Who is the landlord and why
judgmentWhat the end of the rent cap means for tenants and landlords
The uncertainty about the Berlin rent cap lasted for a good year, as long as tenants and landlords hung in the balance. Now it is official: The lid has to go, the Federal Constitutional Court announced in a decision. It was published today, but fell on March 25th without a hearing. The highest federal judges found in their deliberations that the Berlin Rent Cover Act was unconstitutional. It is therefore "incompatible and void" with the Basic Law. "The state simply lacks" the legislative competence "for a rent cap. *
For the Berlin state government, this clarification is gossip. Of course, it had obtained a legal opinion in advance on this question, but according to the highest federal judges, its conclusion is not tenable. Many landlords, on the other hand, will breathe a sigh of relief. Because they now have the certainty again that they can demand the rents that they agreed in their rental contracts before the Rent Cap Act came into force at the end of February 2020. At least as long as the contracts comply with the nationwide regulations on rent levels and rent brakes, as stipulated in the German Civil Code (BGB).
The decision is unsettling for the Berlin tenants. Many had paid lower rents since February 2020 because of the upper limits in the Rent Cap Act. For some, the savings amounted to a few hundred euros a month. The big open question is now: Do you have to pay these amounts and transfer them to your landlord or not? Tenants' associations had advised to save the difference to be on the safe side - but who really did that?
Why does the rent cap violate the constitution?
But first of all, the question: Why is the rent cap unconstitutional? With the rent cover law, the state of Berlin intervened in an area that it should not have been allowed to regulate due to its competencies - namely, private law. This is the justification of the constitutional judges. The private law rules are already defined in the German Civil Code (BGB). Among other things, nationwide regulations on rent controls are already laid down there. The Berlin Senate, on the other hand, had always defended its rent cap law, arguing that since the federalism reform of 2006, the federal states have been empowered to regulate housing issues independently. This also includes a public regulation of rental price law. The constitutional judges have now clearly rejected this view.
The judges reaffirmed: In principle, German legal norms, in particular the Basic Law, clearly regulate what the federal government and what the states are allowed to regulate, they are now making clear. Dual competencies are alien to the Basic Law, because where federal competence ends, state competence begins - and not the other way around. That means in plain language: If there are already rules that regulate the area of rent levels in other ways or place them in the hands of the federal government or the private sector, these have priority. Contrary to this, state laws to the contrary cannot do anything. The Federal Constitutional Court had also expressly and repeatedly affirmed that the federal government was responsible for rental laws and rental price brakes. The court, however, also expressly left the competence of the federal states in this area open.
As a justification, the judges went far in their decision-making. Their clarification comprises a total of 57 pages, the key sentences being: The "regulations on rent for freely financed living space that can be offered on the free housing market fall under the competing legislative competence for civil law as part of social tenancy law," they refer to to Article 74 paragraph 1, number 1 of the Basic Law. Therefore, “there is no room” for the regulation of the rent amount, as provided for by the Berlin Rent Cover Act.
The judges support this view with a long historical review. “For 150 years now,” the understanding of law has been shaped to the effect that the Basic Law and the Civil Code are initially the predominant legal norms. In particular, "the right of tenancy has been regulated in paragraphs 535 ff. BGB since the entry into force of the Civil Code on January 1, 1900," they explained. “This applies in particular to tenancy agreements for apartments. The letting of an apartment is based on a contract between the landlord and tenant ”, in which“ the rented property, use, rental period and the rent to be paid are specified ”and this“ contract is the result of private, autonomous decisions of the contracting parties ”. Things would only be different if there was extensive housing management, i.e. if the country took measures to control and distribute housing - as happened in the post-war housing market by law.
"The Berlin regulation narrows (...) the leeway of the contracting parties", argued the constitutional court further, and "introduces a parallel rental price law at the state level", that does not work.
What does the current rent cap mean?
The Berlin Rent Cover Act, which came into force at the end of February 2020, does three things:
- First, a rent freeze. This prohibited further increases in rent. The basis for the possible rent is the amount that the tenant and landlord had agreed on by contract before June 18, 2019.
- Second, a rent cap for re-leases. It should apply regardless of the respective residential area, but should include certain features of the building or apartment. In addition, modernization levies should be allowed to a moderate extent.
