21 Aug Understanding the Rent Brake (Mietpreisbremse)
The Cost of Rent in Germany is skyrocketing.
I originally wrote this article about Berlin but these days it could apply to any large city in Germany. I would say it’s the first thing you have to tick off your list is finding a finding a decent job. The next thing is finding a place to live. Competition has grown considerably in the past few years as the Germany has attracted more and more people. It’s not as easy as it used to be. Take Berlin for example, there was a time not too far back when living there was a young person’s dream, cheap rents cool neighbors but with gentrification has come not only soaring house prices but massively increased rents. This has also showed up in the key word research I did for this post. I did a google search for Mieterverein Berlin and it’s getting over 4500 searches a month. This means there are a lot of people having problems with their landlords.
Unfortunately it’s not just greedy landlords (and I write this as a landlord myself) the other factor that is much less talked about is demand! The simple fact is that throughout Germany, is outpacing supply. When this happens prices increase. Eventually, an equilibrium will be found but I don’t see this happening in the short term. If you want to know more see my blog post “The German Housing Market in 2018″
Mietpreisbremse What is This?
Back in 2015, Germany’s then justice minister Heiko Maas introduced new rent controls to areas like Berlin, Hamburg and Munich. It was known as the “rent price brake”. These aimed to put a brake on rent increases. Some as much as 30 or 40 per cent. “Renting has to remain affordable for those on average incomes,” he said at the time.
Rent brake is the literal translation of the German term “Mietpreisbremse” but probably a more accurate translation might be rent control. The main driver of the “rent brake” or expand rent controls, has been the booming rental market in Germany. Berlin was the first city to implement the new rent controls with them taking effect June 1 2015
When was it introduced?
Berlin was the first state to introduce the rental brake with it taking effect on 1 June 2015. Unfortunately not too many landlords are following the rules! A study conducted by the research institute Regionkontext on behalf of the Berlin tenants’ association at the end of May 2016 showed that the landlords in Berlin did not follow the rent brake guidelines for 31 percent of new leases. This meant that almost 20,000 apartments in Berlin are over the limit.
The problem is that the majority of Germans rent their homes rather than own. In Berlin it’s as high as 85 percent. This makes rent controls a hot button topic. Existing laws limit rent increases in new leases in under-pressure markets to a maximum of 10 percent above the average rent in the area.
The Berliner Mieterverein (German tenants union) has also complained that many landlords are not adhering to the letter, much less the spirit, of the law. Honestly this doesn’t surprise me. According to a survey conducted by the portal Wenigermiete.de more than 70 percent of the more than 10,000 cases examined by them landlords have raised the rent are above the allowable limit. Tenants pay, on an average, 220€ more than is allowed.
Of course the other thing is that many landlords have a very expansive idea of how to interpret the legal exceptions. The sad reality is that there is little risk to increasing the rent more than is allowed because there is no threat of fines or legal action.
On May 19, 2017, the city of Berlin published the updated rent index and not surprisingly it’s shown that rents have risen an overall average of 9.4 per cent. Unfortunately the “rent brake” and limits on the maximum rents that can be charged have had only a limited effect on the market.
The figures presented by the portal wenigermiete.de at the end of April 2017 are even more frightening. About 4,000 tenants have so far checked their rents in Berlin. In over 70% of the cases they looked at, they found that the landlord had overcharged by an average of 224€ per month.
Mietpreisbremse how does it work?
The government passed legislation whereas individual states can designate specific areas or districts as having an “overheated” or a “tense” housing situation. When this happens, restrictions are supposed to come into place how much a landlord can increase the rent. As we will see in a moment the effect of the law has been very limited. The basic point of the law is that the rent increase must remain unchanged for 12 months. The rent can only be increased by 15%/20% over a three year period. The landlord has to justify this rent increase. Following modernisation, the landlord can increase the rental on a apartment.
The previous rent for the apartment was 7.50 euros per sq. mtr. For comparable apartments, prices of up to EUR 10 were being gotten. However the local leasing rate is EUR 8.50 per sq. mtr. If the apartment is to be rented again, the maximum landlord can demand is EUR 9.35 per sq. mtr.
Unfortunately there are loopholes large enough to drive a truck through
The law does not apply to new buildings.
If the apartment is a new build or one that is being rented for the first time, then the law does not apply. Note only applies to leases signed after 1st Oct 2014.
Also the law does not apply If the building has had major improvements or comprehensive modernization. It should be noted that this applies once a new tenant moves in. For landlords itÄs important to remember that you have to increase the rent before the next tenant moves out and a new tenant moves in. If you don’t take advantage of this than you have to stick to to the rent brake law.
Modernization increases: It should be noted that while the rent brake does apply an upgrade surcharge is still allowed. In this situation, it’s best to seek expert advice on exactly what one is allowed but in general terms, you can increase the rent by 11%.
Ignorance is an excuse.
There is an old saying that ignorance of the law is no excuse. Not knowing something was illegal is not a valid defense. In the case of the rent brake ignorance is a valid defense. If the landlord raises the rent above the allowed limit and the tenant agrees to it (by paying the new rent amount) the landlord is under no obligation to reduce the rent should the tenant complain. This also applies if the tenant moves out and someone else moves in.
As a reminder for landlords when sending a notice of rent increase, you need to note that the tenant has the right to object and that it needs to be in writing. Once the tenant starts paying the new amount the tenant can no longer object
As well as all exceptions to the rules I’ve mentioned there is the ongoing legal case in Berlin. The issue is the official “Mietspiegel” (rent index) or more specifically the lack thereof.
