Landlord tricks: using modernisation to get around rent control
Rent control (Mietpreisbremse) is a successful tool for countering rising rents in Germany. Yet landlords keep trying to get around it. One of their tricks is to claim they have carried out modernisation work: “comprehensively modernised” flats are exempt from the law. But often the building work falls well short of what actually counts as a modernisation.
In short
- A landlord can only get around rent control through structural alterations.
- Maintenance work – such as a new fitted kitchen or repairs to floors and windows – does not count as a structural alteration.
- Only if the flat’s energy efficiency or its residential value has been significantly improved does it count as a “comprehensive modernisation”.
- Even after a modernisation, rent control still applies if the cost of the work was less than one third of the cost of a new build. After the modernisation, the quality of the flat must be equivalent to a new build.
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The key point
A “comprehensive modernisation” almost never applies
Landlords like to invoke it to sidestep rent control – in reality it is the absolute exception. It practically only applies if the flat had to be so fundamentally renovated that it is equivalent to a new build (an outlay of around one third of a new build) – for instance because it was previously uninhabitable. In all other cases, the landlord may at most add a modernisation surcharge (max. 8% of the costs per year). And with that, the permissible rent is normally still well below the rent actually charged – so rent control continues to apply.
What is rent control (Mietpreisbremse)?
Behind the Mietpreisbremse (rent control, or “rent brake”) is the law on the “permissible rent at the start of a tenancy” (§ 556d BGB, German Civil Code). It has been in force since 2015 and regulates rent levels in “tight housing markets”. Thanks to rent control, rents may be no more than ten per cent above the local comparative rent. The local comparative rent is defined by the rent index (Mietspiegel), which is published every two to four years by the respective city or municipality. Under rent control, tenants can reduce their rent if it exceeds the set limit and the law applies in their city.
Landlord tricks: alleged modernisations
Many landlords, however, ignore the law and charge far too much rent. In doing so they collect, in some cases, several thousand euros a year that they are not entitled to. When tenants want to enforce their right to a fair rent, landlords try a number of tricks to get around the law. Time and again they cite alleged modernisations, since “comprehensively modernised” flats are excluded from rent control. This ARD Panorama report of 23 July 2020 shows how some housing companies systematically bypass rent control using the modernisation trick. CONNY founder Daniel Halmer was also interviewed about landlords’ tactics.
Case study of a landlord tactic: passing on maintenance work
Before a new tenant moves in, the landlord repaints the flat and replaces an old door and worn door thresholds. He renews ancient electrical wiring (particularly common in old buildings) and retiles the bathroom, including a new bathtub. A fitted kitchen is also installed. The landlord now assumes he has comprehensively modernised the flat. But he is wrong. There is no structural alteration. Maintenance work like the items listed above is no reason to consider a flat modernised. A modernisation surcharge therefore does not work here. After CONNY took on a rent control case and sent the landlord a formal objection, the landlord replied, in essence: “Unfortunately, rent control does not apply, as we have comprehensively modernised the flat.”
For a comprehensive modernisation, however, at least one third of the cost of a new build must have been invested. Moreover, the flat must afterwards have the residential quality of a new build. Inventive landlords come up with various scenarios for inflating the costs considerably. In our case study, exorbitant sums are now charged for painting the flat and for the other work. Usually, subsidiaries of the property companies are hired and the companies’ own premium tiles are used, which they can buy cheaply in bulk. The price actually paid can no longer be verified. But since this still does not really get them to one third of the cost of a new build, architect’s fees are also readily charged. Here, fictitious costs are applied – what an architect would have cost. In reality, it is mere construction planning, presumably carried out at fixed prices by subcontractors of the housing companies.
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What counts as modernisation work?
