Rents on the Berlin housing market have risen rapidly in recent years. As a consequence, low-income sections of the population are particularly threatened with displacement from their social environment. The federal rent regulations that have been tightened in favour of tenants (keyword: rent brake) have a dampening effect on rent prices. However, in the opinion of the responsible state politicians, they do not relieve tenants sufficiently. Against this background, the Berlin Senate decided on October 22, 2019, to initiate the legislative process for the Law updating the legislation on rent limitation ("Gesetz zur Neuregelung gesetzlicher Vorschriften zur Mietenbegrenzung"). This is intended to cap the rents for around 1.5 million apartments - initially for a limited period of five years.

Overview of the provisions regarding the rent cap

According to the Berlin Senate's press release of 22 October 2019, the new law shall apply to all housing, with the exception of new-build housing from 2014 and publicly subsidised housing, and will essentially contain the following provisions:

Rent freeze

A rent freeze is introduced for five years. The existing net cold rents (including any surcharges for equipment and furniture) will be frozen for this period at the level of the rents owed on 18 June 2019. This also applies to stepped and indexed rents. Only from 2022 the rent may be increased annually by an inflation compensation of 1.3% provided that it remains below the permissible upper rent limit.

The permissible upper rent limits were determined on the basis of the rents in the list of representative rents of Berlin (“Berliner Mietspiegel”) for 2013, updated with the real wage development until 2019. They differentiate according to age and certain furnishing features of an apartment. The location of the apartment is not taken into account in this respect.

The upper rent limits range from EUR 3.92/m² living space per month (residential space with first-time readiness for occupancy until 1918 without central heating and without bathroom) to EUR 9.80/m² living space (residential space with first-time readiness for occupancy from 2003 to 2013 with central heating and with bathroom). With modern equipment, the respective upper rent limit increases by EUR 1.00. If the residential space is located in buildings with no more than two apartments, the respective rent price cap is increased by a surcharge of 10%.

Re-letting

For the re-letting of apartments, the rent from the previous tenancy that was effectively agreed on 18 June 2019 may be demanded, limited to the upper rent limit.

If the monthly rent for a modern apartment is particularly low (less than EUR 5.02/m²), it may be increased by a maximum of EUR 1.00/m² to a maximum of EUR 5.02/m².

Entitlement to a rent cap

In existing tenancies, tenants shall be able to cap their rent if it is more than 20% above the permissible upper rent limit. This includes surcharges and deductions for apartments located in simple residential areas (-28 ct/m²), medium residential areas (-9 ct/m²) and good residential areas (+74 ct/m²). The provisions will only be applied 9 months after the law has come into force.

Modernisation measures

Modernisation measures may only be allocated in the amount of EUR 1.00/m². A duty of notification applies. Promotion programmes will be put in place by the Berlin Senate to cover additional modernisation costs of up to EUR 1.00/m² living space. An allocation of such additional costs to the tenants is not permitted.

Hardship provision

In cases of economic hardship on the part of landlords, Investitionsbank Berlin shall approve rent increases at the request of the landlords if this is absolutely necessary in order to avoid threats to the substance of the rental object and losses of the landlord. The approved rent increases above the upper rent limits are to be cushioned by a rent subsidy for households entitled to obtain an official document certifying the tenant's financial hardship (so-called Wohnberechtigungsschein – WBS). The rent subsidy may not exceed the amount exceeding the upper rent limit.

Fine

Violations of the requirements of the Berlin Rent Act (Berliner Mietengesetz) will be punished as an administrative offence with a fine of up to EUR 500,000.

Controversial constitutional assessment of the rent cap

At first glance, the new Berlin tenancy law seems to be appropriate to curbing the rise in prices in the housing market. However, this presupposes that the law comes effectively into force and is not declared ineffective due to a violation of higher-ranking law.

In the run-up to the legislative process, renowned constitutional lawyers also doubted whether the rent cap was constitutional. In particular, it is argued that social tenancy law is conclusively regulated at federal level, which is why no competing public tenancy law can be enacted at federal state level. Due to the lack of legislative power of the Federal States, the Federal State of Berlin could therefore not effectively enact a law on rent caps.

In addition, the legal literature argues with considerable reasons that the rent cap violates the principle of equality (Article 3 of the German Basic Law (Grundgesetz - GG)) and constitutes a disproportionate and therefore unjustified encroachment upon basic rights (in particular the right of property, Article 14 GG). Naturally, the Berlin Senate takes a different view.

These questions can finally be decided only by the German Federal Constitutional Court. Such a decision may take a long time, during which there is considerable legal uncertainty.

Since it is currently not possible to conclusively assess whether the rent cap will come into force at all, for which period it will apply and whether the German Federal Constitutional Court will not declare the law invalid in whole or in part, precautions should be taken for the event that the rent cap does not or does no longer apply. On the one hand, for example, are landlords recommended to make alternative arrangements with regard to the rent owed under or without the validity of the rent cap. On the other hand, tenants are recommended to save the difference between the contractually agreed rent and the rent owed according to the rent cap and, if necessary, to immediately pay the rent that has been underpaid in order to avoid termination.

Financing risks for landlords

Landlords may also be exposed to financing risks as a result of banks having to take the capitalized earnings value of rented and owner-occupied residential property into account when calculating the mortgage lending value. In turn, the capitalised earnings value of a property depends on the amount of rent that can be permissibly earned. In cases where the mortgage lending value decreases as a result of the rent cap, the financing banks may therefore be forced to demand additional collateral from borrowers. If borrowers were unable to provide such additional collateral, it may constitute a breach of contractual disbursement requirements with the consequence of the bank being entitled to terminate the loan for compelling reasons.

