Questions & Answers
Topic: Current situation with the “Mietendeckel”

Interview with Berlin property lawyer and blogger Tobias Scheidacker

Black Label Properties recently interviewed Berlin property law specialist Tobias Scheidacker on his views on recent developments in the Berlin property market. You can watch the original interview in German on our YouTube channel, but as we think his views are also of interest to our non-German speaking international clients, below is an English transcription:

(2:45)

Achim Amann: What do you think about the current situation with the “Mietendeckel”?

RA Tobias Scheidacker: The Mietendeckel has come into effect on 02/23/2020. There is currently a lot of uncertainty among the
owners of residential real estate. What are you allowed to do, what are you not allowed to do? Initially, this led to no new apartments being offered, but now it seems to be starting again. The large companies have trained their employees, adjusted contract models and have each developed a strategy for how they deal with the topic.

In my opinion, the private owners are more likely to cancel their contracts and register for self-use or sell and no longer rent, because the bureaucratic effort and the risk of doing something wrong is perceived as too great.

(4:38)

Achim Amann: What do the big landlords / owners do differently from the "small" owners?

RA Tobias Scheidacker: The big companies live from renting and therefore cannot simply end their business. In the case of private owners, the real estate is not necessarily only seen as an investment. There are other things you can do with it. From sales to personal use. The large companies run standardized rental businesses and they have to find a way to deal with the current situation. From a legal point of view, it's not that difficult.
The Federal Constitutional Court rejected an urgent request aimed at temporarily overriding the administrative offenses, but gave us some indications. One statement was, for example, that the Berlin administration would have to process 1.5 million apartments in order to enforce the law, so that you could read between the lines that this could not be achieved.

Another note was: Owners can protect themselves against the negative effects of the rent cover on new rentals by agreeing on a different rent in the event that the rent cover is ineffective.

(6:30)

Achim Amann: What is a realistic time frame for the Federal Constitutional Court to decide whether the Mietendeckel is constitutional or not?

RA Tobias Scheidacker: That’s a hard question. Today (05 May 2020) there was a decision on the ECB's bond purchases, which was a relevant and very pressing issue for all of Europe, and I learned from the press that the process took 5 years. I don’t know whether our regional Berlin problem is seen as particularly important there, given the other procedures.
According to statistics on the website of the Federal Constitutional Court, it can be assumed that a large part of the proceedings will be completed within the first year. But these are probably the cases that do not lead to success. The procedures that are then substantially promising in terms of content take two or three or even more years.

(7:43)

Achim Amann: Well that’s not very good news for most of the owners and tenants.

RA Tobias Scheidacker: Yes, this isn’t a harmless situation for tenants as well. We are all a little undecided. I don’t know any lawyers, who really think, that the Mietendeckel will stay. Maybe I work in my own bubble, that’s hard to ​know. We also tend to receive information from the courts that they suspect that the law will be repealed or that they themselves consider it to be unconstitutional. There are many practical difficulties in dealing with the law because there is a lot of unclear wording and because it is limited to the Berlin. Now, if you conclude a rental agreement in Potsdam, there is no Mietendeckel there. So everything can be agreed on. If you physically carry this rental agreement to Berlin, parts of it should be null and void, and if you take it
back to Potsdam, everything will be fully effective again. This situation has never existed in civil law and we all still don't know exactly how to deal with it.

(9:30)

Achim Amann: At Black Label Properties we also manage several hundred properties. Of course, the owners turn to us with this problem and we are currently in a very strange situation. We have to send out these notorious letters to the tenants, which contain pretty much no information. Can you say something about that?

RA Tobias Scheidacker: On the one hand there is mandatory information. §6 states that the tenant must be informed about certain circumstances within 2 months of the entry into force. The two months expired on April 23rd, 2020 and those who did not do this in time run the risk of committing an administrative offense, which is also regulated by law. The threat of a fine of up to half a million per case is not insignificant. Then Corona intervened, which meant that Berlin went into sleep mode around mid-March and many things were no longer open. The Senate Department for Urban Development therefore had the deadline suspended. Violations of the timely obligation to provide information will not be prosecuted if they are corona-related.

