Real Estate

Rent cover is unconstitutional – what that means for tenants

The controversial Berlin law is passé, the rent cap violates the constitution. t-online explains what this means for hundreds of thousands of Berliners – and for the rest of Germany.

End, off, over: The controversial Berlin rent cap is unconstitutional. The Federal Constitutional Court declared the relevant law null and void.

This judgment now has consequences for hundreds of thousands of Berliners. But not just for them. Tenants in other cities and regions in Germany should also look at the verdict. t-online explains what exactly was decided and what that means for Berlin and all of Germany.

What was the original idea of ​​the rental cover?

With the rent cap, the Berlin Senate wanted to stop the strong rent increases of recent years. According to calculations by the umbrella association Central Real Estate Committee (ZIA), new contract rents climbed by 27 percent between 2013 and 2019 alone. According to the red-red-green state government, this was mainly due to real estate investors who bet on high returns – and speculated on the housing market.

Specifically, the rent cover consisted of three levels. In a first stage In February 2020, the Senate froze rents for around 1.5 million apartments in Berlin at the June 2019 level. If an apartment was rented out again, the landlord had to adhere to upper limits based on the age, equipment and location of the apartment as well as the last rent requested.

In a second stage, since November 23, 2020, rents that are more than 20 percent above the upper limits and were therefore considered excessive were prohibited by law. These had to be reduced by the landlord. Otherwise he could face high fines.

In a third stage From January 2022, rents could have increased to compensate for inflation, but no more than 1.3 percent annually.

What exactly did the constitutional judges judge on the rent cap?

The judges at the Federal Constitutional Court have declared the “Law on Rent Limitation in Berlin Housing” to be null and void. They justified this with the fact that tenancy law was a federal matter. However, the rent cap was passed by the Berlin Senate – and thus by a state government.

The 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,” says the reasoning for the judgment. “Since the federal legislature has finally regulated rental price law in §§ 556 to 561 BGB, there is no room for the legislative power of the states due to the blocking effect of federal law.”

So the court did not decide that the interference in the free market, as many critics of the rent cap complained about, was incompatible with the constitution. Another Chamber of the Tribunal is dealing with these questions. But: Since the rent cap is unconstitutional, such decisions have anyway – for now – settled.

What does the judgment mean for tenants in Berlin?

Rents in Berlin will rise again. On February 23, 2020, the existing rents for 1.5 million apartments in the capital were frozen – at the level of June 2019. From autumn last year, tenants were even allowed to complain about increased rents and lower them after the rent cap. That is now a thing of the past.

Often landlords and tenants agree on what is known as “shadow rent”. What is meant is a rent that would apply without the rent cap. According to the judgment of the Federal Constitutional Court, it is likely that many landlords will now invoke this shadow rent and raise the current rent again.

There is a risk of high back rent payments

But many Berliners are not only threatened with higher rents – they also face high back payments. Because: Landlords are now allowed to demand the difference between the rent cap price and the shadow rent from the past few months since the lowering. It can quickly turn out to be thousands of euros.

The Berlin Senate had warned that the Berliners should withhold the money saved for the time being, also because the legal situation was unclear for a long time. However, it is questionable how many tenants actually put the money aside.

“Anyone who cannot pay the outstanding amounts immediately should get in touch with the landlord,” recommended the Berlin tenants’ association. He appealed to the owners to behave fairly and to enable amicable solutions.

After the ruling in Karlsruhe, the Deutsche Wohnen Group announced that to insist on the additional rent payments. The housing company Vonovia, on the other hand, wants to forego additional rent payments of up to ten million euros. It is possible that other landlords will take this step.

What effects does the judgment have on the rest of Germany?

First of all, efforts in other federal states to also introduce a rent cap are nipped in the bud. For example, the left in Hamburg has already called for a rent cap.

However, the ruling could bring a nationwide law into the public eye. One thing is already certain: The issue of rent is becoming an election campaign issue – especially for the left-wing party spectrum. For example, the Greens have already brought a kind of “nationwide rent cap” into play in their program. How likely this is, however, depends on the election results and the future governing coalition.

Tenants could find an apartment more easily

Citizens looking for an apartment in Berlin will have it much easier in the future, at least that is the hope. According to several studies – for example by the German Institute for Economic Research Berlin (DIW) or the Munich Ifo Institute – the rent cap has achieved the desired effect of lowering rents.

But there was also a side effect: the rent cap significantly reduced the supply of rental apartments. According to DIW Berlin, the supply fell by more than half, while rents in the Berlin area rose sharply. The reason: Many landlords left their apartments empty, preferred renovations until there was a legally certain judgment – or converted rental apartments into owner-occupied apartments.

How can the rise in rents be stopped now?

For example, through the rent brake. Since mid-2015, it has allowed landlords in “areas with tight housing markets” to add a maximum of ten percent to the local comparable rent when new tenants move in.

However, this law was passed by the federal government and not by a state government. Therefore it will continue to be valid. In Berlin, however, the Left, the Greens and the SPD criticized the fact that the rent brake did not prevent rents from rising.

In addition to the rent brake, the supply of apartments would also have to be significantly increased – for example through increased construction of apartments, especially social housing. As a rule, the higher the offer, the lower the prices. In that case, however, the federal government could still make regulations that permanently prevent actual speculation on the housing market – without reducing supply again at the same time.

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