One Year After Mietendeckel: How Berlin Rent Cap Works

The Berlin Rent Cap Law ¹Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin – MietenWoG Bln known as the Mietendeckel (literally, a rent cap) came into effect on 23 February 2020. ²The Berlin Senate approved the bill incorporating the Mietendeckel’s key provisions on 18 June 2019. From that date on, rent increases in Berlin were banned. The law was passed by the Berlin Chamber of Deputies on 30 January 2020 and came into force on 23 February of the same year. After that date, rent for eligible housing was frozen at the level agreed before 18 June 2019.

Nine months later, on 23 November 2020, the second, even more radical, stage of the Mietendeckel came into force, in which landlords were required to lower excessively high rents, A rent is considered excessively high if it exceeds by more than 20% the maximum allowed limit established in the rent table. The maximum rent is fixed between 3.92 euro and 9.8 euro per square metre taking into account the age, condition and location of the housing property.

Landlords are not allowed to increase the rent until 1 January 2022, and then by a maximum of 1.3% to adjust for inflation.

The rent cap provisions will apply for five years, with penalties of up to €500k for non-compliance.

SOME LEGAL NUANCES

The law applies to properties which were ready for occupancy before 2014. The new rules do not apply to publicly subsidised housing and social hostels.

The rent is understood in the law as the basic, or “cold” rent (Kaltmiete), not including the cost of utilities. This means that an increase, e.g., in heating or water tariffs can cause the total, or “warm” rent (Warmmiete) to go up. However, the basic rent includes surcharges for furniture and equipment installed in the apartment.

Landlords have the option of increasing the rent above the set maximum, but they must apply for permission to the Investitionsbank Berlin (IBB) and provide a justification. Rent increases of up to 1 euro per sq. metre per month are possible following certain housing modernisation measures.

In addition to this, landlords can apply to the IBB for permission to increase the rent if the rent freeze under the new law constitutes an “undue hardship” for them – for example, when the rent contributes a significant part of the landlord’s income and livelihood. According to data from the Berlin Senate, 601 landlords filed for “undue hardship” exemptions as of end-October 2020, of whom 165 requests were granted by the IBB, five were rejected, and the rest were still pending as of October 2020.

MIETENDECKEL BACKGROUND

The Mietendeckel law was made possible by efforts of the Berlin parliament’s ruling red-red-green coalition (SPD, The Left, and Alliance 90/The Greens) and has arguably been their most important social and political project.

One of its initiators was Julian Zado, lawyer and deputy chief of the SPD Berlin branch.

Together with two other SPD members, Eva Högl of the federal Bundestag and lawyer Kilian Wegner, Zado published an article in Tagesspiegel in January 2019 raising the possibility of adopting such legislation in Berlin. The article referred to the legislative competence for housing policy devolved to the federal states in 2006 through the Federalism Reform. Therefore, the author argued, Berlin “is entitled to adopt its own rent regulation” without waiting for a decision at the federal level.

“It may be surprising that it [states’ legislative competence in housing law] has so far been overlooked, but it may be due to the fact that there was no particular housing shortage in many large cities in 2006,” wrote ³Julian Zado “Mit dem Mietendeckel die Mietpreisspirale stoppen!”, vorgänge Nr. 228 (4/2019), S. 51-57. Zado in December 2019. “In Berlin, for example, vacancy rather than scarcity of rental space was a politically discussed issue up until 2010. It has only been in recent years that housing rents have skyrocketed.”

“No doubt, this form of lease regulation constitutes a massive encroachment on the freedom of property. <…>  However, such intensive interventions are justified when they are performed for the common good. The Federal Constitutional Court has confirmed this on many occasions,” Zado wrote.

Since its inception, the “rent freeze” bill has faced substantial opposition from members of the CDU, FDP and AfD parties. And of course, its main opponents have been those in real estate business, i.e.  individual and corporate landlords, housing construction cooperatives, and developers. The bill’s opponents argued, in particular, that the existing rent regulations ⁴Until now, rent regulation and increases were based on the Mietspiegel (regularly updated rents indexes), Mietpreisbremse (rent control law passed by the Bundestag in 2015), and other rent-related provisions in the German Civil Code. were sufficient to protect the tenants’ rights, while the new law was nothing but a populist measure taken at the expense of homeowners. In contrast, the new law’s proponents insist that massive opposition from the real estate sector only confirms the relevance and timeliness of the rent freeze policy.

