Germany: Federal Constitutional Court overturns rent cap

Since 2019, the Berlin rent cap has preoccupied the German real estate industry - and also Swiss investors who had invested in residential properties in the neighboring country. Now, on Thursday, April 15, 2021, the German Federal Constitutional Court ruled that the law on rent caps in the housing sector in Berlin (MietenWoG Bln, so-called Berlin rent cap) is unconstitutional (Beschl. v. 15.04.2021, Az. 2 BvF 1/20, 2 BvL 4/20, 2 BvL 5/20).

Berlin's rent cap froze rents for apartments built before 2014 at June 2019 levels in February 2020. Since November 2020, landlords have also had to reduce rents that were more than 20 percent above the limits specified in the rent cap. Fines of up to 500,000 euros were determined for violations.

The German Constitutional Court upheld the lawsuit filed by 284 members of the Bundestag from the CDU/CSU and the FDP, with the judges unanimously declaring the law null and void. Since the federal government had already passed the rent brake in 2015, the legislative power lay exclusively with it, the constitutional judges explained. The state of Berlin was not entitled to take a special path. Since, according to the decision, the law was invalid from the outset, landlords may now be required to pay back rent.

The rent brake adopted by the federal government in 2015 does not provide for a freeze on rents. According to the uniform federal rent brake, prices for new leases in areas with a shortage of housing supply may not exceed ten percent above the local rent. Rent increases in existing leases must be based on the local comparative rent or the rent index. Berlin will now have to comply with the regulations that apply nationwide.

Tenants are now facing back payments. While Vonovia wants to waive repayments, Deutsche Wohnen AG - the largest private landlord in the capital - wants to reclaim an average of around 430 euros from each tenant affected. (bw)