Legality of Rent Increases
Rent for an apartment is established in the lease agreement, which often lasts many years. However, rent rarely stays the same level; many tenants should expect rent increases over time. When and how much are rent hikes permissible? How must a landlord announce a rent increase? What are rent control and cap limits? What applies to tiered and indexed rents? This article answers key questions regarding rent increases for living spaces.
What legal basis applies to rent increases?
The legal basis for rent increases is the German Civil Code (BGB), which states in paragraphs 557 to 561 that landlords are entitled to increase rent. The rent can be increased for various reasons at regular intervals, but landlords cannot arbitrarily raise it. Over time, apartments become more expensive as the housing market tightens. Landlords may increase rent to align with comparable local rents. The rent index serves as a guide for both tenants and landlords, indicating the permissible extent of rent increases. Rent increases are permissible for three reasons:
Modernization measures for the respective apartment
Adjustment to the local customary comparative rent
Existence of a tiered or indexed lease agreement
Which Rent Index is Correct?
During online research for the local rent index or the more formally accurate German term "Mietrichtwerttabelle" you'll find various figures. Do not rely on online rent calculators or generalized area values. These at best provide a rough indication, as their data basis and derivation, and thus their validity, are not independently verifiable. They often only consider newly offered apartments on real estate portals and insufficiently account for the state of modernization.
Preferably, use the simple or ideally qualified rent indexes created by municipalities. "Qualified" means that the rent index is created according to recognized scientific principles and is recognized by the responsible state authority or by representatives of landlords and tenants. If such a rent index exists, using other sources to justify rent increases is not permissible.
Tip: For many cities, there are (qualified) rent indexes available online for free; in other cities, they must be purchased for a fee from tenants' associations or often from Haus & Grund. The rent indexes for Düsseldorf, Cologne, Langenfeld, Meerbusch, and other cities in the Rhein-Kreis Neuss, for example, are accessible online.
How Often Can Rent be Increased?
To protect tenants from sharply rising rents, landlords cannot increase rent arbitrarily often. After tenants move in, there is an annual lock-in period. Landlords can increase rent no sooner than one year after move-in, and only if there is a reason.
Landlords must give tenants a consideration period for rent increases. How this is calculated is explained further in the article. During this time, tenants can consider whether to agree to the rent increase or have reasons to reject it. This means that a rent increase is possible at the earliest 15 months after a tenant's move-in.
If the lease has been in place for some time, landlords can increase rent no sooner than one year after the last rent increase. Also, in this case, the rent increase takes effect no earlier than an additional three months. Tenants can thus expect landlords to increase rent every 15 months.
How Much Can a Rent Increase Be?
In Germany, landlords can increase rent by a maximum of 20 percent within three years. If a city's adequate housing supply for the population is severely endangered, this cap limit can be reduced. In designated areas with a tight housing market, a cap limit of a maximum of 15 percent within three years applies.
The state ordinance of the respective federal states determines the cities and municipalities affected by the cap limit. Tenants can refer to a list from the German Tenants' Association to see if their city has a cap limit. In North Rhine-Westphalia, according to the 2020 Tenant Protection Ordinance (MietSchVO NRW), the following cities and municipalities are considered tight housing markets with a cap limit of 15 percent: Alfter, Bad Honnef, Bergisch Gladbach, Bonn, Bornheim, Düsseldorf, Hennef (Sieg), Cologne, Königswinter, Leichlingen, Münster, Niederkassel, Pulheim, Rösrath, Siegburg, Telgte, Wachtberg, and Wesseling.
The cap limit applies in individual federal states to certain cities and is only valid for a specific period. It affects only ongoing rental relationships. The cap limit does not apply to new rentals. Here, the rent control applies.
What is Rent Control?
Rent control differs from the cap limit in that it only applies to new rental contracts. The federal government introduced rent control to curb rent increases in areas with tight housing markets. Like the cap limit, rent control applies only in areas with tight housing markets. The individual federal states determine cities where rent control applies.
Rent control stipulates that landlords can only demand a rent that is a maximum of 10 percent above the local customary comparative rent for a new rental. Since 2015, the federal states can set rent control themselves. It is also possible to determine rent control that is less than 10 percent above the local customary comparative rent, for example, only 5 percent higher.
The federal states may set rent control for a maximum period of five years. Afterwards, it is decided anew. Rent control can be extended for a maximum of another five years. Since 2020, the federal states have the right to tighten it.
What Does the Rent Index Reform Law State?
Since July 1, 2022, the rent index reform has been in effect. It mandates that cities with at least 50,000 inhabitants must create a rent index. If no rent index was previously available, these cities had to create a simple rent index by no later than January 1, 2023. Cities that opt for a qualified rent index have until January 1, 2024, to create it. The reform includes the obligation to provide information for landlords and tenants. If landlords and tenants do not comply, they can expect a fine. Landlords and tenants must provide information about the rent amount and the characteristics of the apartment for the creation of a rent index.
After two years, the rent indexes should be adjusted to the market development. A new creation of qualified rent indexes must take place after four years. Furnished apartments are not included in the rent index. It is also difficult for single-family homes, which usually have higher rents than apartments in multi-family buildings.
When Can Rent be Increased After Purchasing Residential Property?
