Berlin rent cap law ruled unlawful by German Constitutional Court

On 25 March 2021, the Second Senate of the German Federal Constitutional Court (Bundesverfassungsericht) held that the Act foreseeing the Rent Cap for residential premises in Berlin (Berlin rent cap act) was incompatible with the German Constitution and therefore, void.[1]

Before going into the details of the ruling it is important to stress the context in which the act came into place: Germany is the European Union member state with the highest percentage of renters in the private sector (55%), and Berlin has an even higher percentage of renters (around 85% of Berliners live in a rented flat). Berlin has been a relatively affordable capital for a long time, but in recent years, rents have skyrocketed: new contract rents increased by 27 per cent between 2013 and 2019.[2]

To counter these developments, in 2015, the Federal Government has introduced a rent brake (Mietpreisbremse).[3] The Tenancy Law Amendment Act authorizes local authorities to limit the rent for new tenancies located in an area with a strained housing market. It amended §§ 556 ff. of the German Civil Code (BGB) that now stipulates that in these areas the rent at the beginning of a tenancy may not exceed the local comparative rent by more than 10%.

In addition to that, on 11^th February 2020, the Government of the Land of Berlin adopted a supplementary scheme: the Berlin Rent Cap Act (Mietpreisdeckel). This law prohibited rents that are higher than the agreed net rent on 18 June 2019. Rent increases referring to existing contracts were thus excluded for all contracts of privately rented housing. However, the law provided for an exception in the case of renovation.

284 members of Parliament of the CDU/CSU and FDP seized the Federal Constitutional Court because according to them, the Berlin Rent Cap Act conflicts with the distribution of competencies as provided by the German Constitution. The German Constitution (Art. 72) provides that “On matters within the concurrent legislative power, the Länder shall have power to legislate so long as and to the extent that the Federation has not exercised its legislative power by enacting a law.”

Hence, the question posed to the Bundesverfassungsericht ultimately comes down to the question, if the rent cap is a measure of civil law and thus a “concurrent” competence of the Federal level and Länder (Art. 74§1,1 GG) and if it is, if the Federal government had already made use of this competence through the rent brake. To put more concretely: if the rent cap under the Berlin law is excluded by the rent brake already anchored in the German Civil Code (BGB).

When adopting the Berlin rent cap, the Berlin House of Representatives argued that since the Constitutional Federalism Reform of 2006 and the deletion of the competence title "Housing" from Art. 74 GG, the competence over housing was transferred to the Länder that hereby were empowered to legislate on housing including regulations on public rent law.

Nevertheless, as underlined by the Court, the Rent Cap Act was not applying to publicly funded accommodations like social housing but only private renting. Hence the Constitutional Court, contrarily to the assessment of the Berlin House of Representatives, states that the Rent cap is a measure of civil law, enshrined in Art. 74 GG.

“According to the legal views shaped by established German state practice and legislative tradition over the last 150 years, civil law entails the entirety of rules that are traditionally classed with private law. (…) Since the Civil Code came into force on 1 January 1900, the law governing tenancy is set out in §§ 535 ff. BGB and is – in spite of numerous amendments – an essential aspect of civil law.”

The Court provides that “if the Federation makes use of its concurrent legislative powers, the Länder lose their right to legislate so long as and to the extent that the Federation permissibly exercises its legislative powers (so-called precluding effect). »

In the present case, the Federal government already had made use of its law-making powers, by inscribing a Rent brake in the BGB. According to Karlsruhe Court, the Berlin rent cap essentially regulates the same situation as the rent brake but intervened more strongly in the contractual freedom of tenants and landlords than the Federal law. 

The Court states that: "Moreover, §§ 556 ff. BGB do not contain any requirements for further legislation, opening clauses or authorising provisions which would allow for the Länder to adopt their own or deviating provisions governing rent.” and

“Given that the federal legislator exercised its concurrent legislative powers conclusively, at least with regard to the determination of the permissible maximum rent for non-subsidised housing, the Länder are precluded from passing rent legislation in this regard (Art. 72(1) GG).”

The Berlin House of Representatives did thus not have the competence to adopt the Berlin Rant Cap Act.

Various comments have called this judgment as being conservative, with regards to the consequences for tenants and landlords and its view on the constitutional order of competencies.[4] Nevertheless, the ruling does not do a substantive review of the rent cap. German politicians and civil society organisations now call for a rent cap on the Federal level. How the German Constitutional Court would assess a federal rent cap, can currently not be predicted, as the present ruling deals merely with who has the competence of such a law.[5]

Affected tenants could be faced with considerable payment obligations. The Court has annulled the Rent Cap retroactively and hence landlords can now demand payments from February 2020, the moment in which the Rent Cap came into force until the moment of the ruling.[6]

The ruling is so far available only in German.

The press release in English can be read here.