Landlord tricks: using modernisation to get round rent control

A "comprehensive modernisation" almost never exists

Landlords like to claim one to get out of rent control. In practice it is the rare exception. It only applies if the flat had to be rebuilt so thoroughly that it now matches a new build (at a cost of roughly a third of a new build), for example because it was uninhabitable before. In every other case, the landlord may add at most a modernisation surcharge (max. 8 per cent of the cost per year). The permitted rent then usually stays well below what is actually being charged, so rent control still applies.

What is rent control?

Rent control (Mietpreisbremse) is the law on the "permissible rent at the start of a tenancy" (§ 556d BGB). It has applied since 2015 and caps rents in "tight housing markets". Under rent control, the rent may be at most ten per cent above the local comparable rent. That comparable rent is set by the rent index (Mietspiegel), which each city or municipality publishes every two to four years. If your rent is above the limit and the law applies in your city, you can have it reduced.

Landlord tricks: so-called modernisations

Many landlords ignore the law and charge far too much. That earns some of them several thousand euros a year they are not entitled to. When tenants try to enforce their right to a fair rent, landlords use a few tricks to get round the law. One that comes up again and again is a claimed modernisation, because "comprehensively modernised" flats are exempt from rent control. This ARD Panorama report from 23 July 2020 (in German) shows how some housing companies use the modernisation trick systematically. CONNY founder Daniel Halmer was interviewed about these landlord tactics.

Case study of a landlord tactic: maintenance work passed on as modernisation

Before a new tenant moves in, the landlord repaints the flat and replaces an old door and worn thresholds. He renews ancient electrical wiring (common in pre-war buildings) and retiles the bathroom, including a new bathtub. He also puts in a fitted kitchen. The landlord now assumes he has comprehensively modernised the flat. He is wrong. There is no structural change. Maintenance work like the items above is no reason to treat a flat as modernised, so a modernisation surcharge does not work here. After CONNY took on a rent control case and sent the landlord a formal objection, the landlord replied, in effect: "Unfortunately rent control does not apply, as we have comprehensively modernised the flat."

For a comprehensive modernisation, however, at least a third of the cost of a new build must have been invested. The flat must also have the quality of a new build afterwards. Resourceful landlords then come up with ways to inflate the costs considerably. In our case study, huge sums are billed for painting the flat and the other work. Property companies often hire their own subcontractors and have their own premium tiles produced, which they can buy cheaply in bulk. The price actually paid can no longer be traced. Since that still does not get them anywhere near a third of new-build costs, they like to add architect's fees as well. These are fictional costs for what an architect would have charged. In reality it is plain construction planning, presumably done at fixed prices by the housing companies' subcontractors.

Has your flat been modernised since 2015?

Let CONNY check whether the building work justifies an inflated rent. Landlords often use claimed modernisations to get round rent control.

What counts as modernisation?

Modernisation measures are building works that clearly improve the living standard of the flat or make it more energy-efficient. Under § 555b BGB, these are the following structural changes:

• Energy-related modernisations that save energy on a lasting basis (e.g. better 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 permanently increase the utility value of the flat (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 was carried out, the cost may be passed on to the rent. Under § 559 BGB, at most eight per cent of the cost may be added to the annual rent.

Example: The modernisation cost 6,000 euros. The annual rent may be raised by eight per cent, in this case 480 euros. That means the monthly rent increase may be at most 40 euros.

The modernisation myth: when there is no modernisation

There is no modernisation if the work merely brings the flat up to a "generally customary standard".

A standard is "generally customary" if at least two thirds of all flats of the same age in the same federal state have it. This applies above all where a tenant can expect the resulting standard as the minimum for contemporary living.

So landlords cannot pass on maintenance work either. None of these costs may be added to the maximum permitted rent. Typical maintenance work includes:

• Repairing or replacing floors
• Repairing or replacing doors and windows
• Replacing pipes or old electrical wiring
• Repairs to the heating system
• Installing a new fitted kitchen

Not every modernisation rules out rent control

Even where there is a genuine modernisation, rent control is not automatically off the table. For that, the modernisation must have cost about a third of what a new-build flat would, or be so extensive that the flat is equivalent to a new build afterwards. The landlord must set out the costs of the "comprehensive refurbishment" in detail. If he cannot, or the evidence is not enough, rent control still applies. So always have the costs checked by a lawyer or directly by CONNY if you want to enforce rent control.

Check your claim right here.

Exemptions from the law: harder for landlords

In early 2019 the federal government tightened the rent control law. Since then, landlords have found it harder to rely on exemptions. For example, on a new letting they must state in writing, without being asked, how much rent the previous tenant paid. If a landlord wants to charge more than the permitted maximum, he must state which of the three exemptions from rent control (new build, comprehensive modernisation, temporary tenancy) he is relying on. If he does not, he cannot rely on an exemption later.

Questions and answers

Is replacing the heating system a modernisation, and can the cost 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 the replacement can be added to the annual rent.

Cosmetic repairs cannot be passed on and must not lead to a rent increase.

Renovation is work that brings the flat up to a "generally customary standard". A standard is "generally customary" if at least two thirds of all flats of the same age in the same federal state have it. This applies above all where a tenant can expect the resulting standard as the minimum for contemporary living.

Modernisation measures are building works that clearly improve the living standard of the flat or make it more energy-efficient. Under § 555b BGB, these are the following structural changes:

• Energy-related modernisations that save final energy on a lasting basis (e.g. better 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 permanently increase the utility value of the flat (e.g. high-quality flooring)
• Building works that permanently improve general living conditions
• Building works that create new living space

If the landlord installs a new fitted kitchen or a new bathroom, that is normally a renovation. The exception: the work clearly increases the utility value of the flat. High-quality tiles, for example, can raise the value of the flat and so count as a modernisation. Simply swapping the old bathtub or washbasin is not a modernisation.

Is your landlord getting round rent control?

Let CONNY check your case. We help you fight off the unlawful rent increase and enforce rent control.

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