(13:49)

Achim Amann: As an owner, what do you have to pay attention to when writing this letter? Is there a template from the Senate?

RA Tobias Scheidacker: You could read through the law to know what needs to be in there, but it is very complicated. There is a form for tenants on the Senate Administration website, which contains all the information that the landlord has to provide them with. You can orientate on that. The real estate association and Haus am Grund also each issued a form.

(19:15)

Achim Amann: What does an owner of a furnished holiday apartment have to consider in regards to the “Mietendeckel”?

RA Tobias Scheidacker: First of all, it is important to know, that short-term rental contracts are all covered by the Mietendeckel. When re-letting, the question then arises as to how the rental agreement is structured. The Mietendeckel law states that only the tabular values may be used for new rentals. At the same time, however, the reasons for the law state that there is no interference with the BGB or with current or new contracts. So, you can agree on everything in the contract. For example, you could charge € 15 per square meter, you just aren’t allowed to accept it.

Our law firm and a few others have developed a model for that, which provides that the lease is initially contracted in the same way you would contract it without the Mietendeckel. An attachment is then added to the contract, which is an indication to the tenant, that in the period of legal uncertainty because of the Mietendeckel, only a partial amount of this rent will be accepted. In the case of unlimited rental contracts, this means that if the rental cover is removed, the remaining amount must be paid.

With short-term rental contracts, this is more difficult to implement. If you rent an apartment for 6 months and after 3 years the law is overturned, you will no longer be able to reach the tenant. Here the idea is, that the tenant pays the full amount, but the landlord only accepts the allowed part as rent and puts the rest aside as additional rent security.

(22:12)

Achim Amann: Does the landlord have to prove that he is putting the money aside, similar to a deposit account?

RA Tobias Scheidacker: An agreement on rent security that extends beyond 3 months is ineffective. This means that all other rules, for example that you set them aside separately from your own assets, are also ineffective. The only difference is that this ineffective agreement is not illegal. If you accept the amount as rent security instead of rent, there is no risk of fines.

(24:15)

Achim Amann: A question from a viewer: Are there "creative ways of circumventing" the Mietendeckel?

RA Tobias Scheidacker: At the moment it is not yet clear whether the Mietendeckel really exists. Assuming that it is unconstitutional, then it is null and void from the start and fines are not enforceable.
“Workarounds” are problematic in that we have many ideas but no case law on whether they work. There would always have to be an owner who processes this up to the top and if there is a decision then
everyone else can orientate on that and the practice can take shape. At the moment we can only guess.

(26:40)

Achim Amann: Does the Mietendeckel also apply to first-time occupancy after renovation or does that fall under new construction and the rent therefore does not have to be covered?

RA Tobias Scheidacker: Only new buildings and buildings restored with new-built-like expenses are not covered by the Mietendeckel. New-built-like expenses start at around € 2,500 - € 3,000 per square meter and the property has to have not been habitable beforehand.

(28:13)

Achim Amann: Can I rent furniture to a tenant separately through a third party?

RA Tobias Scheidacker: The wording of the law assumes that the Mietendeckel covers the net cold rent and all surcharges. However, if the services are not provided by the landlord and are not included in the rental contract, this
should be possible.

(29:55)

Achim Amann: How do you deal with a net cold rent and a separate flat rate for operating costs for which it is legally permitted?

RA Tobias Scheidacker: Scheidacker:
You could agree on a net cold rent equivalent to the amount of the cover rent and then add a lump sum for operating costs, i.e. an amount that is not billed, so that you do not have to disclose the amount of your operating costs. However, we don’t have any experience with this yet and don’t know whether this is legally permissible.

(37:43)

Achim Amann: Since the Mietendeckel, we get a lot more tenants who want to buy their apartments. What about you?

RA Tobias Scheidacker:In the last nine months, our law firm has been assigned many cases, where people wanted to cancel a rental contract for self-use. I do get the impression that a lot of people have to move out of their apartments. Of course, they all have the problem that they are currently unable to find a new apartment because the offer has run dry. Currently the only way to protect yourself from that is to buy the apartment.