The Berlin housing market was thoroughly stirred up last week by the announcement of a planned rent freeze. The first facts, and many more ambiguities, have provided for excited discussions between politicians, landlords and lawyers. Here, we summarise the current conditions and clarify what comes next for residential properties.
The basic points of the new legislation
A draft of the so-called "Mietendeckel-Gesetz" (Rent Cap Law) is to be ready by October 2019. It is to come into force at the beginning of 2020 at the latest, but will apply retroactively to all 1.5 million rented flats in apartment buildings that are not price-linked as of 18th June 2019. According to this new law, the rent may not be increased for new rentals in the next five years. In addition, a rent freeze will apply, under which already very high rents, which exceed the upper rent limit, can be lowered upon application. The only exception is new residential construction and, upon application, cases of hardship in which an economic shortfall is proven. Infringements against the law could be punished with a fine.
Where there is still room for clarification
These supposed facts, however, are offset by many unanswered questions. The first of these is whether the law is compatible with the constitution and, if so, whether the State of Berlin has the necessary legislative authority. Normally, the responsibility for tenancy law lies with the federal government. Some experts have strong doubts about this, while several reports published by the state government are intended to prove legitimacy. The question is also split as to whether the planned retroactive effect of the law, which is supposed to counter pre-emptive rent increases over the next six months, is legal. In addition, those involved are already worried about possible details: how high will the upper rent limit be and what about rent increases from index-linked and graduated rental agreements?
The impact on landlords
What is certain is that the rent cap is strongly geared to the well-being of tenants. Without knowing the upper limit at the present time, they look set to benefit from the fact that, not only are new apartments included, but existing contracts can also be reduced on application. Landlords, on the other hand, see a major encroachment on their property rights - and in some cases also a danger to public welfare. Expenses incurred for modernisation measures, for example, could no longer be passed on to the rents, which would result in higher costs for the owners. This would affect not only housing associations and cooperatives, but also private owners. In the worst cases, they may be unable to cover the costs and pay their loans on time. Experts doubt whether the hardship provision could compensate for this.
These discussions are likely to keep the public in suspense for some time to come and investors, landlords and other interested parties will no doubt follow the developments with apprehension. We at EverEstate will stay up-to-date on the topic and provide our clients with all the important information they need.