3) Whether the rent price cap is constitutionally compliant is a controversial subject – the final assessment will lie with the Federal Constitutional Court. What is the current legal evaluation, also in relation to the existing “rent price brake” (“Mietpreisbremse”)?
The rent price brake under the German Civil Code would not be affected by a rent price cap as a state law. In principle, tenancy law is a matter to be clarified at the federal level.
Nevertheless, several expert opinions consider the rent price cap to be admissible, including an expert opinion prepared by Dr. Franz C. Mayer, LL.M. (Yale) and Dr. Markus Artz (University of Bielefeld) for the SPD parliamentary group in the Berlin parliament. However, many others consider such a law to be unconstitutional, including Dr. Thomas Dünchheim (Hogan Lovells International LLP) on behalf of the German Property Federation (ZIA).
The red-red-green Berlin government argues that the rent price cap is a matter of public law, which falls under the responsibility of the federal state.
New reports on constitutionality: Rent freeze yes, rent reduction no – and high risks for tenants
In the latest policy paper from gif Gesellschaft für Immobilienwirtschaftliche Forschung e. V. dated 16 October 2019, Dr. Karola Knauthe (HWR Berlin) concludes that tenants may also be exposed to considerable risks. If the Federal Constitutional Court were to classify the rent price cap as unconstitutional, tenants could be threatened with back rent repayments or even the loss of the flat.
In a further report dated 15 October 2019, commissioned by the Berlin Senate Chancellery, constitutional law expert Ulrich Battis offers a nuanced assessment of the proposed law. While a rent freeze is permissible, the lowering of rents and the stipulation of rent ceilings is not. It would be unrealistic to expect a legally compliant solution before the end of 2020.
We have summarised the relevant expert opinions and analyses for you below.
Gif report warns of high financial risks for tenants
Prof. Dr. Karola Knauthe, Professor of Real Estate Law at the Berlin School of Economics and Law (HWR), analysed the constitutionality of the draft law and the possible consequences for gif Gesellschaft für Immobilienwirtschaftliche Forschung e. V. if the Berlin Rent Act were to be struck down by the Federal Constitutional Court.
The analysis published on 16 October 2019 considers the bill constitutionally questionable with reference to the principle of proportionality in accordance with Article 14 GG and the legislative competence of the federal state.
It is also important to note that tenants would be exposed to considerable risks if the Federal Constitutional Court were to classify the rent cap as unconstitutional. The tenant would be responsible for any resulting back rent payments. Such additional financial burdens could lead to the loss of the flat in the event of non-fulfilment.
Report commissioned by the Senate Chancellery considers planned rent reductions and rent ceilings unconstitutional
According to media reports, Dr. Ulrich Battis (GSK Stockmann) presented another expert opinion commissioned by the Berlin Senate Chancellery on 15 October. The rent freeze planned as part of the rent price brake is permissible and constitutional as a state law “as part of a housing policy concept for the re-establishment of a balanced housing market” (quoted by the Berlin Tagesspiegel).
In contrast, rent reduction and the setting of rent ceilings are not in keeping with the federal constitution. The bill would have to be adapted accordingly to make it legally watertight. The expert does not consider this to be tenable by the planned entry into force in January 2020 and therefore expects the date to be pushed back to the end of 2020. In addition, the report urges administrative improvements and better activation of urban voids.
An expert opinion of the Research Service of the German Bundestag determined that the law would be predominantly unconstitutional
Having already been published on 18 June parallel to the resolution of the rent price cap, details of the appraisal drawn up by the Research Service of the German Bundestag became public at the end of June. The report confirms that tenancy law is conclusively regulated in the German Civil Code (BGB) and that federal law would thus have a blocking effect. Moreover, property rights may be restricted, but their inherent substance may not be violated. Rent increases must remain possible.
However, the Research Service of the German Bundestag does not commit itself to stating that the new rent price cap is completely unconstitutional. Media reports quote the expert opinion as follows: “The responsibility of the federal states for banning rent increases could result from their legislative power in connection with housing. Since the federalism reforms of 2006, this competing power has been the sole responsibility of the federal states.”