In its decision of 25 March 2021 (2 BvF 1/20, 2 BvL 5/20, 2 BvL 4/20), the Federal Constitutional Court (Bundesverfassungsgericht) declared the Law on Rent Limitations in the Housing Sector in Berlin (Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin - hereinafter abbreviated "MietenWoG Bln") to be incompatible with the German Constitution (Grundgesetz) and therefore void.

The MietenWoG Bln (also known as “Mietendeckel” - "rent cap") came into force on 23 February 2020. Since then, the rents of approximately 1.5 million flats built before 2014 in Berlin had been frozen at the level of 18 July 2019. However, according to the aforementioned decision of the Federal Constitutional Court, the Land of Berlin exceeded its legislative competence by enacting the MietenWoG Bln. This was because the regulations on rent levels for privately financed housing, as part of the social tenancy law, fell within the concurrent legislative competence pursuant to Article 74 (1) no. 1 of the German Constitution. Since the Federal Government had conclusively made use of its concurrent legislative competence to regulate the amount of rent for privately financed housing with Secs. 556 to 561 of the German Civil Code (BGB), the Land of Berlin had not been authorised to regulate rent law from the outset due to the blocking effect of federal law (Article 72 (1) of the German Constitution). The MietenWoG Bln was thus formally unconstitutional and to be regarded as ineffective from the beginning.

What are the legal consequences for landlords and tenants?

The decision of the Federal Constitutional Court means that landlords can now, on the one hand, again demand the agreed higher rent and, on the other hand, if necessary, also demand an additional payment of the difference from the tenants. This is particularly the case if a permissible rent was effectively agreed between the parties in the period between 18 June 2019 and 22 February 2020, which was however lowered when the second stage of the rent cap came into force on 23 November 2020.

The landlord is entitled to an additional payment in particular if he waived part of the rent under the condition of the effectiveness of the MietenWoG Bln. In principle, this should also apply to agreed "shadow rents". A "shadow rent" is a rent that was not to be paid for the time being, but for which it was agreed at the same time, in the event of the invalidity of the MietenWoG Bln, that the difference between the rent permitted under the MietenWoG Bln and the contractually agreed rent must be paid in arrears by the tenant. In legal literature, however, such agreements are occasionally regarded as rent increases, the effectiveness of which is therefore dependent on compliance with the legal requirements for rent increases (Sec. 557 para. 4 of the German Civil Code). The Federal Constitutional Court had indicated in a prior decision (BVerfG, decision of 10 March 2020 - 1 BvQ 15/20) that landlords had not been prevented "from being promised a higher rent for new leases in the event that the law or parts thereof were unconstitutional". So far, however, the civil courts have not yet (legally) ruled on this legal question, so that for the time being there remain residual doubts about the lawful agreement of "shadow rents" in the case of new or re-letting and any claims for additional payments by landlords could possibly be considered unfounded in court. The landlord is also entitled to an additional payment if the tenant has agreed to a rent increase in the event that the MietenWoG Bln is ineffective. On the other hand, the landlord should not be entitled to an additional payment if he reduced the rent solely on the basis of the "rent cap" - unconditionally - and there was no indication whatsoever for the tenant that he should have expected an additional payment of a differential rent.

Furthermore, the invalidity of the MietenWoG Bln means for the landlords that since the pronouncement of the decision of the Federal Constitutional Court, they can again increase rents up to the amount of the local comparable rent or increase an agreed index-linked or graduated rent.

What are the possible courses of action for landlords and tenants?

As a result of the retroactive invalidity of the MietenWoG Bln, landlords can demand that tenants pay the difference by setting a deadline, provided that the parties had contractually agreed on a permissible rent amount or rent increase. If the tenant is obliged to pay the difference in arrears but is unwilling/unable to do so, the landlord may terminate the lease without notice if the rent is at least two months in arrears pursuant to Sec. 543 para. 2 sent. 1 no. 3 of the German Civil Code. Irrespective of this prerequisite for termination without notice, the landlord may terminate the tenancy agreement in accordance with Sec. 573 of the German Civil Code if the rent arrears exceed one month's rent and the period of arrears exceeds one month (Federal Court of Justice (BGH), decision of 10 October 2012 - VIII ZR 107/12). In addition, he can increase the agreed rent up to the amount of the local comparable rent. When renting out new flats, the landlord should ensure that the permissible rent as a rule (exceptions apply according to Sec. § 556f of the German Civil Code, e.g. for the first-time use and letting of new buildings and the first-time letting after comprehensive modernisation) may not be more than 10% above the local comparative rent (Sec. 556d of the German Civil Code), which he can take from the (qualified) Berlin rent index (Sec. 558d of the German Civil Code). However, the 2019 Berlin rent index should only be valid until the end of May 2021 (Sec. 558c para. 3 of the German Civil Code).

Insofar as the tenant has an obligation to pay the difference in arrears and the immediate payment of the difference results from the contractual agreement or other declarations of the parties, it would be advisable for tenants to pay the difference to the landlord even without a prior request for payment by the landlord. If it can be determined that the agreed rent exceeds the limit of the comparable rent customary in the locality, the tenant may reject the landlord's demand for payment of the higher rent or for payment of the difference in arrears. In case of doubt about the validity of the contractual agreement on the rent amount or the lawfulness of the demand for payment in arrears, the tenant has the option to pay the difference amounts demanded by the landlord subject to the reservation of reclaiming them in order, on the one hand, to be able to assert a possible claim for repayment and, on the other hand, to avoid a threatened termination without notice due to default in payment (Sec. 543 para. 2 sent. 1 no. 3 of the German Civil Code).

Irrespective of the rent cap, which has now been declared void, the federal regulations on rent law (Secs. 556 to 561 of the German Civil Code), especially those on the so-called "rent price brake" (“Mietpreisbremse”) pursuant to Secs. 556d to 556g of the German Civil Code), as well as the local rent index, provided it is not out of date (Sec. 558c para. 3 of the German Civil Code), continue to apply. Whether and to what extent the tenant is obliged to pay rent in arrears or whether the difference can be claimed retroactively requires a careful examination of the individual case.


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