REALWorld Law

Is indexation of rent limited or not allowed at all?

Lease law is generally governed by sec. 535 et seq. of the German Civil Code (Bürgerliches Gesetzbuch).

The German Civil Code (Bürgerliches Gesetzbuch) provides for special provisions for residential leases (sec. 549 et seq. German Civil Code). The most important requirements for residential leases compared to non-residential leases include increased protection against termination of the lease by the landlord, restrictions on rent increases and regulations on modernisation measures.

All relevant residential lease laws are generally incorporated in the aforementioned sections of the German Civil Code; eg the last important enactment was the enactment to reduce rent increases in tense residential housing market areas as well as for strengthening the allocation of broker fees for the commissioning of residential real estate (as enacted in the German Civil Code) (‘Restriction on Rent Increases under the German Civil Code’). With the 2022 rent index reform, the Rent Index Reform Act (“Mietspiegelreformgesetz”) was enacted, under which stricter requirements will apply to cities with a population of 50,000 or more for the preparation of rent indexes.

Further important regulations which relate to residential leases:

• Ordinance on Operating Costs (Betriebskostenverordnung)
• Ordinance on Heating Costs (Heizkostenverordnung)
• The Energy Saving Regulation (Energieeinsparungsverordnung)
• The Building Energy Act (Gebäude Energie Gesetz)

 

Apart from these legally standardized deviations, it is possible to make deviating provisions in the contract. Especially in residential leases, the tenant enjoys more protection than in non-residential leases when it comes to judicial interpretation. The courts may control the terms of a lease under the general provisions of the law dealing with standard terms and may declare certain onerous contractual terms void.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

The default for all residential tenancies is a residential lease agreement for an indefinite term, which is subject to the requirements stated in section 1 above.

However, the German Civil Code provides for several categories of residential leases. For such categories, not all of the requirements applicable on a standard residential lease under the German Civil Code apply. Such categories are:

• residential space for temporary use only;
• residential space which is part of the space occupied by the landlord himself and which the landlord has to equip predominantly with furnishings, provided that the residential space is not left to the tenant for the permanent use with his family or with persons with whom he leads a common household on a permanent basis;
• residential space rented by a legal person under public law or a recognized private welfare organization for the purpose of providing it to persons in urgent need of housing if, at the time of conclusion of the contract, it drew the tenant's attention to the purpose of the housing and the exception to the above provisions;
• student residences; and
• youth hostels.

If the respective municipality has a plan for the support of social housing, such an act may provide for restrictions on the side of the landlord in regard of the rent asked for by the tenant.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

Generally, residential leases must be concluded for an indefinite term.

It is possible to agree on a minimum duration for residential leases. In this case, the tenant and the landlord contractually agree not to terminate the lease agreement for a certain time period. The exclusion of the termination right has to be binding for both parties. In pre-formulated lease agreements, termination may not be excluded for more than four years, starting on the day of the conclusion of the lease agreement. Residential leases are usually concluded for an unlimited time. They can only be limited in term if it is a specific category of residential lease. Generally, a lease can be concluded for a limited time if, at the end of the lease:

• the landlord wants to use the rooms as accommodation for himself, his family members or members of his household;
• the landlord wants to remove or substantially change or repair the rooms in a permissible manner so that the measures would be considerably impeded by a continuation of the tenancy; or
• the landlord wants to let the premises to a party obliged to provide services.

The reason for the limitation has to be communicated to the tenant before the beginning of the lease.

