The rent cap was originally set to expire on 31 December 2025. It was intended as a temporary measure to regulate the letting of flats in areas with a tight housing market. This year’s coalition talks already pointed towards a temporary continuation of the rent cap. Now, the Bundestag has recently decided to extend the rent control measure until the end of 2029.
Content of the rent control measure
In terms of content, the rent control law stipulates that rents for new contracts may not exceed the local comparative rent by more than 10%. The respective state governments determine which areas have a tight housing market. New buildings in accordance with § 556f S.1 BGB , which were first used and rented after October 2014, as well as flats that are being rented for the first time after extensive modernisation. Extensive modernisation is deemed to have taken place if the construction measures are of such a scope that the flat is comparable to a new building and if the costs amount to at least one third of the new construction costs. § 555b BGB can be used for modernisation measures. In addition, the modernisation must result in a qualitative improvement of the flat.
Modification of the rent cap
In its judgement of 18.12.2024, VIII ZR 16/23 the Federal Court of Justice also cited the constitutionality of the rent cap, stating that in support of the constitutionality of the rent control law, that landlords must expect frequent changes in the law in the area of tenancy law in view of the current social and political situation and that there is no basis for confidence in a legal situation that favours them. Beyond the extension, a modification of the rent cap is planned, although the concept for this has yet to be developed. It remains to be seen whether and what modifications to the rent cap are planned for the future. The purpose of a modification would be to include more flats in the scope of the rent cap. This would mean that the housing market would also be more regulated and, in particular, that the pressure on large cities would be eased. Discussions have so far focused on extending the scope of the rent cap to index-linked rental agreements and amending § 556f BGB to include new-build flats in the rent cap
IMPACT ON LANDLORDS
The intensity of the impact on landlords depends on whether the rent control measure is simply extended or whether a modification is also decided upon. Currently, the extension of the rent cap until the end of 2029 means that rents in areas with tight housing markets may still not exceed the local comparative rent by 10%. This extension of the rent cap may have a long-term impact on the local comparative rent. More rents will be included in the calculation that are not based on the market rate but on the agreed statutory rent cap.
If a planned modification to the rent control law is implemented, this could mean that new buildings will be included in the scope of the rent control law in future. This, in turn, would primarily have economic consequences for landlords and investors. In particular, long-term planning security for investment projects would be impaired, and willingness to invest in housing construction projects could also decline. In order to cushion the economic disadvantages for landlords and at the same time create an incentive to rent, tax advantages are planned for landlords who rent out their residential property at low prices and thus contribute to easing the housing market. The aim is to avoid vacancies in particular. In addition, violations of the rent control law are to be punished more severely than before.
IMPACT ON TENANTS
The rent cap was primarily developed as a regulation to protect tenants and benefit them. At first glance, it appears to be a good instrument for relieving pressure on the housing market as a whole. So far, it has been applied to fixed-term tenancy agreements at least, and it also applies in cases of unlawful agreements on temporary use. In the context of exorbitantly high rents, it can also be observed that fixed-term agreements are mostly ineffective, resulting in indefinite tenancy agreements. However, the extension of the rent cap could mean a reduction in the overall supply on the housing market for tenants, as many landlords could continue to ‘sit out’ the binding effect of the rent cap, which was actually intended to be temporary, and use the flats themselves or leave them vacant.