05.11.2018 | KPMG Law Insights

Mietpreisbremse 2.0 – The changes at a glance

Mietpreisbremse 2.0 – The changes at a glance

In the Rent Law Amendment Act of April 21, 2015, the legislature for the first time limited the permissible rent level when concluding new residential leases, namely to 110% of the standard local comparative rent. The reason for the so-called rent brake was the desire to create more affordable housing. So far, the desired success has failed to materialize. For this reason, the German government is seeking to tighten up the existing regulations and has drafted a bill to supplement the regulations on the permissible amount of rent at the start of the lease and to adjust the regulations on modernization of the rental property (Mietrechtsanpassungsgesetz – MietAnpG). The first reading in the Bundestag took place on October 19, 2019, and the Bundesrat discussed it on the same day and addressed various recommendations for the further legislative process.

I. Scope
According to § 556d para. 1 of the German Civil Code (BGB), the Mietpreisbremse in its current version only applies when a lease for residential space is newly concluded. This means that all forms of lease extensions and renewals, as well as changes of party in the case of existing apartments, are not covered by the Mietpreisbremse. It also does not apply in cases where the previous rent already exceeded the local comparative rent by more than 10 percent (Section 566e (1) of the German Civil Code (BGB)), it is the first rental after comprehensive modernization (Section 556f sentence 2 of the German Civil Code (BGB)) or an apartment is used and rented for the first time after October 1, 2014 (Section 556f sentence 1 of the German Civil Code (BGB)). New buildings in particular should therefore not be covered by the rent brake, so that investors continue to be encouraged to create new housing. This scope of application remains the same under the new draft law.

II. proposed amendments
Only a few tenants have so far defended themselves against violations of the rent brake, because it is incumbent on the tenant to give (qualified) notice of excessive rent and to present facts on which the complaint about the rent is based (Section 556g (2) of the German Civil Code (BGB)). In particular with regard to the aforementioned exception in the case of a higher previous rent (Section 556e (1) of the German Civil Code), tenants have so far found it very difficult to present the necessary facts regarding the amount of the previous rent without the cooperation of their landlord. With its draft legislation, the German government is reportedly aiming to achieve a balanced reconciliation of interests between tenants and landlords, while at the same time taking into account the importance of private tenancy law in terms of social, housing and economic policy. The difficulties that tenants have had in exercising and enforcing their rights are to be eliminated by the new regulations. This is to be achieved by obliging the landlord to provide information about the previous rent and, in cases of “out-modernization”, to pay damages. On the other hand, landlords are also to be facilitated by the addition of a provision on simplified modernization.
For the Federal Council, the changes do not go far enough to create more affordable housing. In particular, it advocated making it easier for tenants to enforce their rights by simply complaining about the excessive rent and to consider a period of 8 years rather than 4 years for determining the comparative rent, on the basis of which the permissible rent level is calculated at the start of the lease.
1. provision of information
According to the draft of the Rent Law Adjustment Act, the current provision of § 556g para. 2 sentence 2 of the German Civil Code shall be repealed. Instead, a new paragraph 1a is to be added to Section 556g, according to which the landlord is obliged to provide the tenant with unsolicited information on the existence of any exemptions from the scope of application of the Mietpreisbremse even before the tenant submits his contractual declaration to conclude the rental agreement. Specifically, this means:
a. The landlord has pursuant to § 556g para. 1a sentence 1 no. 1 BGB-E the amount of the previous rent if this indicates the admissibility of the rent demanded by him. The time reference point for the previous rent to be notified is the point in time one year before termination of the previous tenancy. The landlord already fulfills this obligation to provide information by simply stating the amount of the previous rent in euros. Personal identifying data of the previous tenant are not to be provided.
b. The landlord has pursuant to § 556g para. 1a Sentence 1 No. 2 BGB-E to provide information on any modernizations carried out in the last three years before the start of the lease. Extensive explanations of the type and scope of modernization should not be necessary as a rule, but the date of modernization must be stated in each case.
c. § 556g para. 1a sentence 1 no. 3 BGB-E concerns the information on whether it is the case of a first letting after comprehensive modernization. Scope and details are also not to be communicated here.
d. If the apartment is used and rented for the first time after October 1, 2014, the landlord must inform the tenant of this in accordance with Section 556g para. 1a sentence 1 no. 4 BGB- E also before the latter’s contractual declaration.
It is sufficient if the required notice or information is included in the copy of the lease agreement to be signed by the tenant. If the landlord fails to comply with his duty to provide information, he shall not be able to invoke one of the aforementioned exceptions to the rent brake to this extent.
2. modernizations
In the landlord’s right to increase the annual rent under § 559 para. 1 BGB by 11 percent of the costs incurred for modernization of the dwelling, nothing changes in principle under the German government’s draft bill. Only in areas that have been designated by the respective competent state government as areas where the number of affordable housing units is low is the percentage to be as low as 8 percent for a period of five years. This is intended to provide short-term relief for tenants in these areas, who probably have to pay high initial rents on a regular basis anyway. In addition, the reduction in the aforementioned percentage is intended to take account of the fact that financing costs for modernization measures have fallen significantly following the current interest rate situation. The Bundesrat is of the opinion that the reduction of the modernization levy from 11 percent to 8 percent should not only apply in certain areas, but nationwide, because, after all, the financing costs for modernization measures have also fallen nationwide.
3. simplified modernization
In order to make it easier for small landlords to carry out modernizations, the legislator would like to introduce a simplified modernization procedure. In the case of an investment volume of no more than EUR 10,000.00 per apartment, the landlord need only indicate that he intends to make use of the simplified procedure. Then the landlord shall not be obliged to submit a calculation of operating cost savings or a calculation of the costs that would have been required for maintenance measures if there had been no modernization. In practice, these calculations are very time-consuming and tedious.
4. “Out modernization
One of the stipulations of the coalition agreement, namely to prevent the “out-modernization” of tenants, is finally also to be implemented in the Tenancy Law Amendment Act. The term “out-modernization” is understood to mean the announcement of modernization measures and an associated increase in rent in order to induce existing tenants, some of whom have lived in the same apartment for decades, to terminate their lease in order to then be able to rent the apartment to third parties at the current market conditions. The planned new Section 559d of the German Civil Code (BGB-E) is intended to enable the tenant to assert claims for damages against the landlord if the landlord (a) does not start with the construction measures within twelve months after their announced start, (b) states in the notice the expected rent increase with an amount that is double the previous rent, (c) has the construction work done in a manner that is likely to cause substantial non-essential hardship to the tenant; or (d) suspends the construction work for more than twelve months after its commencement. In each of the aforementioned cases, a breach of duty on the part of the landlord that is subject to compensation shall be presumed.
We will keep you informed about the further course of the legislative process.

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