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When Chancellor Friedrich Merz announced in December 2025 that the Heating Act would be abolished and replaced with a new Building Modernisation Act, the German property sector breathed a collective sigh of relief. The Gebäudeenergiegesetz had been one of the most politically toxic pieces of legislation in recent German history. Driven by former Economics Minister Robert Habeck and the ill-fated traffic light coalition, its requirement that all new heating systems use at least 65% renewable energy had provoked a firestorm of public anger, contributed to the collapse of the government and left property owners, investors and developers in prolonged planning paralysis.
That relief in December, it is now clear, was premature.
On 30th April, the CDU/SPD coalition reached the final agreement needed to clear the path for the new GModG — the Building Modernisation Act. The central provisions are genuinely more pragmatic than what they replace. But the new law is not simple, the timeline is already slipping, and the financial implications for landlords and residential investors are more significant than the headline "abolition of the Heating Act" suggests.
What is actually changing
The core shift is the abolition of the 65% renewables mandate. Under the existing GEG, every newly installed heating system must operate using at least 65% renewable energy. Once the GModG enters into force, that requirement disappears. Gas and oil heating systems will be permitted again. Functioning existing heating systems face no forced replacement obligation. The link between heating replacement decisions and municipal heat planning, which had created its own paralysis as landlords waited for local authorities to publish their Wärmepläne, is also being severed.
In place of the mandate comes the Bio-Treppe: a four-stage bio-staircase requiring gas and oil heating systems installed after the law comes into force to use an increasing proportion of CO2-neutral fuels from 1 January 2029. The starting requirement is 10%, rising in three further stages through to 2040. For existing heating systems, a green gas quota applies from 2028, directed at fuel suppliers rather than property owners. BEG funding for heating system replacement is confirmed until at least 2029.
Economics Minister Katherina Reiche declared that "the final piece of the jigsaw has fallen into place." The coalition's stated aim is for CO2 reduction to become the key performance indicator — outcomes rather than prescribed technology.
The most significant development for landlords and residential investors received less attention than the abolition of the 65% rule, but carries direct implications for investment economics. Under the agreement reached on 29th/30th April, if a landlord installs a new gas or oil heating system, they must share ongoing running costs with tenants on a 50/50 basis. From 1st January 2028, landlords must cover half the CO2 levy and grid charges. From 1st January 2029, when the Bio-Treppe takes effect, they must also cover half the costs of the biogenic fuel component. This applies to all existing and future tenancies following a heating system replacement.
The significance is straightforward. Until now, heating costs including the CO2 levy have been passed through to tenants as Nebenkosten. The new provision creates a direct landlord liability for a portion of those costs, linked explicitly to the decision to install a fossil fuel system rather than a renewable alternative. SPD parliamentary group leader Matthias Miersch put it plainly: "If a landlord creates fossil fuel-related liabilities, they must take economic responsibility for them in future."
Justice Minister Verena Hubig described the outcome as "a good compromise — viable and fair." The German Tenants' Association welcomed the 50/50 split as "an important step towards greater fairness." Kai Warnecke of Haus & Grund called it a "political declaration of bankruptcy," warning that shifting state-created costs onto private landlords would result in less investment, deteriorating housing stock and the destruction of private pension provision. A hardship clause is planned for unrenovated buildings with very low rents, with details still to be finalised in the parliamentary process.
What comes next — and what investors should watch
The law is not yet passed and the timetable is under pressure. The original target of 1st July 2026 has already been missed. To prevent the 65% rule from taking full effect in large cities before the GModG is in place, the Federal Cabinet approved a four-month extension of the existing deadline, moving the trigger date from 1st July to 1st November 2026. Cabinet discussion of the GModG draft is expected on 13th May. Passage through the Bundestag before the summer recess is considered unlikely, meaning the law will probably enter into force in mid-to-late July at the earliest. Until then, the existing GEG continues to apply in full.
For investors taking a medium-term view, three considerations stand out. Green gas tariffs are already running around 25% above conventional gas prices, according to comparison portal Verivox, meaning the bio-fuel cost that landlords must share is not negligible. Many existing heating systems are not designed to handle high bio-fuel blending ratios, creating potential retrofit costs as Bio-Treppe percentages rise. And the legislation includes a formal review in 2030: if the building sector continues to miss its CO2 reduction targets at that point, the government has committed to introducing further measures. The regulatory story does not end with the GModG.
The abolition of the 65% rule removes one significant obstacle. The new cost-sharing provision, the Bio-Treppe and the 2030 review clause collectively ensure that the journey towards climate-neutral building stock in Germany remains, for investors, far from over.