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Real Estate Glossary

Reasons for Raising the Rent

If you are the owner of a let apartment you may raise the rent to offset the effects of inflation, for instance. There are strings attached to rent hikes, though, and they may be more numerous in Germany than elsewhere. Here are the most important ones: You always need the tenant's consent to make a rent increase effective. Then again, the tenant is generally obliged to consent to the increase as long as you observe the applicable formal and legal requirements. For one thing, you need to communicate and justify the rent increase in writing. The German Civil Code (BGB) permits rent increases up to the level of the local reference rent (Art. 558) on grounds of modernisation measures (Art. 559) or if a graduated or indexed rent was agreed in the lease (Art. 557).

Rent Increase up to the Local Reference Rent

You may raise the rent up to the level of the local reference rent if the rent has not been changed for the past 15 months at the time of the contemplated rent hike. Moreover, at least one year must have passed since the previous rent hike before you may request the next rent increase. You also need to consider the so called rent increase cap, which limits rent increases to a maximum of 20 percent inside a three-year period. A legal amendment that entered into force in May 2013 authorises German states to lower the ceiling even further to 15 percent over three years in municipalities with a strained housing market. The arguments you quote to justify a rent increase need to reference one of the following sources to document the local reference rent: three comparable apartments, an expert opinion by a surveyor, or data obtained from a rent database or rent table.

Rent Increase due to Modernisation

You may raise the rent due to modernisation measures after you or the home owner association (HOA) undertook structural measures that enhance the practical value of the apartment, permanently improve the living conditions, or result in sustainable energy or water savings. Qualifying measures include, for instance, the addition of a balcony, the replacement of single-pane windows with multiple glazing, or the installation of an intercom system. In this context, you may raise the rent by up to eleven percent of the amount spent on the apartment's modernisation.

Graduated Rent and Indexed Rent

If a lease you signed with your tenant stipulates a graduated rent pursuant to Art. 557a, German Civil Code, the rent will automatically increase by the set amount at the appointed time. However, the interval between rent increases must be no less than one year, while additional rent increases are ruled out as long as the graduated rent arrangement remains in place.

Whenever an indexed rent pursuant to Art. 557b, German Civil Code, was agreed, the rent will increase in proportion to the price index for the cost of living of private households in Germany as determined by the Federal Statistical Office. As with graduated rents, indexed rents are limited to one increase per year while ruling out any additional rent hike. The only permissible type of rent increase out of turn presupposes a modernisation not subject to your control as a landlord because it was decreed by the home owner association.

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