coalition, which is generally expected to be finally adopted and promulgated in the first quarter 2020 and enter into force with immediate effect.

The draft bill includes several measures that seek to control the increase of rent levels (net rent plus any rent for furniture and equipment) for residential real estate located in Berlin that has been ready for occupancy prior to 1 January 2014:

  • Suspension of rent increases for a period of five years: During a five-year period from the entry into force of the new legislation, the rent payable under any residential lease must not exceed the contractually agreed rent payable for the relevant residential unit on 18 June 2019, or in case of a vacancy on 18 June 2019, the last lease agreement existing for the residential unit. From calendar year 2022 onwards and subject to the newly enacted applicable general rent caps, an annual increase of the rent in an amount corresponding to monetary inflation (as specified by the governmental authorities, but a maximum of 1.3%) shall be admissible.
  • Introduction of general rent caps for new leases: The admissible rent under residential leases concluded after entry into force of the new legislation is not only capped at the amount of rent payable for the relevant residential unit on 18 June 2019, but must in addition not exceed newly enacted general rent caps. It should be noted that in cases of an initial letting of the relevant residential premises, the rent caps already apply to all lease agreements concluded from 18 June 2019, onwards. The general rent cap amounts range between EUR 3.92 - EUR 9.80 / m2, depending on the year of construction and the existence of a bathroom and central heating. The rent cap amounts are subject to certain increases in case the relevant property is (i) consisting of less than two residential units, (ii) equipped with modern facilities, or (iii) undergoing certain privileged modernization works. In addition, the applicable rent cap may upon application of the landlord be increased to cater for situations of economic hardship.
  • Rent reduction under leases concluded prior to 18 June 2019: The newly enacted general rent caps do not apply to leases concluded prior to 18 June 2019. However, the draft bill foresees a rent reduction for excessive rents that exceed an amount corresponding to 120% of the newly enacted specific rent cap for leases existing on 18 June 2019, which is determined on the basis of the general rent cap and adjusted by reference to the location of the residential unit.
  • Supplemental information duties: The landlord shall inform the tenants about the rent applicable as at 18 June 2019 and the criteria relevant for determining the relevant rent cap. A breach of the landlord’s obligations vis-à-vis the tenant is penalized with fines up to an amount of EUR 500,000 in each individual case.
  • Enforcement: The governmental authorities shall monitor compliance of residential lease agreements with the new rent control legislation (in particular applicable rent caps). The legislation grants the governmental authorities extensive enforcement powers, in particular information rights and a right to interdict excessive rents. It is envisaged that the governmental authorities will receive and deploy material resources to enforce the new rent control legislation.

It should be noted that the constitutionality of the new rent control legislation is heavily disputed, in particular with respect to the existence of a competence of the Federal State of Berlin to enact legislation in the context of rent prices and rent increases (which generally falls under the competence of the Federal Republic of Germany, rather than its federal states) and a potential violation of the fundamental right of ownership. Thus it can be expected that the constitutionality of the new legislation will be subject to judicial scrutiny.

At the same time as the new rent control legislation, Berlin will establish new subsidies to fund modernization measures that trigger costs in excess of the applicable rent caps.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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