Berlins Rent Ceiling – our recommendations for tenants and landlords

By Achim Amann, Director Black Label Properties

Achim Amann

As real estate agent and property manager, we are being asked what the so-called Berlin rent freeze or rent ceiling is about. What will be the expected outcome and what do we suggest should Berlins’ tenants or landlords now do?
The effects have been already widely discussed in public and are starting to show up in the Berlin property market already. That is why we have listed our recommendations below separated into sections for both tenants and landlords. The recommendations focus on the typical private tenant and on the typical private landlord who are in a current lease contract.
We believe that from current information the rent ceiling will be implemented in February 2020 for all buildings that were built before 2014. But this law will be challenged in the courts immediately and after 24 months – or more likely maybe in just in 12 months – the courts will dismiss the law. There is not a single lawyer or judge I know that believes that the rent ceiling in its current form will survive a court case.

Recommendation for tenants with existing rental contracts:

1. Stay calm and talk to your landlord or property management company. Communication is now very important. You as the tenant are crucial for your landlord, while you of course want in exchange a proper apartment in a proper building – and of course a fair rent. Try to have personal contact and an understanding with your landlord and forget the pollical circus.
2. Check your rent in the current the Berlin rent index. Do you currently pay more or less than the latest 2019 rent index lists? You can check via the Berlin Senate website here: → https://www.stadtentwicklung.berlin.de/wohnen/mietspiegel/
3. The rent ceiling is on purpose a different law than the rental index. You still should use the renal index to check if your rent is fair or not. If you pay less you realistically wont be able to lower your rent under the rent ceiling. If you pay more than the rent index you already can lower your rent as of today. I advise not to use the rent ceiling in your argumentation, as we all believe the new law will not be upheld by the courts.
4. As things currently stand, you will receive post in October 2020 from your landlord informing you that the rent ceiling is applicable to your apartment. Attached to the letter there will be an overview of types of apartments in Berlin with different rents next to them. You will also find that overview on the web of the Berlin government website.
5. At that point you would be able to lower the rent if you pay more than is indicated by the rent ceiling. For most Berlin apartments that will be the case. But beware! If the rent ceiling is dismissed in court, you will need to pay back the difference between your current rent and the lower figure to your landlord. You will in effect owe rent arrears, which in the worst-case scenario may result in the cancellation
   of your letting contract. Hence my advice: pay your rent as agreed in your current rental contract and wait what happens in court.
6. If you have a graduated rental agreement with automatic increases of your rent, you should check the dates when the rent increases are due. You should respect your current letting contract.
7. If you move and you rent an apartment built after 2014, the rent ceiling does not apply and you will pay a full market rent.

Recommendations for landlords with long-term valid rental contracts:

1. Stay calm and don’t panic! Contact your management company or your tenant directly and discuss the situation with them. The communication with your tenant is key as you need to have a relationship based upon trust.
2. Do your tenants have a graduated rental agreement with automatic increases of their rent? If yes, this is still valid under the rent ceiling. If you do not have one, you can increase the rent in line with the existing regulations. Because of the political situation in Berlin, we advise you to increase your rent in this way.
3. You need to inform your tenants by approximately the end 2020 of the rent ceiling. Your management company or your lawyer will inform you when and how you should do this. Please make sure that you legally and formally do not ask for a higher rent as is stated in the rent ceiling and also contact your lawyer specialised in property law. You should absolutely inform your tenant that in case the rent
   ceiling is stopped in court they be in rent arrears and will owe you the difference between the current rent and any amount the rent was reduced.
4. If you plan to rent your apartment to a new tenant, make sure a legally correct declaration is included that protects your during and after the period of the rental ceiling is included. After the rent ceiling is cancelled in court, the tenant should be made aware that the rental difference has to be covered for the time period he did not pay the full rent. Attention: you should always advertise the real rent and not the “rent ceiling rent” to avoid misunderstandings.
5. By implementing the rent ceiling there will not be a rental index anymore – the rent ceiling table replaces the rental index table – but we still advise that you use the current rental index as your benchmark. More information can be found on the Berlin Senate website here: → https://www.stadtentwicklung.berlin.de/wohnen/mieten/. This means you will be able to increase your rent after the rent ceiling law is stopped by using am independent local surveyor to confirm the correct current market rent.
6. If your tenant is asking to lower their rent under the rent ceiling regulations, your commercial sustainability could be threatened. If this is the case in your situation, please contact a specialised lawyer for advice.
7. If you have financed your apartment via a mortgage loan, please check your current loan-to-value ratio and the duration of your mortgage contract. Please expect that the banks might lower their valuation of your property and that you have to cover the difference with your own equity or offer more securities. This can also happen during an existing mortgage contract. This is from my perspective the real risk for your as a buy-to-let investor. Please contact your bank manager or your mortgage broker in time to discuss any potential risks.

Conclusion: A fair partnership is key. Tenant and landlord should understand each others interest and treat each other with respect to find a fair solution for both parties. Now its ​
not the right time to squeeze the maximum possible rent out of every single square meter. Buy-to-let investors should focus more on purchase prices rather less on rents.

The tenant should treat their landlord in the same respectful way. Rents of 5,00 or 6,00 EUR per sqm in Berlin today are simply not economically sustainable or realistic. Just because of a controversial law, you should not start a confrontation with your landlord. Neither the tenant nor the landlord will win that kind of confrontation.

Rather, why not use the current situation and consider possible alternatives to your letting contract. Could you be in a position to buy your own apartment? Maybe your landlord is interested in selling your apartment to you? This could be a good solution for both parties. The tenant has the security of owning a property that they already know, and the landlord can sell directly to someone who really wants the apartment as their home without having to put it on the market.

Note: We advise both tenants and landlords always to consult a specialist property lawyer. I hereby express again that my recommendations above is not legal advice. If you want further recommendations on the situation of your apartment in Berlin please contact us at: +49 30 – 318 06 596 or info@blacklabel-properties.com