Berlin’s Governing Mayor Michael Müller (SPD) has backed the law, stating that without such instruments, rental prices in Berlin could be as high as those in Paris and London.

There have been attempts to challenge the Mietendeckel in various courts, including Germany’s Constitutional Court where the matter is pending as of this writing.

TENANTS’ PERSPECTIVE

As many as 85% of Berliners live in rented housing. So it comes as no surprise that the rent cap received a warm welcome from the city’s residents: more than 70% of Berliners have supported the law. The Berlin Senate predicted that the new rental regulations would cover more than 1.5 million apartments in one way or another, which, according to Berliner Mieterverein (Berlin tenants’ association), represents more than 90% of the city’s rented apartments.

In the interim, most landlords have been compliant with the new law. But there are a few legal nuances and tricks they have been using to buy time, save money, hedge against the future and just keep the tenants on their toes.

“Undue hardship”

In mid-November 2020, all residents of an apartment building in Friedrichshain, including Katya who lives there with her husband and newborn daughter, received a letter from the company – owner of their building, stating that although it was required by the new law to lower the rent, it would not do so as this would allegedly make it impossible for the company to maintain the building. The letter also informed the tenants that the company had filed an “undue hardship” application with the Investitionsbank Berlin (IBB). ⁵These and other letters are available to the author.

Katya finds it ridiculous. “That poor and miserable housing company,” she laughs. “Actually, it’s illegal to refuse to lower the rent pending the bank’s decision.” Katya and her neighbours responded to the company by demanding that their rent be reduced to the established limits. There is a calculator available online which tenants can use to check whether they are overpaying for their housing. If this is the case and the landlord has not informed them of lowering their rent, they can and should remind the landlord about it.

“The company’s reply was really funny: we had expected more understanding on your part, but okay, you can pay as much as the calculator shows. In our case, it is 200 euro less,” adds Katya.

“Shadow rent”

In August, Anna and her husband Dylan who were renting a studio in Prenzlauer Berg received a letter stating that their landlord, a firm, had planned to raise their rent starting in October but was unable to do so under the new law. But the firm asked the tenants to sign a contract stating that should the rental cap law be overturned, the tenants agreed to make a back-payment to compensate the firm for the lost income. Anna and Dylan consulted with the Berliner Mieterverein and were advised to ignore the requirement because it was illegal. But soon the couple received a new letter threatening to sue them in court if they refused to sign the contract.

“The rent was supposed to be raised by 50 euro, and we decided to sign the contract, because we were not sure how much a lawyer would cost us. Plus, Dylan had just started in a new job and I needed to go back to Russia for family reasons, so we decided that we could not afford the time and energy to go to court,” says Anna.

The letter from the landlord concerned the so-called “shadow rent” arrangement which makes the difference saved by the tenants payable to the landlord retroactively should the law become overturned. The “shadow rent” clause is also incorporated in new contracts: according to taz, 80% of rental apartments advertised on real estate portals come with this arrangement.

A few weeks later, the tenants received a new letter stating that their rent would be lowered as of 1 December under the Mietendeckel law. “As a result, our rent is now substantially less by 150 euro. But we will save the difference. Apparently, the company wishes to hedge their revenues in case the Mietendeckel gets overturned,” says Anna.

Whether shadow rents are legal is a debatable issue. The Association of Building Companies in Berlin-Brandenburg (BBU), ⁶BBU members manage 43% of Berlin’s rented apartments. They include large real estate companies such as Covivio, degewo, Deutsche Wohnen, Optima and Vonovia. an active opponent of the new law, insists that “shadow rent” is perfectly legal. “Because it concerns the rent which is normally payable. Therefore, tenants need to know what to expect,” says BBU spokesperson David Eberhart.

