Mietpreisbremse passes into law, changes ahead for brokers

The German government passed into draft law this week the infamous Mietpreisbremse, or rental cap on residential rent increases, while at the same time introducing a change to the time-honoured German system of nearly always having the tenant or the buyer pay the broker’s commission on a property transaction.

The law now only needs the ratification of the Upper House, or Bundesrat, to fully come into effect. Given the huge government coalition majority, and the left-leaning opposition parties assertion that the bill does not go far enough, its passing is considered a formality.

From the middle of next year, Germany’s federal states will be able to impose rental caps on residential markets, freezing them at 10% above an agreed ‘rent table’ (Mietspiegel) or acceptable average price for a neighbourhood. The move is designed to cool rampant rent rises in areas designated to be in high demand and to protect tenants fearful of being priced out of urban living areas. In certain cities, increases in rent of between 30% and 40% have not been unusual, prompting demands for legislation to curb price inflation.

As it stands, the individual states can identify the regions in which the cap will be applied to rental renewals, with the law remaining in effect for five years, after which it may be extendable. The law must first be enacted at a state level by each of Germany’s 16 state governments. A complicated process of defining which regions or neighbourhoods could now be defined as “tense markets” will now be played out a local level across the land.

Certain exceptions are permitted; so as not to discourage much-needed new housebuilding, the rental cap will not be applicable to new buildings, nor to those first-time rentals that have just undergone “extensive refurbishment”, defined as having had capital expenditure equivalent to about a third of the price of a new apartment. Rents currently at more than 10% above the Mietspiegel will be frozen at their current level pending other prices catching up.

A second part of the bill concerns another key part of the reform, what’s known as the “Bestellerprinzip” or “the commissioner’s principle”. In future, this should mean that whoever commissions a real estate agent should then be responsible for paying that agent’s fees. These can be hefty in Germany, normally amounting to two or three months’ rental as commission, with a further 19% VAT on top. This has traditionally been paid by the prospective tenant, and as the landlord doesn’t have to pay the bill, landlords nearly always engage a broker as mediator.

Justice Minister Heiko Maas, who has been the Minister most closely involved in the introduction of the new measures, said the bill would ensure “that the tenants’ predicament is no longer exploited on the accommodation market, and that the general principle of ‘whoever commissioned it should pay for it’ will apply.”

The property owners’ trade association IVD said it was already preparing a case for Germany’s highest constitutional court in Karlsruhe to declare the law illegal, claiming that it breaches the freedom of individuals to freely act as independent brokers.