When Can Rent be Increased After Purchasing Residential Property? Those who buy residential property to rent it can make rent increases under the same conditions as the previous landlord. This also applies here:
Adjustment to the local customary rent
Tiered and indexed contracts
Existing leases still apply even after the change of ownership, regardless of how the change of ownership occurred:
Purchase of the apartment
Acquisition via foreclosure
Inheritance / Gift The new owner can therefore increase the rent at the earliest after one year and must give the tenant a reasonable time for consideration. He must observe the cap limit and may increase the rent by a maximum of 15 or 20 percent within three years.
Rent Increase for Modernization
Nach einer Modernisierung hat der Vermieter das Recht, die Miete zu erhöhen. Solche Modernisierungsmaßnahmen sind beispielsweise:
- Einbau eines Aufzugs
- Einbau einer neuen, effizienten Heizung
- Anbringung von Balkonen
- Barrierefreier Umbau der Wohnung
Der Vermieter hat das Recht, die Kosten gemäß Paragraf 559 BGB auf die Miete umzulegen. Lediglich bis zu 8 Prozent der Modernisierungskosten darf er auf die Jahresmiete aufschlagen. Die Mieterhöhung in modernisierten Wohnungen ist auf 3 Euro pro Quadratmeter innerhalb von sechs Jahren begrenzt. Liegt die Miete bei bis zu 7 Euro pro Quadratmeter, ist nur ein Anstieg um bis zu 2 Euro pro Quadratmeter innerhalb von sechs Jahren zulässig.
Wie sieht es mit den Regelungen für Mieterhöhungen bei Staffel- und Indexverträgen aus?
After modernization, the landlord has the right to increase the rent. Such modernization measures include:
Installation of an elevator
Installation of a new, efficient heating system
Addition of balconies
Barrier-free conversion of the apartment
The landlord has the right to allocate costs according to paragraph 559 BGB to the rent. Only up to 8 percent of the modernization costs can be added to the annual rent. The rent increase in modernized apartments is limited to 3 euros per square meter within six years. If the rent is up to 7 euros per square meter, only an increase of up to 2 euros per square meter within six years is permissible.
What are the Regulations for Rent Increases in Tiered and Indexed Contracts?
In a tiered rental contract, rent increases are already agreed upon in the lease. A tiered rental contract provides both sides with planning security: landlords have a calculable revenue development, and tenants know in advance when and how much rent will increase. The tiered rental contract must specify a fixed amount of money and a fixed date for when the rent will increase to what amount. The tiered rental contract is invalid if only a percentage amount for the rent increase is determined.
The rent must remain unchanged for an entire year in a tiered rental contract. Rent increases outside the tiers are not permissible. Only when the tier expires can the landlord increase the rent. By the way, rent increases due to modernization are excluded during this period, and a subsequent allocation after the expiration of the tiered rental contract is also not permissible.
In an indexed rental contract, rent increases are possible depending on the development of the cost of living. The basis for this is the consumer price index determined by the Federal Office for Statistics. The rent increase is only valid if it is linked to the consumer price index.
Tip: An indexed rent calculator is available for free on the Internet. Landlords and tenants can calculate whether and how much a rent increase is permissible. It is also possible for the rent to decrease if the consumer price index, e.g., after an oil price shock, falls.
An important difference between tiered and indexed rent: For each new rental tier of a tiered rental contract, it must be checked whether rent control applies in tight housing markets. In contrast, with indexed rent, it is only checked at the time of contract conclusion whether rent control is adhered to. A link to consumer prices ensures appropriateness in a certain way.
How Must a Landlord Announce a Rent Increase?
DThe landlord is obligated to announce the rent increase in writing, which can be done via letter or email. They must specify the date the rent increase will take effect and the amount of the increase. The landlord must also provide the tenant with a period to consent to or reject the rent increase. This period begins in the month the notification is delivered and ends at the expiry of the second month following receipt. So, if a rent increase is delivered on the 1st, 15th, or 31st of January, tenants have until the end of March to object. Therefore, a rent increase can take effect no earlier than the 1st of April. The notification of the rent increase must include a reason and should reference the rent index the increase is based on. If the increase is to adjust to the local comparable rent and there is no rent index available, the landlord should list three comparable apartments in the area and the rent charged for them.
Can tenants claim back rent retroactively?
If the rental agreement violates the rent control regulations, tenants can also claim back any excessive rent paid retroactively. Initially, it should be assessed whether the rent indeed contravenes the rent cap, which can be determined through a rental value assessment that we are happy to prepare for you.
Besides the appropriate price per square meter, the living space of the rental property should be examined. Additionally, existing material defects, such as mold, noise impact, or Legionella infestation, affect the appropriate rent level. In each case, it is necessary to examine the nature of the damage and how severe it is in different rooms. Past court rulings on rent reduction can be used to estimate the potential amount of a rent reduction.
If an out-of-court settlement cannot be reached in advance, it may be worth consulting a lawyer who can assist in enforcing your rights and advise you on further action. However, often a discussion between the tenant and landlord can be helpful, where both parties agree to jointly appoint a neutral expert. We always recommend sharing the costs equally or determining in advance how the costs will be divided depending on the outcome. For example, each party may commit to bearing the costs if they lose or to take on a greater share of the costs. This way, lengthy and expensive legal disputes can often be avoided.