Private landlords are under increasing financial pressure in the face of rising energy and living costs. With its draft law reforming tenancy law, the Federal Ministry of Justice and Consumer Protection is further restricting private landlords’ room for manoeuvre. Some of the tougher provisions in the ministerial draft that were strongly criticised by the consumer protection association Wohnen im Eigentum (WiE) have been moderated. Nevertheless, owners still face the prospect of additional costs and falling returns.
With its current draft legislation amending tenancy law (Tenancy Law II), the federal government aims to make Germany’s rent cap more effective and expand the market for homes available for long-term rent. In doing so, it is also limiting the options available to small private landlords for making economic use of residential property. The bill contains some initial amendments compared with the ministerial draft, which Wohnen im Eigentum strongly criticised. These do not go far enough, however. “Private landlords provide a substantial share of Germany’s rental housing supply, accounting for 64.4 per cent of the rental stock. At the same time, a rented property is a central element of private retirement provision for many people. Despite the amendments, the proposed restrictions will make letting property increasingly less worthwhile for this group. We fear that private providers will withdraw, with noticeable consequences for the already scarce housing supply,” says Dr Sandra von Möller, Executive Board member of the consumer protection association Wohnen im Eigentum (WiE).
There needs to be a fair balance between protecting tenants from abusive practices and ensuring economic viability for small private landlords.
Furnishings: flat-rate amount increased to 10 per cent of net rent excluding service charges
Like the ministerial draft, the bill provides for the furniture surcharge to be shown separately. The proposed flat-rate percentage that will serve as the standard presumption for an appropriate surcharge has been increased. “It is positive that the original flat rate has been raised from five to ten per cent; after all, landlords also bear the cost of transporting and assembling the furniture,” says von Möller. “Nevertheless, we consider it more appropriate to base the surcharge on the furniture’s actual value, including all ancillary costs, instead of linking it at a flat rate to the net rent excluding service charges.”
Short-term lets: limit restricts freedom of contract
The bill also introduces a legal definition of “temporary use” of residential accommodation and generally limits it to a maximum of six months. The reason is that Germany’s rent cap does not apply to short-term lets. Compared with the ministerial draft, there will now also be an option to extend the short-term tenancy to eight months, for example if an internship is extended or an examination postponed.
Wohnen im Eigentum criticises the rigid time limit. “Extending it to eight months does not change our critical assessment,” says von Möller. “The fixed limit does not adequately reflect the need for flexible accommodation.”
Index-linked rent: additional costs shared by tenants and landlords
For index-linked rents (Section 557b of the German Civil Code), the ministry plans to limit permitted rent increases in areas with a tight housing market. The ministerial draft stipulated that index-linked rents should generally rise by no more than 3.5 per cent.
Under the new bill, where an index-linked rent rises by more than 3 per cent, only half of the portion above that figure may be added to the rent.
Although the original provision in the ministerial draft has been moderated slightly, this still places an additional burden on private landlords, who are themselves affected by inflation and often use rental income for retirement provision. This contradicts the purpose of an index-linked rent.
“Moreover, the consumer price index already provides an inadequate reflection of actual cost increases in the property sector, as tradespeople’s services and building materials have been subject to even higher price increases for years,” says von Möller.
Termination for payment arrears: landlords bear the full cost risk
WiE is particularly critical that the ministry is retaining the planned extension of the so-called grace-period rule in the current bill. In future, payment of rent arrears within the statutory period is intended to invalidate not only termination without notice, but also ordinary termination for payment arrears.
In the association’s view, this shifts the cost risk substantially to landlords. Eviction proceedings also regularly incur high court and legal costs. Although landlords can demand reimbursement of legal costs from tenants, the latter are unlikely to be able to pay them if they were already having difficulty paying the rent regularly.
Criticism from Haus & Grund as well
The Haus & Grund Deutschland owners’ association also regards the tenancy-law package adopted by the Federal Cabinet as an expropriatory intervention in private retirement provision in Germany. Instead of encouraging citizens to invest in rental housing, it says, the federal government is once again relying on statutory interventions, more obligations and economic expropriation. Haus & Grund President Kai Warnecke explains: “The federal government is stigmatising private landlords. Yet private landlords are the ones who provide affordable housing. Anyone who makes housing available to others needs legal certainty. This law does the opposite: it makes letting property less attractive.”