…. if you are going to use an official Mietspiegel as the basis for determining local comparative rents (the “ortsübliche Vergleichsmiete”), you’d better be sure of the methodology and data used to compile the index. Otherwise, you are just asking for trouble (and a wave of lawsuits).”
The article goes on to mention “The fact that so many cities across Germany do not have reliable “qualified” rent indices makes it nigh on impossible to determine the local comparative rents, upon which the maximum 10% increases are to be based. For years this didn’t matter as landlords tended not to raise the rent. But with the booming sales market more and more landlords are starting to bring in regular rent increases. The challenge here is what is allowed. I suspect that many landlords simply “create” their own by looking online for examples of higher rent. Regardless of how you determine the new rent it can’t be increased by more than 15/20%.
No Supervisory Authority
The other issue is that even if one suspects the landlord has raised the rent illegally there is no supervisory authority tenants can turn. In reality, the Mietpreisbremse only works if tenants themselves are diligent and complain if the rent is too high. Very few people have taken advantage of this right.
Real Life Experiences
The numbers did not surprise a New Berlin woman. She reported on her experiences with the apartment search: In mid-2016, she was offered an apartment in Kreuzberg at a price of 14.44 euros per square meter. The local comparison rent is € 8.10. The previous guest had already paid 11.20 euros, but the landlord wanted more.
There are many reasons why rents are increasing despite the rent brake. As mentioned in the first article there are many exemptions to the law. As well not all cities publish rent indices. As well even if there is a rent index it’s not being enforced.
The other issue is that many people find their places via a broker (makler) or platforms like Scout 24. The broker works for the landlord not the tenant! Platforms like Scout 24 are there only to connect sellers with buyers. Whether the rent is fair or not doesn’t concern them.
Also, as anyone who has tried to find a place in Munich or Berlin, knows, asking too many questions is a fast track to getting a rejection. Why should a landlord care when he has 3 or 4 other families that are interested and are happy to pay the rent he is asking.
But it’s not all bad news. In Hamburg, the rents for new leases fell in the first year after the introduction of the “rent brake”. This according to a survey done by the real estate portal Immowelt.de. But it’s not just rent control that’s helping. In the northern city of Hansestadt Lübeck, there has been a been a so-called “alliance for housing”. That is an agreement between the Senate and various industry Its aim is to make sure that the housing market and rents don’t spiral out of control.
Elsewhere, as I noted in German Property 2018 review cities where supply and demand are matched rents are rising slowly.
Elsewhere, as I noted in my German Property Overview 2018 review cities where supply and demand are matched rents are rising slowly.
What to do if you suspect your landlord has wrongly raised the rent.
Along those lines, if you’re looking at a place and you suspect that the landlord as increased the rent above the allowable limit. You are under no obligation to point this out to him. Once you’ve signed the lease, than you can begin the process of getting the rent corrected.
BTW for landlords who are reading this and thinking, OMG, this is terrible why did I invest here. In the third and final part of this series I’ll explain why this is all bad news.
My Rent is too High What to Do
First off, if you have legal insurance, then contact a lawyer who specializes in rental law and arrange a meeting with him. Secondly, if you haven’t already joined the local Meitverein. Of course, those who downloaded my free rental guide will already know that!
Mietright is an option. An interesting alternative to hiring a lawyer or joining the Meitverein are services like Mietright. They are the legal service provider operating the website Wenigermiete.de. They are the equivalent of “No Win No Fee” legal firms. That is it costs you nothing to hire them and you only pay if they succeed in reducing your rent.
The advantage to hiring a firm like Mietright is that they are specialists in this area of the law. As a tenant, you do not need to worry about anything. They will send a letter to the landlord on your behalf explaining why the rent is too high and if needed go to court. If successful, the tenant pays a third of the annual savings. If not, there is no fee to the tenant.
The portal wenigermiete.de* reported that by the end of April 2017 about 1,600 tenants in Hamburg had checked their rent and around two-thirds of the cases the rent was too high.
The only disadvantage to this type of online tool it only works in the major cities. I tried putting in some of my rental properties and the cities weren’t listed. I also tried entering in my former address in Munich and it told me it wasn’t applicable.
As always the Mietverein is often your best friend.
Rents and the laws surrounding them are in a great flux at the moment. The days when you could live in the same place for decades and the landlord never raised the rent are, unfortunately behind us. As a tenant this doesn’t mean you have to accept the rent increases. Landlords it means you need to be careful how you raise the rent. In the next two blog posts I will go into more detail on how this has played out in Germany.
Update: you might have read the news about protests in Berlin over rent increases. People are calling for the government to bring back the properties under government ownership. Considering the billions it would cost and the fact that Berlin is deeply in debt I think this is unlikely. BUT and this is important it doesn’t mean the government won’t act. My personal opinion is at some point the Federal government will introduce strict country wide rent control. Once this happens the government will determine the annual allowed rent increase for all of Germany. I expect at the same time they will close all loop holes (such as the new buildings rule) and all landlords will be held to the same increase. Once this happens rent increases will be limited to the rate of inflation (1-2%) good for tenants not so good for landlords. This is why it’s important to buy a property where the numbers make sense now, not in 10 years.
So in closing has anyone had any experience in taking their landlord to court to win a rent reduction?