Additionally, residential leases for the following spaces can be limited in term:

• spaces rented out for temporary use;
• spaces that are part of the landlord’s own residence and that the landlord is required to furnish with furniture, provided that the living space is not rented to a tenant for long-term use with its family or with persons with whom it maintains a long-term household;
• accommodation rented by a public corporation or a recognised private welfare organisation for letting to persons with an urgent need for accommodation, provided that the tenant was informed of the purpose of the accommodation and the exception to the regulations when the contract was concluded; and
• accommodation in a student or youth residence.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

Ordinary termination of the residential lease by the landlord requires legitimate cause according to the German Civil Code. Termination for the purpose of rent increase is prohibited. The ordinary termination right of the landlord can only be exercised if the landlord can prove its legitimate cause. This is in particular the case if

• the tenant has culpably and significantly breached its contractual obligations;
• the landlord requires the lease object for personal use, that is to say for itself, its family members or members of its household; or
• if the landlord is prevented from appropriately commercially utilising the lease object by continuation of the lease and it suffers significant disadvantages as a result.

The legitimate interest can also be demonstrated in other cases, provided that the interest can be given the same weight and be considered equally important as the interests listed.

For an ordinary termination, the notice period for the landlord is three months, six months for tenancies that have existed for at least five years and nine months for tenancies that have existed for at least eight years.

The tenant can contradict a notice of termination of the landlord and require the continuation of the tenancy, if the termination of the tenancy for him or his family would mean a hardship, which cannot be justified even under appreciation of the legitimate interests of the landlord.

The landlord's right for extraordinary termination without notice is also governed by the German Civil Code. The landlord requires a good cause for an extraordinary termination. The German Civil Code provides examples in which cases such a good cause is given, eg if the tenant has not paid the rent for two consecutive months.

Contractual agreements between the landlord and the tenant to deviate from the aforementioned provisions in the German Civil Code, especially to the disadvantage of the tenant, are generally void. However, it is possible to contractually agree on a minimum duration for the lease, meaning that neither landlord nor tenant can terminate the lease agreement for a defined time period. The exclusion of the termination right only affects the ordinary termination right.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

Generally, the tenant may ordinarily terminate the residential lease with three months' notice. The notice of termination must have been received by the landlord by the third working day of the month in order for it to be valid for the month in question. A shorter notice period may be agreed in the case of housing rented for temporary use only. The contractual agreement of a shorter notice period for the tenant is possible, provided that it does not disadvantage the tenant. An ordinary termination does not require good cause or a specific reason.

In the case of housing rented by a legal person under public law or a recognized private welfare organization for the purpose of providing it to persons in urgent need of housing if, at the time of conclusion of the contract, it drew the tenant's attention to the purpose of the housing and the exception to the above provisions, notice of termination is admissible at the latest on the 15th of a month to the end of this month.

Landlord and tenant may agree on a reciprocal waiver of the ordinary termination right, up to a period of four years. However, the exact thresholds for the validity of such a waiver are subject to jurisprudence, eg such a waiver may not be agreed with a student as a tenant.

The extraordinary termination right without notice by the Tenant corresponds with the extraordinary termination right without notice by the landlord. An extraordinary termination is possible for good cause which  is eg given if the landlord does not provide the contractually agreed state of the premises to the tenant.

Contractual agreements to the disadvantage of the tenant between the landlord and the tenant to deviate from the aforementioned provisions in the German Civil Code are generally void.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

In this case, the landlord is entitled to an extraordinary termination right without notice . The termination notice must be delivered in writing and must state the reasons for termination, specifying exactly for which months the rent has not been paid. The termination notice must also be signed by the landlord itself, or if a third person is acting with power of attorney, the original power of attorney must be attached to the notice. Otherwise the tenant may object to the termination notice.

If the tenant does not move out voluntarily, the landlord must file an action for eviction in order to regain possession of the leased premises. It can take up to one year for the landlord to regain possession of the premises through an eviction procedure.

