Tenancy law in the coalition agreement: more regulation, not much of it tangible

The planned reforms to tenancy law are not yet very tangible. 

The coalition agreement between the CDU/CSU and SPD for the 21st legislative period addresses tenancy law in detail. The new government is still committed to heavy regulation. Most of the planned reforms are only briefly outlined, so it is unclear how significant they will be and how they might be implemented. This article highlights the key elements impacting the real estate industry.

Rent control

The rent control law in force since 2015 stipulates that rents on new contracts for housing stock in areas with a tight housing market may not be more than 10 % above the local comparative rent unless an exception applies (e.g. new builds, short-term leases, etc.). Under current law, rent controls are set to expire on 31 December 2025. The coalition agreement provides for the rent control law to be extended by a further four years, until 31 December 2029.

The coalition agreement does not provide for tightening of the rent controls themselves, such as a tightening of the cap, which was discussed during the coalition negotiations. However, a panel of experts has been tasked with preparing a system of fines for non-compliance with rent controls by 31 December 2026. No such penalties have been provided for to date. Although landlords are exposed to the risk of tenants being able to demand an adjustment for the future and repayment of overpaid rent for up to three years, few tenants have actually made use of this option in the past.

Further regulation on rent

The panel of experts will also focus on harmonising tenancy law regulations and amending the provision on exorbitant rents in the German Economic Offences Act (WiStrG) to make it more precise. The extent to which there is a need for harmonisation in tenancy law is not specified. The provision on exorbitant rents has had little relevance in practice to date, not least because it is conditional upon the landlord acting intentionally or recklessly. It is likely that the results of the experts' efforts will not be adopted into law until the second half of the legislative period.

Elsewhere, the cooperation between politicians and the housing economy is emphasised with the aim of creating large-scale living space for rents below EUR 15 in tight housing markets. It is fair to assume that this upper limit could also become a political benchmark for assessing how effective regulation on rent actually is.

According to the coalition agreement, in tight housing markets, index rents for residential lettings, the letting of furnished flats and short-term lettings are also to be subject to expanded regulations. The coalition agreement does not give specific details. Index rents could simply be capped, which could make them less attractive – at least in times of high inflation. How the letting of furnished flats will be regulated remains to be seen; legally prescribed surcharges based on the value of the furniture, for example, are conceivable here, as are absolute upper limits. With regard to short-term lettings, there are already effective criteria in case law for differentiating between residential and commercial use, which could be adopted into law.

The coalition agreement makes no mention of the various calls for a rent freeze or rent cap that were made during the election campaign and even during the coalition negotiations.

Other changes to tenancies

The coalition agreement also provides for changes to tenancies intended to incentivise economic investment in housing stock while at the same time ensuring that rents are more affordable than they are now. How this conflict of objectives is to be resolved is not disclosed in the coalition agreement.

With regard to the modernisation levy, the limit for "small modernisations", for which a simplified procedure for apportioning costs to rents applies, is to be raised from currently EUR 10,000 to EUR 20,000 by the end of 2025.

The ancillary costs for tenants are set become more transparent and easier to understand. It is unclear whether this will only concern the presentation of ancillary cost statements or whether it will also involve changes to the way ancillary costs are apportioned.

To prevent homelessness, a one-off grace period payment is to be introduced in future to make it possible to avert termination with notice. Up to now, according to the case law of the highest courts, this option has only been used to avert termination without notice for good cause, which in practice is often combined with termination with notice if the tenant defaults on payment.

Creating incentives for letting

The coalition agreement aims to make letting more attractive again. Tax incentives are to be awarded to those who let at favourable rates, for example. It is not explained when a rent is favourable (possibly below EUR 15.00 in tight housing markets) or which tax measures or options are to be used as a model here; it is also unclear whether this should only apply to private individuals.

Political objectives and other plans

In addition, the coalition agreement contains a few more politically motivated objectives that are barely tangible in terms of legal criteria. For example, there are plans to introduce a shared accommodation guarantee for apprentices and students, and to strengthen consumer protection to enforce tenants' rights for young people. This is unlikely to work with the provisions of tenancy law alone, but will also require communication measures and greater involvement of consumer protection organisations, for example. Finally, national rent reporting is to be introduced. This could entail a number of different things. In any case, the key issues are likely to be how this will interact with the existing rent indexes and data collection, in particular whether landlords and tenants should be obliged to report the agreed rent.

There is considerable scope for implementation

To summarise, the coalition agreement has made a lot of plans for tenancy law without deviating from the familiar path of tenant protection through regulation and the familiar legal means. However, there are still numerous unanswered questions regarding the implementation of these plans. Therefore, it is currently only possible to speculate as to what specific changes landlords and tenants will face. We will keep you informed.