Questionable increase in utilities prices

In recent months, Elvina and her partner who rent an apartment in Gesundbrunnen have been observing their corporate landlord’s manipulations in an attempt to minimise its losses.

“Our contract stipulates an increase in rent at the beginning of each year. We received a letter from them stating that the rent would increase by 30 euro as of 1 January, but the letter also indicated the new rent amount which is lower by 440 euro per month under the Mietendeckel law,” says Elvina. The letter, of course, also contained the “shadow rent” clause, but nonetheless, the benefits for tenants seemed obvious. Except that earlier, Elvina had her utility bills increased by 21 euro per month and recalculated retrospectively, requiring her to make an additional payment of 250 euro. “It all looked like a desperate attempt to make more money.   Whether such increase in utility bills and retroactive recalculation are legal is extremely difficult to determine. Together with other neighbours, we plan to hire a lawyer.”

How tenants defend themselves

While multiple sources of information and assistance on rent and utilities-related issues – from free advice provided by district administrations to the official Mietendeckel website – are available to German-speaking Berliners, those who have moved here only recently, in particular if they are not fluent in German, have a harder time getting advice. Even the FAQ on the official Mietendeckel website is available in German only.

According to Reiner Wild, director of the Berliner Mieterverein, foreigners who have recently moved to Berlin, do not speak German and have poor knowledge of the local laws are the most common targets for unscrupulous landlords. “Some landlords charge excessively high rent for furnished apartments. Others offer a room for the price of an apartment. Still others insist on signing a lease agreement for non-residential property, although the tenants are going to live there rather than run a business – because non-residential lease is not covered by the ‘rental cap’ and provides a loophole to get around the law,” says Wild, listing the most common tricks used by landlords. Berliner Mieterverein responds to the problem by also offering its services to foreigners and providing advice in English, Spanish and Turkish, as well as German.

In any case, all organisations assisting tenants advise them against taking the matter to court before trying out other approaches. Indeed, tenants themselves are not in a hurry to sue.

“We provide some 200 consultations per month, and about 23% of them concern the new law. Very few people are prepared to challenge an overpriced rent in court. Instead, most try to negotiate with the landlord or wait for a decision from the Federal Constitutional Court or the Berlin State Constitutional Court,” according to Bernhard Schüer of Gesoplan, a consulting firm serving Pankow residents.

LANDLORDS STORIES

According to a study by the Rosa Luxemburg Foundation, which is associated with the Left Party, most landlords in Berlin are “multimillionaires” and large real estate conglomerates. “They can easily cope with Mietendeckel,” said the study author Christoph Trautvetter interviewed by rbb.

In this context, it is easy to understand why large firms’ statements on how they suffer from the new law do not arouse much sympathy in society. Most large rental companies adapt by limiting modernisation of existing property and investing less in new housing.

Even before the law came into force, a campaign was launched ⁷“Deutsche Wohnen & Co enteignen” calling for nationalisation of the real estate conglomerates owning more than 3000 apartments in Berlin. In the coming months, the campaign’s organisers hope to collect 170,000 signatures necessary for bringing the issue to a vote.

Housing cooperatives

Housing construction cooperatives (Wohnungsbaugenossenschaft, WBG) consider the law too general and therefore discriminatory in respect of certain types of landlords. The WBG emphasises that unlike large, profit-seeking real estate companies, cooperatives serve their residents and reinvest their revenues in housing maintenance and new construction. Rental payments to WBG are called “user fees” and are relatively low. But joining a WGB is more difficult and requires, as a minimum, paying a membership share contribution and getting the board members’ approval. But once a member, the tenant can sign a “permanent use contract” entitling them to time-unlimited rent. One can also inherit a share in WGB.

This form of tenancy is understandably attractive for many people, and there are waiting lists to join housing cooperatives. The new law has made the waiting times even longer than before, according to Monika Neugebauer, spokesperson for Wohnungsbaugenossenschaften Berlin, an association of 27 WGBs owning together more than 95,000 apartments.

“This law has no positive aspects for us. If the idea was to do something against the ‘black sheep’ of the housing market, they should not have punished those who offer the lowest rent in the city – that is us. The average rental price per square meter in WGBs is 5.69 euro,” according to Neugebauer.