Once an eviction proceeding is filed in before a court, the tenant is entitled to remedy the grounds for termination for a time period of two months as of delivery of the eviction notice to the tenant. If the tenant remedies all outstanding amounts within the aforementioned timeline, the termination of the landlord is invalid and the tenant may remain in the leased premises. The aforementioned right of the tenant to remedy a termination by the landlord due to default payment of the rent does not apply if the tenant is in default of payment of the rent for the second time within two years and the tenant has in the first instance already made use of its remediation right. Moreover, the right of the tenant to remedy a termination by the landlord relates only to the rescission of the extraordinary termination. Provided that an ordinary termination was also based on this reason and fault on the part of the tenant can be proven, the ordinary termination shall remain in effect even if the outstanding rent is paid subsequently.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

The operating cost regulation (Betriebskostenverordnung) regulates which expenses can be triggered to be paid by the tenant.

This includes:

• property tax;
• water supply costs;
• drainage costs;
• heating costs;
• hot water costs;
• costs of associated heating and hot water supply systems;
• costs of operating the passenger or goods lift;
• costs of street cleaning and garbage disposal;
• cost of cleaning and pest control;
• costs of garden maintenance;
• costs of lightning;
• costs of chimney cleaning;
• costs of property and liability insurance;
• costs for the caretaker;
• costs of operating laundry care facilities; and
• other operating costs (eg such as maintenance costs for smoke detectors or drinking water analysis).

What kind of other operating costs can be triggered to the tenant is subject to jurisprudence. It has been found that general maintenance and repair costs of the leased residential premises cannot be requested to be paid by the tenant. Therefore, the concept of ‘triple net rent’ cannot be achieved in residential leases. The tenant may only be obliged to carry out cosmetic repairs (Schönheitsreparaturen) and the repair of minor defects (Kleinreparaturen) that occur in the leased premises (up to an amount of EUR 100 per defect and a maximum amount of 6-8% of the annual net rent).

Since 2021, an additional CO₂ levy has been charged for heating with oil or natural gas. Since January 2023, the CO₂ costs in the lease are split between landlord and tenant, with the percentage of the tenant’s participation depending on the energy efficiency of the building: The worse the energy condition of a building, the higher the share of costs for landlords. The new regulation emphasizes the task of landlords to equip apartment buildings with climate-friendly heating systems and to ensure good insulation. At the same time, tenants retain their own responsibility to heat as economically and efficiently as possible, as part of the CO₂ costs will continue to be passed on to them.

Since July 2024, with the amendment to the Telecommunications Act [Telekommunikationsgesetz], landlords are prohibited from automatically passing on TV cable fees to tenants with the ancillary costs.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

Tenants are obliged to register their place of residence at the residents’ registration office. The Federal Registration Act obliges landlords to issue the tenant with a confirmation of residence for this purpose. Otherwise, a registration of the lease itself is not required. Particular taxes for the conclusion of the lease itself do not apply.

Last modified 13 Mar 2025

Is indexation of rent limited or not allowed at all?

If ownership of the leased premises is planned to be or is converted after possession of the leased premises to the tenant into home ownership (Wohnungseigentum) and the landlord wants to sell the leased premises to a third party, the tenant has a pre-emptive right. The landlord has to inform the tenant about the planned sale, the tenant then has two months to decide whether to exercise the pre-emptive right. The pre-emptive right is not applicable if the landlord wants to sell the leased premises to family members or a member of its household. A deviating agreement between the landlord and the tenant is void.

Otherwise, no pre-emptive right in favour of a tenant exists by statutory law.

The Building Land Mobilization Act (Baulandmobilisierungsgesetz) came into effect on 23 June 2021 and has introduced Sec. 250 of the Federal Building Code, under which the conversion of leased premises into owner-occupied dwellings (home ownership), and consequently the sale of a flat to a third party, in a building with more than five flats in tense residential housing markets according to a statutory ordinance is subject to the approval of the local municipality. The aim of this legislation is the creation of residential accommodation. The statutory ordinance will be passed by the federal states (Länder) and will be valid until 31 December 2025. The federal states are authorized to deviate from the requirement of five flats and can include in the scope of their respective statutory ordinances buildings, which have between three and fifteen flats (Sec. 250 (1) sentence 6 of the Building Land Mobilization Act).

Last modified 13 Mar 2025