Thursday, October 28

German Constitutional Court knocks down rent cap law in Berlin

The German Constitutional Court overturns the rent cap law in Berlin.

The German Constitutional Court overturns the rent cap law in Berlin.

The German Constitutional Court considered this Thursday that the law that froze the rentals in the city-state of Berlin since 2020, an initiative promoted to stop the increase in prices of the real estate sector in the German capital, it is contrary to the Constitution.

The high court deems to reject the Berlin provision that the rental regulations are federal jurisdiction and that the “Länder” are only authorized to legislate “as long as and to the extent that the federal government has not made final use of its legislative competence”.

The law to freeze rents entered into force on February 23, 2020, permanent a maximum of 9.80 euros per square meter (well below market prices in the center) and affects the rental contracts of 1.5 million homes in the German capital – where 85% live on a rental basis – for five years.

The Court considers in its ruling that the federal legislator has already regulated rental prices and that “there is no room for the legislative power of the states due to the blocking effect of federal law“, and that since the Berlin law” also essentially regulates the rent of the habitable space without restrictions, it is null in general “.

According to Berlin law, starting in 2022, owners could increase prices by 1.3% per year to incorporate inflation; the level of the rent freeze took as a reference the prices in effect in June 2019.

Fines of up to 500,000 euros

All new contracts -except for some exceptions- signed from that date had to adhere to the new law, offenders could be punished with fines of up to 500,000 euros and the victims could go to court to have the freeze applied (sometimes even retroactively).

Rents in the capital have doubled in the last decade due to Berlin’s growing appeal, the fall in interest rates, the good economic situation in Germany, the little flexibility of the construction sector to meet demand and speculation.

The second stage of the rental limit was last effective on November 23, 2020: landlords had to cut rents that exceeded fixed upper limits by more than 20 percent. Around 340,000 tenant households in Berlin were affected.

Berlin was traditionally a low-rent city, relative to the rest of the country, but since it regained its status as the German capital, after the country’s reunification in 1990, prices began to rise to levels similar to other large urban centers.

In recent years this evolution has skyrocketed, both in rental housing and property: between 2011 and 2016 it is estimated that they rose by 40% and the increase was 20% per year in the two years prior to the entry into force of the ceiling on which the Constitutional Court.

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