The Federal Constitutional Court declares Berlin's rent cap unconstitutional

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On March 25, 2021, the Second Senate of the Federal Constitutional Court declared the Law on Rent Restrictions in the Housing Sector in Berlin (MietenWoG Bln) to be incompatible with the German Constitution and therefore null and void. This decision was published on April 15, 2021.

A brief overview of the reasons for the decision and its consequences

On March 25, 2021, the Second Senate of the Federal Constitutional Court declared the Law on Rent Restrictions in the Housing Sector in Berlin (MietenWoG Bln) to be incompatible with the German Constitution and therefore null and void. This decision was published on April 15, 2021.

The reason given for the annulment was that regulations on rent levels for freely financed housing that can be offered on the open housing market (unrestricted housing) fall under concurrent legislative responsibility. The Federal States are only authorized to legislate as long as and to the extent that the Federal Government has not made final use of its legislative competence (Art. 70, Art. 72 (1) of the German Constitution). However, since the federal legislature has already conclusively regulated rent law in Sections 556 to 561 of the German Civil Code (BGB), there is no longer any room for the legislative power of the Federal States due to the blocking effect of federal law. Since the core of the MietenWoG Bln also regulates the rent level for unrestricted housing, it is void as a whole.

General information on the Berlin rent cap

The law on rent limitation in the housing sector in Berlin (MietenWoG BIn), the so-called Berlin rent cap, was passed by the Berlin House of Representatives on January 30, 2020 and came into force on February 23, 2020. Based on this, on April 02, 2020 the responsible Berlin Senate Administration had issued implementing regulations for the application of the MietenWoG BIn (AV-MietenWoG BIn), in which the scope of application of the rent cap and the rent ceilings as well as the regulations on fines for violations were specified in more detail. The core of the Berlin state law on rent caps in the housing sector was the public law cap on rents, which was to apply for five years. This was intended to put the brakes on price developments on the free rental market in order to bring rents back to a socially acceptable level.

Constitutional concerns about the MietenWoG BIn from the very beginning of its enactment

There have been constitutional concerns about the MietenWoG BIn ever since it was enacted. From the outset, it was disputed whether the State of Berlin had legislative competence vis-à-vis the federal government for the regulations on rent ceilings and whether the encroachment on the fundamental rights of property owners was justified. In this regard, the draft resolution noted that the MietenWoG BIn offers stronger protection against rent increases in many respects than the provisions of the German Civil Code (BGB) and does not render the latter obsolete or lead to its displacement due to the different starting points and regulatory content.

However, this view was not confirmed by the Federal Constitutional Court, to the chagrin of many tenants.

The Second Senate of the Federal Constitutional Court had now to clarify the question of the legislative competence of the State of Berlin and assessed the legal question differently, to the chagrin of many tenants. A decision on whether the Berlin rent cap also constituted an encroachment on fundamental rights was not the subject of these proceedings and will no longer be made due to the annulment.

The nationwide regulations for regulating the amount of rent are constitutional

The nationwide regulations for regulating the amount of rent at the start of rent in non-price-controlled housing (so-called "Mietpreisbremse", for more information see here), which were created with the Rent Law Amendment Act passed in 2015, have likewise already been subjected to a constitutional review (BVerfG, decision of the 3rd Chamber of the First Senate dated June 18, 2019, - 1 BvL 1/18, margin no. 1-121). However, the Federal Constitutional Court did not find any unconstitutionality. The regulation of the amount of rent at the beginning of the lease by sec. 556d (1) German Civil Code (BGB) does not violate the guarantee of ownership, freedom of contract or the general principle of equality. (We have already dealt with this topic in our blog post on September, 03 2019.)

Consequences for tenants

For tenants, the abolition of the Berlin rent cap now means that the social rent law (so-called “soziales Mietpreisrecht”) of the German Civil Code (BGB) now applies again and the tenants are subject to claims by landlords for subsequent payment of the rents that have now been unjustly reduced. It should also be noted in this context that unjustly unpaid rents, if they exceed two months' rent, also result in the landlord being able to terminate without notice. The media and politicians are already calling for socially acceptable solutions for tenants; however, tenants do not have any legal rights to this.

In the year of the parliamentary elections, this topic is now also being used as an election campaign issue. The party “Die Linke” is already calling for a rent cap as a nationwide regulation. The party “Die Grünen” as well as SPD also have variants of capped rents and rent ceilings in their election programs. However, as long as there is no nationwide law, the rent cap is "off the table" for the time being. A nationwide retroactive reintroduction is not to be expected; this would be constitutionally problematic. In addition, as already mentioned, the question of a possible encroachment on fundamental rights would still remain.

In this context, it is also interesting to note the ruling of the Federal Court of Justice of January 28, 2021, III ZR 25/20. Here, the Federal Court of Justice has already ruled that tenants cannot assert official liability claims if a rent restriction ordinance is declared unlawful. In the case in question, the State of Hesse had omitted to provide the required justification when issuing the rent restriction ordinance. A retroactive cure of this formal error could not be achieved even by a subsequent publication of the reasoning.

Background: Tenants sued the State of Hesse for damages for rent they would not have had to pay if the ordinance had been issued with legal effect.

The Federal Court of Justice rejected a claim for damages on the grounds that enactment of an invalid rent limitation ordinance does not constitute a breach of a third party's official duty within the meaning of sec. 839 German Civil Code (BGB) and that state liability could also not be suggested from the perspective of the protection of legitimate expectations. The Rent Limitation Ordinance is not directed at the interests of certain individuals, but at the general public and thus does not affect an individually limited group of persons. Thus, there is no measure or individual case law in the sense of sec. 839 German Civil Code (BGB). A special relationship between the violated official duty and the injured "third party" thus does not exist. The court also did not assume a trust in the existence of the regulation to be protected.

This reasoning suggests that, due to the comparability of the content of the regulation, those affected by the "Berlin rent cap" will also not be able to assert any official liability claims against the State of Berlin.

[View source.]

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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