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Mietendeckel (rent cap) – the solution to the Berlin housing problem?

Affordable housing and relaxation on the housing market

Berlin has moved away from these phenomena more and more in recent years. Individually agreed rents and thus the rent burden have increased independently and much more quickly than the market has developed. In the past, these developments have already given rise to (usually not very successful) slowdown measures – just think of the so-called Mietpreisbremse (rent brake).

Now, the Mietendeckel (rent cap) is intended to counteract the rapid increase in rents as a regulation under the federal state law of Berlin to limit rent levels. On June 18, 2019, Berlin’s Senate decided on the cornerstones of the Berlin Rental Act, which is to apply to all non-price-linked residential spaces with the exception of initial leases in new buildings. The bill is expected in the fall of 2019 and the Act is expected to come into force at the beginning of the next year. This law is then expected to be applied retroactively starting from June 18, 2019. At the moment, however, only the following main cornerstones exist:

The specific measures in brief

Rent moratorium
The core measure is a five-year rent moratorium, whereby the rent level at the time of the resolution dated June 18, 2019 is decisive. Consequently, no rent increases will be possible.

A cap on rent amounts
A general cap on rent amounts is to be introduced. The upper rent limit has not yet been defined, but it should be linked to the income of the tenant. In the event of re-letting, the amount of the previous contractual rent and the cap may not be exceeded. If so, tenants may apply for a reduction. The authorities will check the rent and if the official check is positive, the rent will be reduced to the permissible upper limit.

Approval of modernizations
Modernizations that lead to a maximum charge of 50 cents per square meter on the rent have to be reported. Higher levies are possible, but must be approved in advance.

Fine
Landlords who do not comply with the new regulations must expect a fine of up to EUR 500,000.

Hardship provision – the landlord’s counterprotection?

The criticism of the disproportionality of such a moratorium on rents is countered with the insertion of a hardship provision, which is intended to apply to the landlord in the event of economic difficulties and to facilitate an agreement for a higher rent. The fundamental discrimination of such landlords renting below the representative list of rents or having agreed on a stepped or index rent in order to grant the tenant a lower rent at the beginning of the lease term, which over time approaches the representative list of rents, cannot, however, be dismissed.

No solution after all?

We have to keep in mind that the federal state of Berlin has merely announced the main elements so far. There is no bill in place at present; the legislative process is only just beginning. In this process, details will be specified and criticism will hopefully be weighted and dealt with. Considerable doubts about the constitutionality of such a bill are already being raised, both in formal and in material terms. For example, where does the federal state of Berlin gets its authority for such bill from? Does this law not violate the owners’ rights deriving from Article 14 of the constitution (GG) or the commercial landlords’ right deriving from Article 12 GG? In fact, it is also doubtful whether the above-mentioned situation will improve. Due to the limitation of the cost allocation for modernization measures, a considerable decrease in investment by landlords is to be expected.

It therefore remains to be seen whether the bill will be able to withstand these serious accusations. However, these cornerstones do of course show the direction of travel. Since tenancy law and, in particular, rising rent are a high-profile political topic (and this through all parties), similar proposals can also be expected from other federal states or even from the federal government. It appears that the state governments are still undecided as to whether they (as well as real estate sales that have already taken place) are still economically worthwhile.