- Third, it contained a legal prohibition on charging excessive rents. The law stipulated that the rent required so far did not exceed a certain amount. And that also applies to rents that were already lashed before June 18.
According to the Berlin law, however, “rent increases permitted under federal law” are now prohibited, as are “agreements on rent increases permitted under federal law at the start of the rental period”. That is going too far. Graduated or index rents, which are permitted under federal law, would also be overridden by the Berlin law. The constitutional judges decide that this should not be the case either.
In order to justify its rent cover law, the Berlin Senate argued, according to the constitutional court decision, that it served "the welfare state purpose of providing socially fair housing". The state does not want to intervene in the private law contractual parity of tenants and landlords, but rather aims to "remedy the serious imbalance in the housing market". But the Supreme Federal Court also overruled this argument: The federal government had already covered these goals with the regulations on maximum rents and the introduction of the rent brake, which are contained in the BGB. "Even with the introduction of the rental price brake, the federal legislature is primarily pursuing sociopolitical purposes and wants to help counteract the direct or indirect displacement of economically less productive population groups from high-demand residential areas."
What does that mean for the tenants?
In their decision, the constitutional judges did not comment on the question of whether the tenants now have to pay the rent they have saved up to now. They explain in great detail why the state of Berlin has exceeded its own competencies with its law and why the regulation is therefore inadmissible. But not how the whole thing should now be reversed. Since the law should not have come into force from the start, the logical consequence would be that the landlords could now claim back the difference between the fixed rent and the capped rent payments from the residents since February 2020.
The Berlin Senate had already stated before the decision that the tenants would have to pay the agreed higher rent again if the constitutional judges tipped the rent cap. The open question, however, remains: Does the law have to be resolved retrospectively because it should not have been passed in the first place? Then an additional payment would be due for around 1.5 million tenant households in the capital. Or if the regulation is only lifted with immediate effect - then the repayments could be omitted. In view of the legal uncertainty, the tenants' association had advised from the start: In the event that the rent cap tips again, tenants should put back the rent they have saved.
However, that would then affect the period from June 2019. Because the law did not come into force until the end of February 2020, it stipulated that the rent level from June 2019 was the decisive benchmark. In doing so, the Berlin Senate wanted to undo the rent increases that many landlords had already made with foresight since mid-2019 - since the discussion about a possible rent cap began in the capital. According to calculations by the Berlin Senate, around 340,000 tenant households are said to have benefited from a reduction in rents through the law. The real estate analysis institute F + B even assumes around 512,000 households. The monthly difference between the old rent and the capped rent should therefore amount to around 21 million euros per month.
On the day the decision was announced, the umbrella association of the real estate industry, ZIA, demanded a hardship provision for those tenants who were unable to pay the amounts later. In the meantime, the Vonovia housing company announced that it wanted to forego additional payments. In this way, he wants to exempt the tenants from about 10 million euros in additional claims. However, real estate companies and landlords will now raise rents again to the possible levels allowed by the German Civil Code, which is almost certain. The share of the Deutsche Wohnen Group, which has a large part of its building stock in the capital, shot up a few percentage points the day before the constitutional court decision. For the group, the tilting of the rent cap means increasing income.
Landlord associations had at least kept themselves open to demand the additional claims from the tenants. The extent to which private landlords are now serious about this will soon become apparent. In any case, the tenants' associations hope that tenants and landlords will come to an agreement as fair and amicable as possible. They advise affected tenants to get in touch with the apartment owners and to appeal to their good-naturedness if they are currently unable to raise the money for the additional claims in one fell swoop. Negotiating skills are required here, or, if necessary, an installment payment is due if the landlord insists on the full additional demand. It is also possible that some courts will soon deal with the additional claims.
*For clarification: The constitutional judges did not expressly comment in their decision on the question of how the law should be reversed, nor on the extent to which the rent cover was correctly constructed by the Berlin Senate in terms of content. Still, her decision left no doubt that now the law has to be reversed. The decisive formulation of the constitutional court reads: The law is "unconstitutional" and "void". In legal jargon, the word “void” means that the decision also applies retrospectively to the past. The rent cover law will not only be repealed in the future, but the Berlin Senate must restore the state in which the market would have been if the law had never existed. This means that landlords are fundamentally entitled to the rental income that they have lost due to the law.
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