Federal Constitutional Court: Berlin rental cap unconstitutional (decision of 25.03.2021, 2 BvF 1/20, 2 BvL 4/20, 2 BvL 5/20)

In order to counteract the recent sharp rise in rents, the state of Berlin has launched the so-called “Berlin Rent Cap”, the Law on Rent Limits in the Housing Sector in Berlin (MietenWoG Bln). Not only real estate groups and landlords, but also members of the Bundestag from the FDP and CDU/CSU then doubted the legality of the law and filed a petition with the Federal Constitutional Court to review the law. Now the Federal Constitutional Court in Karlsruhe has made its decision (Ref.: 2 BvF 1/20 et al.): Berlin’s rent cap is unconstitutional and therefore void.

What did the rental cap regulate?

The red-red-green government’s law froze rents in the capital at June 2019 levels with effect from 23 February 2020. The plan was to prohibit an increase in rents altogether until 2022 and to grant an increase of only 1.3% per year thereafter. New tenancy agreements had to be based on a ceiling set by the Berlin Senate Administration and were not allowed to exceed it. In a second step, as of 23 November 2020, rents that were more than 20% above the statutory upper limit could no longer be charged and also had to be adjusted. The regulation was initially limited to five years and contained, among other things, exceptions for newly built flats that were ready for occupancy on 01.01.2014 at the earliest.

Why is this now unconstitutional?

The setting of rent levels for freely financed housing offered on the open housing market falls within the concurrent legislative competence according to Art. 70,72 (1) GG. In concrete terms, this means that the Länder may only make use of their right to legislate as long as and to the extent that the Federation has not yet adopted a final regulation. With the modernisation of tenancy law, however, the federal government has already stipulated a so-called rent brake in §§ 556 – 561 BGB. The Federal Constitutional Court in Karlsruhe has now clearly determined: These regulations are final. This has a blocking effect; the Länder are no longer allowed to make independent regulations on rent law. The action of the Land of Berlin was therefore unlawful and the enacted law unconstitutional.

What does the federal rent control law look like?

Until the modernisation of tenancy law, landlords were free to determine the amount of rent when concluding a tenancy agreement. The new Section 556 d (1) of the German Civil Code (BGB) introduced in 2015 has largely abolished this practice. In principle, only rents 10% above the local comparable rent may be assessed. Exceptions exist for modernised housing and tenancy agreements concluded before the Act came into force.

What are the consequences of the ruling?

For the time being, the federal regulations on rent law will apply again. Furthermore, landlords can in principle demand the (wrongly) reduced part of the rent from 23 February 2020, also retroactively. Provided that the local rent has not yet been reached, rents for current contracts can increase by up to 15% over the next three years. New tenancy agreements may again exceed the local rent by up to 10%.
You can find the decision in its entirety here. We will be happy to advise you on this topic and answer any further questions.