Today, they have to rent out newly vacated apartments at June 2019 prices.

Neugebauer offers an example: “Let’s say, family X moved to a cooperative apartment in May 2019 and pays 7.80 euro per sq. m. After the rent freeze, a woman next door who had lived there for decades moves out. At the time of vacating the apartment, she was paying 4.10 euro per sq. m. Regardless of whether this apartment would be refurbished or modernised, it can be rented out to family Y for no more than 4.10 euro per sq. m. How are you going to explain the difference to other tenants in the building?”

Such situations can cause tension among tenants. In addition to this, lower revenues force housing cooperatives to cut their investment in modernisation of existing property and in new construction.

“Housing cooperatives could have built over 6,000 new apartments in the next five years. Instead, they will only build 2,000 apartments – one third of that,” says Neugebauer.

Individual landlords

In 2017, some 200,000 individuals received rental income in Berlin.

In the same year, IT specialist André took out a mortgage on an 80-meter, three-room apartment in Prenzlauer Berg. He soon moved to Bavaria for work. “I did not sell my apartment to avoid paying a penalty to the bank; besides, I do not rule out moving back to Berlin at some point. I decided to rent out my apartment. The tenant paid me 880 euro, I added 120 euro and paid off my mortgage loan instalment, which was okay by me,” he says. “Now with the new law, I can rent out my apartment for 600 euro maximum, which means that I will need to add 400 euro a month towards my mortgage. This does not make good sense in the long term.”

Now Andre’s apartment is vacant after his tenant moved out for personal reasons. He could call himself lucky for that. Some landlords struggle to evict their tenants, e. g. under the pretext that they need the property “for personal use. “But doing so can be risky if they do not really plan to use the apartment themselves. If you evict your tenant and they can later prove that the apartment remains vacant, you will be in conflict with the law,” explains realtor Sergei Chernyak. A court will also prohibit evicting a vulnerable tenant, e. g. a single parent, a retired or unemployed person, a refugee or someone who is seriously ill.

By law, an apartment should not remain vacant for more than three months. André decided not to rent out the property but sell it unless the law is changed: “There is another reason why renting out an apartment at a low price if you plan to sell it does not make sense: properties on sale while occupied by tenants tend to sell, on average, 30% cheaper than vacant properties.” According to André, many people who have in recent years purchased apartments in Berlin through a mortgage and now rent them out are facing a similar situation: “Many apartments remain vacant. But I doubt that someone looking for an apartment to rent today will find anything available at all.”

“This is a lose-lose situation for everyone. I cannot see how tenants could benefit from this law. Maybe only those who have been renting their homes for a really long time. People moving to Berlin will simply be unable to find an apartment to rent. The government cannot force people to buy apartments and then rent them out at unfavourable prices,” asserts André.

“Real estate owners in Berlin face pressure from all sides, forcing them to sell their property,” Chernyak agrees. He is convinced that the only way to make sufficient housing available at affordable prices is either to limit demand – i. e. the number of people living in Berlin – which for obvious reasons is impossible, or to increase supply.

FUTURE OUTLOOK FOR RENTAL CAP

The “rental cap” law is currently pending before the German Constitutional Court. The matter was brought before the court by Bundestag members of the CDU and FDP, and the ruling is expected to come in the first half of 2021.

The court has been asked to establish whether the state of Berlin had the legislative competence to enact this law. The entire law or some of its parts may be found unconstitutional. At the moment, even the initiators of the law advise tenants to hold on to the money they have been able to save and not to spend it just now.

Yet, the Mietendeckel’s proponents remain optimistic: to date, the Constitutional Court has rejected all urgent petitions against the law.

The Mietendeckel’s initiator Julian Zado continues to insist that the law provides a good solution to the rising cost of housing in Berlin: “Rental prices have stopped growing in Berlin; indeed, many families have been paying less. This is a real success.”

In turn, the BBU opposing the Mietendeckel expects the law to be struck down. “But even if this happens, the law has already done a lot of harm. It’s terrible how much confusion and discord it has caused,” says Eberhart.

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