Modernisation measures are building works that significantly improve residential value or lead to greater energy efficiency. According to § 555b BGB, these are the following structural alterations:
- Energy-related modernisations that save energy on a lasting basis (e.g. improved thermal insulation)
- Energy-related modernisations that protect the climate on a lasting basis and/or reduce the use of fossil fuels (e.g. a modern heating system)
- Modernisations that reduce water consumption on a lasting basis
- Building works that increase the utility value of the rented property on a lasting basis (e.g. high-quality flooring)
- Building works that permanently improve general living conditions
- Building works that create new living space
If one or more of these measures have been carried out, the costs may also be passed on to the rent. Under § 559 BGB, the law stipulates that in these cases a maximum of eight per cent of the costs incurred may be added to the annual rent.
Example: The modernisation costs come to €6,000. The annual rent may now be increased by eight per cent – in this case by €480. This means the monthly rent increase may be no more than €40.
The modernisation myth: when it isn’t a modernisation
There is no modernisation if the measures merely bring the flat into a “generally customary condition”.
A condition is “generally customary” if it exists in at least two thirds of all flats of the same age within a federal state. This applies in particular where a tenant can expect the resulting condition as the minimum standard for contemporary living.
Maintenance work therefore cannot be passed on to tenants either. In other words, no costs for it may be added to the maximum permissible rent. Typical maintenance work includes:
- Repairing/replacing floors
- Repairs/replacement of doors and windows
- Replacing pipes or old electrical wiring
- Repair work on the heating system
- Installing a new fitted kitchen
Not every modernisation rules out rent control
Even where a modernisation has taken place, rent control is not automatically bypassed. For that, the cost of the modernisation must amount to roughly one third of the cost of a new-build flat, or the work must be so extensive that the flat is equivalent to a new build afterwards. The landlord is obliged to set out the costs of the “comprehensive renovation” in detail. If he cannot, or if the evidence is insufficient, rent control continues to apply. So always have the costs checked by a lawyer or directly by CONNY if you want to invoke rent control.
Exceptions to the law: it’s getting harder for landlords
At the beginning of 2019, the Federal Government tightened the rent control law. Since then it has been harder for landlords to rely on exceptions. For example, when re-letting a flat they must disclose in writing, without being asked, how much rent the previous tenant paid. If a landlord wants to charge a rent above the permissible maximum, he must state which of the three exceptions to rent control (new build, comprehensive modernisation, fixed-term tenancy) he is relying on. If landlords fail to do so, they can no longer invoke an exception later.
Questions and answers
Is replacing the heating system a modernisation measure?
Is replacing the heating system a modernisation measure, and can the costs be passed on to the rent?
Only if the new heating system is a modern type that is more climate-friendly and/or reduces the use of fossil fuels. If so, eight per cent of the cost of replacing the heating system can be added to the annual rent.
Can cosmetic repairs be passed on to the rent?
Cosmetic repairs cannot be passed on and may not lead to a rent increase.
Renovation work and modernisation: what’s the difference?
Renovation work is work that brings the flat into a “generally customary condition”. A condition is “generally customary” if it exists in at least two thirds of all flats of the same age within a federal state. This applies in particular where a tenant can expect the resulting condition as the minimum standard for contemporary living.
Modernisation measures are generally building works that significantly improve residential value or lead to greater energy efficiency. According to § 555b BGB, these are the following structural alterations:
- Energy-related modernisations that save final energy on a lasting basis (e.g. improved thermal insulation)
- Energy-related modernisations that protect the climate on a lasting basis and/or reduce the use of fossil fuels (e.g. a modern heating system)
- Modernisations that reduce water consumption on a lasting basis
- Building works that increase the utility value of the rented property on a lasting basis (e.g. high-quality flooring)
- Building works that permanently improve general living conditions
- Building works that create new living space
Bathroom or outdated fitted kitchen – is replacing it a modernisation or a renovation?
If the landlord installs a new fitted kitchen or a new bathroom, this is generally a renovation. Exception: the building work significantly increases the utility value of the rented property. If, for example, high-quality tiles are installed, this may increase the value of the property and thus constitute a modernisation. Simply replacing the old bathtub or washbasin, however, is not a modernisation.
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