Rent increase in Berlin – Investor’s guide

Raising rents in Berlin

[dropcap]U[/dropcap]nderstandably, a lot of tension is boiling up about Berlin raising rents. Tenants, newspapers, and consumer associations are screaming about the fact that rental prices have dramatically increased in the last decade in Berlin. In fact, they still are, very much so. older tenant contracts are very precious now a days. Tenants hold on to them like the holy grail. Who can blame them?

Berlin rent control

On the other hand, investors and owners are biting there lips at the fact that Berlin is such a tenant-friendly city. Rent control laws, Milieuschutzgebiete (protected neighborhoods), Sanierungsgebiete (renovations of neighborhoods), are investors most dreaded foes. Berlin’s housing market is like a Swiss cheese to an investor. The cheese represents the bulk of the market with raising prices, and maintenance cost, and low stabilized rents. The holes are the rare pockets of air in the market where either purchases prices are low, rents are high and low risk of protective policies are looming.

How high can rents be increased?

In the case of a new lease the rents are readjusted to fair market price or above if the property justifies it. However, for furnished rentals the price is unregulated by the Mietspiegel. In other words they can be as high as one wants. Furthermore, this is also true for new construction or construction where 30% of the structure has be rebuilt.

Ex : popular rooftop reconstructions (Dachgeschosse).

In the case of a running residential lease the rent increase is  maximum 15% increase over 2 years.

How to raise rents in Berlin?

There are various ways to address this thorny issue. we are exploring the legal ways this procedure can take place.

Scheduled rent increase

First of all, rents increases can be planned for in the lease agreement. If the contract is clear and the clauses are not deliriously off market, the rent increase will go according to schedule. Both parties have agreed upon the schedule and it will be very difficult and costly to get out it.

Maintenance rent increase

In this case, this applies if the building or unit was renting for a subpar price as a consequence of subpar situation. Ex : X% discount since the central heating is broken. In the event that the owner brings the property up to standard, he / she will be able to apply a rent increase. Please note, the increase in the case should be notified. In addition, the increase should be proportionate to the surface occupied by tenants.

Modernizing rent increase

Similarly to the section above, rents can be increased a consequence of material improvement to property. Ex : all apartments a equipped with a balcony. This factor clearly increases the desirability of the property. Therefore, the owner is allowed to increase rents based on the improvements done to the property. Here again the tenant must be notified and must approve. In case of disagreement, the owner and tenant will negotiate. If this fails the owner will have a right to seek for a court enforced approval. i.e. the increase will be validated by court order. If the tenant still doesnt not pay the fully increased rent the the owner will have a right to evict the tenant.

Submarket rent increase

If the rent is under the usual market level the owner has a right to increase it back to the acceptable market level a.k.a. the Mietspiegel. Here again tenants must be notified and accept the increase. If not the procedure mentioned above will take place.

Sponsored evictions

A common practice in Berlin has been for owners to offer severance packages to their tenants. It allows owners to renovate the building and flats on order to ent it out at premium. This works well in the beginning before started attracting flocks of new comers (over 50,000 new Berliners ever years and only about 10,ooo new flat built).

Ex: a 15,000 severance package used to pay for over 6 years of rent for 200€ rent. But only 2 and half years when the rent is now at 500€.

Tenants are now asking for a lot more or simply refusing to leave unless forced to.