Small procedural error - now Berlin's housing market threatens to plunge into chaos

Rent control has been in force in more than 400 towns and communities for more than seven years, and this is a nuisance for many landlords. Especially in markets that are in high demand, they would like to charge significantly more money for new leases, but that is exactly what should be slowed down.

Property management companies, private landlords and housing companies have tried to stop the rental price brake in numerous court proceedings, often attacking the regulations in the federal states. Because the rental price brake is a federal law, but the federal states have to implement it with well-founded regulations.

As is so often the case, several factors come together in Berlin, and once again the capital does not seem to be in a good light. As the "Tagesspiegel" reports, the district court in Neukölln has declared the rental price brake in Berlin to be void. The regulation must be well justified and this justification must be publicly available. However, that was not the case back then, in June 2015, the judges said, according to the report. (9 C 489/20).

Is the capital now facing the next administrative chaos, after the rent cap with fixed price specifications that failed almost two years ago and after an election in September 2021 that also failed? If the rental price brake introduced more than seven years ago were invalid, tens of thousands of rental contracts concluded during this period could also be null and void.

"The chaos surrounding the housing market in Berlin continues," said Daniel Föst, spokesman for housing policy for the FDP parliamentary group. "Red-Red-Green loses itself in an ideological struggle that ultimately brings nothing".

A closer look, however, shows that it is less about ideology and more about strict administrative requirements. And other federal states have already failed because of them.

Hamburg, which is considered to be exemplary when it comes to the housing market, had to change the Price Brake Ordinance after a decisive court case. There were also invalid regulations in Bavaria, Baden-Württemberg, Brandenburg and North Rhine-Westphalia. Lower Saxony also had to stay in detention - a valid rental price brake has therefore only existed there since January 2021.

"Countries like Berlin have obviously taken the formal requirements for the enactment of the rental price brake lightly, which is now taking revenge," says Jan-Marco Luczak, spokesman for the CDU/CSU parliamentary group for building and housing.

And further: “The requirements for the enactment of the rental price brake are not mere formalities. Obligation to publish and qualified justification are central to being able to legitimize the associated interference with property.”

According to the “Tagesspiegel” report, the Berlin case is about an astonishing detail that should never have played a role in the fast-paced everyday market events: before the rent brake regulation came into force, the Senate had put a reason online.

But according to the Neukölln judges, the link to it could hardly be found through search engines, at least shortly before the price brake came into force in June 2015. After that no more. Can such a detail overturn a regulation that a city of over a million people has been relying on for more than seven years?

Henrik Solf, a tenancy lawyer in Berlin, thinks this is absurd: "In 2019, the Federal Constitutional Court decided in a decision that the Berlin regulation meets all the necessary procedural and substantive legal requirements," says Solf. "The regional court and the Federal Court of Justice had already examined the Berlin implementation and declared it permissible."

According to Solf, procedures like the one in Neukölln are no longer about administrative hygiene work: "An attempt seems to have been made here to find a small catch in the implementation - and that at a time that was more than seven years ago," he says. "I think that's at least questionable. Accessibility in 2015 can now hardly be determined seriously.”

Since it was invented, the rental price brake has been a bone of contention, between tenants and landlords, in court and in politics. Basically, the rule is simple: where the price brake applies, the rent for a newly concluded rental agreement may not be more than ten percent above the local comparative rent.

Determining the local comparable rent alone, however, causes problems due to a lack of data. In Bremen, for example, there is no qualified rent index. Some landlords send appraisers into the race and look for comparable apartments in the neighborhood that are as expensive as possible.

And there are exceptions, for example for new buildings from October 2014, for comprehensive modernizations, or for rents that were already above the price limit before the new contract. After some improvements to the federal law, landlords have to explain these exceptions better, but from the point of view of the German Tenants' Association that is not enough. "We call for the exceptions to be deleted without replacement," says spokeswoman Jutta Hartmann. "In addition, the rental price brake must apply across the board and nationwide."

A study recently showed that the rental price brake is apparently often circumvented by landlords. Using Düsseldorf as an example, market experts had calculated that at least every fourth apartment is overpriced. In the absence of sanctions, landlords would have no financial incentive to comply with the law.

The Berlin case, which sparked the dispute before the Neukölln court, shows this impressively: There, a couple had asked their property manager to reduce the net rent by around 230 euros to just under 310 euros a month. The housing company fought back. And that should now occupy the next instances.

Baden-Württemberg: In September 2015, the state government in Stuttgart issued an ordinance on rent control. However, this would be declared invalid by the regional court in March 2019. Improvements have been made, and since June 4, 2020 there has been a valid ordinance for 89 cities and municipalities.

Bavaria: The rental price brake was introduced in August 2015. But while people in Bavaria were still taunting the Berlin administration, the Munich Regional Court overturned the regulation. A valid price brake has therefore only been in place since August 7, 2019. Originally this applied to 137, but now to 162 towns and municipalities.

Berlin: So far, Berlin has been considered a model country. As one of the few state governments, the Senate succeeded in getting a valid regulation off the ground right from the start. The rental price brake applies to rental contracts that were concluded after June 1, 2015. A legal dispute in Berlin ended up before the Federal Constitutional Court, and in August 2019 it declared the price brake to be generally constitutional.

Brandenburg: There were also problems with the publication of the price brake justification in Brandenburg. The price brake actually introduced at the end of 2015 was therefore ineffective and was reintroduced in 2019 - for a total of 19 cities.

Bremen: As in Berlin, the Bremen Senate brought about a regulation that is still valid today. But the city does not have a valid rent index, and so there are also frequent arguments - just not about the rental price brake, but about the permissible rent level.

Hamburg: Here, too, there were problems with the justification, and the Hanseatic city had to deliver later. That’s why there has only been a valid rental price brake there since July 3, 2018.

Hesse: There is a rental price brake for 49 cities and municipalities - since June 28, 2019. The previously issued regulation was collected by the court.

Mecklenburg-Western Pomerania: Relatively late, on October 1, 2018, the state introduced a price brake for Rostock and Greifswald. Schwerin had apparently learned from other countries - the regulation has not been successfully challenged to this day.

Lower Saxony: The rental price brake applies in eleven cities and on the East Frisian Islands, but only since January 1, 2021 and thus only at the second attempt. In mid-2022, the regional court in Hanover even declared the improved rental price brake justification to be inadmissible.

North Rhine-Westphalia: There is a housing shortage in many cities in the most populous federal state, but the black and yellow state government, which was recently voted out, reduced the list of cities with rent control to 18 municipalities. The government had previously failed to publish an explanation. The result: Only since July 1, 2020 has there been a valid rental price brake.

Rhineland-Palatinate: There are no problems with the rent control regulation. It has been in force in Mainz, Landau, Trier and Speyer since October 1st and in Ludwigshafen since October 8th.

Schleswig-Holstein: From November 11, 2015 there was a (valid) rental price brake, but it was abolished by the black and yellow state government on November 30, 2019. The price cap only applies to contracts concluded during this period.

Thuringia: The price brake has been in effect in Erfurt and Jena since March 31 - and so far without any objections.

Saxony: It was only this year, on July 13th, that the state government introduced a rent control for Leipzig and Dresden. So far, the ordinance has not been recovered.

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