Effects on the order situation of craft businesses

In Berlin, there has already been a significant decline in orders for refurbishment and modernisation because a large number of landlords wants to wait and see how the situation further develops. The Berlin Chamber of Crafts expects an average decline in turnover of 30%. In this respect, the rent cap can lead to considerable economic problems for craft businesses.

The EPH Group of Czech entrepreneur Daniel Kretinsky through its subsidiary EP Logistics International a.s. has acquired all shares in LOCON LOGISTIK & CONSULTING AG (“LOCON”).

LOCON is a licensed railway carrier based in Berlin with about 150 employees. The company operates about 30 locomotives throughout Germany.

EP Logistics International a.s. was advised by DSC Legal throughout the entire transaction.

 

Smart and to the point.

DSC Legal is specialized in advising on all legal and notarial aspects of real estate transactions.

Due to the legal support of various corporate acquisitions and mergers, we have been able to constantly strengthen our M&A advisory practice in recent years.

We advise our domestic and international clients in all areas of real estate law, corporate law, banking and finance law, construction and architectural law, the law regarding startups and venture capital and IP/IT law for domestic and cross-border matters.

On July 4, 2019, the European Court of Justice (ECJ) found in the infringement proceedings against the Federal Republic of Germany initiated by the European Commission (C-377/17) that Germany had infringed Article 15 of the so-called Services Directive (1) by imposing binding fees on has maintained the planning services of architects and engineers.

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(1) Directive 2006/123 / EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market

The essential reasons for the decision:

First of all, the ECJ notes that the Services Directive is also applicable to purely domestic matters without foreign reference.

The minimum and maximum rates for architect and engineer design services would be compatible with the objectives of the Services Directive only if they did not constitute discrimination and were necessary and proportionate to the achievement of a overriding reason in the public interest (see Article 15 (2) (g)) and paragraph 3 of the Services Directive).

A direct or indirect discrimination effect of the maximum and minimum rates of the HOAI has been denied by the ECJ. The ECJ is also of the opinion that the minimum rates of the HOAI due to the specificities of the German market serve the overriding reasons of general interest: the quality of planning services, consumer protection, construction safety, the preservation of building culture and ecological construction. However, according to the ECJ, the national legislation in question is only capable of attaining the intended objective if it pursues that objective in a systematic and coherent manner, that is to say, in accordance with that provision. coherently pursued. The ECJ complains that the objective of maintaining a high quality of planning services is inconsistent with the minimum rate, because in Germany planning services can be provided by service providers who have not demonstrated their professional aptitude. This is to say that there are no minimum guarantees to ensure the quality of these benefits when making the payments subject to these minimum rates

According to the ECJ, the maximum rates of the HOAI can in principle contribute to consumer protection by increasing price transparency and preventing excessive price increases. As a result, the maximum rates are disproportionate. In the view of the European Court of Justice, it would be sufficient to provide customers with price orientations for the various categories of services mentioned by the HOAI.

Consequences for the practice:

It should first be noted that the HOAI is a pure price right. Which architects / engineering services are to be provided is determined solely by the agreement of the parties. To determine the architects / engineers owed, the HOAI can be used for the conclusion of the contract. Nothing changed about that. The HOAI remains applicable with the exception of the regulation of the maximum and minimum rates in § 7 (1) of the HOAI. The provision in § 7 (1) of the HOAI is likely to retain its validity, but in the version which is removed from the anti-Community law:

"The fee is based on the written agreement that the contracting parties make when placing the order."

However, as a result of the ECJ's ruling, minimum sentence actions by which an architect / engineer seeks payment of an increase in the amount of a fee agreed in the contract to the minimum amount must now be dismissed as unfounded. The first recent judgments show the future tendency in case law (see, for example, OLG Celle, judgment of 17.07.2019 - 14 U 188/18 - not final).

Outlook:

The decision of the ECJ is final. How the legislature will react to the judgment of the ECJ is still open. It is conceivable, but not the only way to make it possible, that the provision of architects 'and engineers' services should be more strictly regulated in order to maintain the minimum rate. However, this also requires compliance with Community law. The maximum rates of the HOAI will certainly no longer exist after the HOAI amendment.

 

On 23.05.2019 the second event of the event series "Immodrinks" took place. With good drinks in a relaxed atmosphere, we highlighted current issues around the property and took the opportunity to exchange ideas and networking was.

The event focused on current corporate real estate (CRE) trends that have established themselves as an asset class. They offer companies without a real estate business core business the opportunity to develop their entrepreneurial potential even better and react more calmly to cyclical fluctuations.

We were particularly pleased that Andrew Coombs (CEO of Sirius Facilities GmbH and board member of the Corporate Real Estate Initiative)

on the topic THE CORPORATE REAL ESTATE TREND IN THE GERMAN REAL ESTATE MARKET 2019 held the keynote.

The event took place in the offices of DSC Legal Rechtsanwaltsgesellschaft at Pariser Platz 3, 10117 Berlin.

We were delighted to welcome numerous guests to the event, which was hosted by DZ Hyp AG, DSC Legal Rechtsanwaltsgesellschaft mbH and geomap GmbH.

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