Building Modernization Act (GMG): What is now important for companies

The planned Building Modernization Act (GMG) is set to replace significant parts of the previous Building Energy Act (GEG). Companies in the real estate industry, in particular landlords, portfolio holders and project developers, are now faced with the question of what impact these changes resulting from the GMG will have on their investments, their planning and their heating strategies. The GMG takes a different approach to the previous “Heating Act”: a certain proportion of renewable energies for heat generation will no longer be mandatory for new systems in future. The GMG, on the other hand, is intended to open up significantly more technological freedom of choice with regard to the heating system used and also allow the installation of conventional heating systems beyond 2029. A key issues paper is currently available (as of February 2026); details may still change as the legislative process continues.

These are the key points of the new Building Modernization Act

• The GMG pursues an open approach with regard to the technology of newly installed heating systems and replaces the previous, sometimes very detailed requirements of the Heating Act. When replacing heating systems, owners can choose between heat pumps, district heating (where available), biomass, hybrid solutions and gas and oil heating systems. The obligation to use at least 65% renewable energy is to be dropped.

• An increasing minimum proportion of climate-friendly fuels is to apply to fossil heating systems from January 1, 2029. This so-called bio-staircase is to start at ten percent and gradually increase until 2040. From 2028, a green gas or green oil quota is to be introduced for distributors, starting at up to one percent and contributing to the achievement of climate targets. According to the key issues paper, the quota should be achievable through accounting (for example via allocation systems/certificates). Biomethane as well as various types of hydrogen and derivatives are mentioned as eligible. Both instruments should work together and influence the operating costs of fossil systems in the long term, making it more economical to switch to other types of heat supply.

• Federal funding for efficient buildings (BEG) is to be continued until at least 2029. In addition, the expansion and decarbonization of heating networks should be legally and financially strengthened – in particular through greater price transparency and a more investment-friendly, more stable legal framework for district heating.

• The GMG is also intended to implement the European Buildings Directive (EPBD) without triggering additional building-specific refurbishment obligations for existing buildings. According to the key points, new buildings must meet the zero emissions standard from 2030, and public non-residential buildings from 2028.

• The law is due to come into force before July 1, 2026.

What does the GMG mean for existing heating systems and ongoing refurbishments?

The GMG allows existing heating systems to continue to be operated. Operating bans or mandatory conversions for functioning systems are not envisaged. The planned law does not contain any requirements that would force the replacement or decommissioning of existing systems.

Many real estate companies have invested in heat pumps, efficiency measures or energy-efficient renovations in recent years. These investments retain their value. They reduce operating costs, improve building energy efficiency and continue to meet long-term climate targets. The planned amendment to the law does not devalue these measures. Nor will they be rendered superfluous by the GMG.

What heating options will be available to companies in the future?

All property owners should be free to decide whether they want to replace their heating system with a heat pump, district heating, a biomass system, a hybrid solution or continue to use gas or oil heating. However, fossil fuel heating systems will have to use an increasing proportion of_CO2-neutral fuels from 2029.

Many heat pumps are now in use and many properties are connected to district heating networks. The draft law recognizes this development, but relies on control via economic efficiency, site conditions and individual building strategies.

What role will the “organic staircase” play for landlords and tenants from 2029?

The “bio-staircase” is intended to oblige operators of newly installed gas and oil heating systems to use at least ten percent climate-friendly fuels from 2029. This proportion is to increase gradually until 2040. This will create a cost factor that can be calculated in the long term. The development of the (expectedly high) prices for biomethane or synthetic fuels will play an important role in the decision-making process: The introduction of the “bio-staircase” should make fossil heating systems less attractive in the long term. This is because their economic viability will increasingly depend on the availability and price of green fuels. For companies, the question therefore arises as to whether investments in fossil-based systems are sustainable in the long term. This also applies if heating costs are borne by tenants as operating costs, as they will – at least in functioning housing markets – demand properties with lower ancillary costs more. One of the issues being discussed in opinions is whether “green” gases will be available in sufficient quantities and at reasonable cost in time. In addition, the design of the quota mechanism (including verification/accounting) is sometimes highlighted as a key uncertainty factor. Due to the expected lack of availability of green gases and green oil, a significant increase in operating costs for gas and oil heating systems is to be expected. In this context, especially when installing new heating systems, the landlord’s investment decision must always be tested against the principle of economic efficiency, which represents the benchmark for the ability to pass on the costs of heat supply to tenants. In addition, tenancy law also contains clear regulations on the development of costs for newly installed heating systems.

How will the green gas quota affect energy prices and operating costs from 2028?

A green gas or green oil quota is to apply from 2028. This is intended to reduce greenhouse gas emissions in the building sector. Even though the quota will initially be low, companies will have to expect a change in fuel prices and tariffs. According to the key points, the quota is linked to the distributors of natural gas and heating oil and should be achievable in balance sheet terms.

This creates a new framework for gas distributors, which they should take into account when calculating operating costs and for long-term supply contracts. From the perspective of gas distributors, the quota may – depending on the specific structure – trigger additional requirements for procurement, product design (e.g. blending/allocation), verification and balancing systems as well as customer communication. As the key points hold out the prospect of balance sheet compliance and details are still to follow, the specific price and implementation effect remains uncertain for the time being.

What does the GMG mean for new construction and project development?

The EPBD requires all new buildings to be constructed as zero-emission buildings from 2030. For public non-residential buildings, this already applies from 2028. The GMG implements these requirements one-to-one. In practice, new construction projects must therefore continue to rely on climate-neutral or almost climate-neutral supply concepts.

A tightening of the requirements for the building envelope is expressly not provided for in the GMG. This means planning security for project developers. The GMG confirms and supports the current practice of using heat pumps or, where available, district heating for new buildings.

Should more emphasis be placed on district heating now?

The GMG provides for extensive improvements in the district heating sector. These include greater price transparency, improved consumer protection and a legal framework that facilitates investment in heating networks. Funding for efficient heating networks will also be expanded.

However, whether district heating is the most economical option in individual cases depends not only on regional availability but also on the price structure, the degree of expansion and the long-term planning of the municipalities. Municipal heat planning remains a key orientation tool. It should be significantly simplified for smaller municipalities so that the information can be provided in good time. It is therefore crucial for real estate companies to incorporate the local authority’s heat planning into their own strategy at an early stage.

What the plans mean for companies – a summary

The Building Modernization Act fundamentally eases the regulatory landscape in the heating sector. Real estate companies are given significantly more flexibility when making investment decisions and benefit from greater planning security. At the same time, new paths are emerging in the form of the bio-staircase and the green gas quota, which should be incorporated into long-term profitability considerations.