Berlin rent cap: unconstitutional but still the future?

On April 15, 2021, the German Federal Constitutional Court declared the controversial Berlin rent cap (“Mietendeckel“) unconstitutional (decision of 25 March 2021, court file no. 2 BvF 1/20). Previously, 284 members of the Federal Parliament belonging to the parliamentary groups of the FDP (Liberal Democrats) and the CDU/CSU (Conservatives) had filed abstract norm control proceedings (“abstraktes Normenkontrollverfahren“) before the German Federal Constitutional Court. The Berlin Regional Court as well as the Local Court Berlin-Central had also submitted the law, which was passed a year and a half ago, to the judges in Karlsruhe by way of specific norm control proceedings (“konkretes Normenkontrollverfahren“) because of doubts about its constitutionality. The judges now ruled that the Berlin rent cap was not compatible with the German constitution for lack of legislative competence of the state of Berlin. The court held that the regulations on the amount of rent were part of social tenancy law, which was subject to civil law and thus to concurrent legislation under Article 74 (1) No. 1 of the German constitution. The federal legislator had already passed a comprehensive and conclusive regulation on rent price law with the rent price brake (“Mietpreisbremse“) in 2015, which left no space for a regulation under state law.

The court did not examine the substantive provisions of the rent cap and their compatibility with the German constitution. The Berlin rent cap provided that rents were frozen at the level of June 2019 and may not increase by more than 1.3 percent per year from 2022 onwards. If an apartment was newly rented, the rent could not have exceeded the most recently charged rent up to a set cap. Even under existing leases, exceeding the set cap by more than 20 percent was impermissible and resulted in a corresponding reduction in the rent.

The rent cap will now be replaced by the rent price brake, which is already in force in many major urban centers. The rent price brake authorizes state governments to designate areas with tight housing markets by statutory order. Within these areas, rental agreements concluded after the respective ordinance has been enacted may not exceed the standard local comparative rent by more than 10%. Exceptions exist for apartments that were previously rented at a higher rent, which may now continue to be charged. Apartments that are used and rented for the first time after October 1, 2014 are not subject to the rent price brake.

The German Federal Constitutional Court declared the rent price brake regulations to be constitutional back in 2019. Unlike in the case of the Berlin rent cap, it also assessed the rent price brake in terms of its substantive provisions and not merely its legislative competence. In its decision at the time, the German Federal Constitutional Court stated that the limitations set by the freedom of ownership guaranteed by Article 14 of the German constitution would be exceeded at least "if rent regulation led to losses for the landlord in the long term or to a threat to the substance of the rental property." This indicates that, compared to the rent price brake, further tightening of rent price law by the federal legislator may be constitutionally permissible. This will likely be the objective that the SPD (Social Democrats), the Greens and the Left Party will now pursue not at the state level, but at the federal level, and what they will make a central demand of their federal election campaign. The plebiscites on the socialization of large housing corporations supported by the left-wing parties already indicate towards this direction. Therefore, it cannot be excluded that a rent cap will occupy tenants, landlords and courts again in the future and will be subjected to a renewed constitutional review. The German Federal Constitutional Court would then have to take a position on the substantive provisions of a federal rent cap.

For now, however, the court's decision means that landlords can demand that their tenants pay the difference between the capped rent and the contractually agreed rent since the rent cap came into effect on February 23, 2020.

Co-Author: Fabian Motazedi

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