Can landlords raise rents because of inflation?

Julia Loehr

Business correspondent in Berlin.

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This is not the case in most rental agreements.

The rule in Germany are contracts with a fixed monthly rent, which landlords are only allowed to increase within a narrow legal framework.

The situation is different with so-called graduated or index rents.

In the first case, the tenant and landlord agree when the rent is to increase by how much when the contract is concluded.

Index rents are linked to the development of the consumer price index.

In this case, landlords can actually adjust the cold rent to inflation, annually or at longer intervals.

Since economists expect an inflation rate of more than 6 percent for this year, renters with an index lease must be prepared for a significant increase.

How common are index rents?

There are no reliable figures for this.

From the landlord's point of view, they are particularly attractive in places where the rent level is already high and the scope for other increases is limited.

The German Tenants' Association refers to the example of Hamburg.

Almost half of all new leases there are index or graduated leases.

The association fears that landlords will now increasingly want to conclude such contracts in view of the high inflation.

If the tenants' association had its way, index rents could rise by a maximum of 2 percent annually.

According to its own statements, Vonovia, the largest housing group in Germany, has agreed index rents in less than 1 percent of the contracts.

CEO Rolf Buch caused displeasure last week because he told the "Handelsblatt": "If inflation is permanently at 4 percent, rents will have to increase accordingly every year in the future." A spokeswoman for Vonovia emphasizes that all legal requirements will be followed keep regulations.

What Buch meant: Scarce building materials and rising wages increased the costs of new construction, which increased new building rents and with them the level of rent indexes.

These in turn set the framework for rent increases.

What is the local comparative rent all about?

In 124 of the 200 largest German cities there was a rent index in 2021, according to the Society for Real Estate Research (gif).

In rent indices, the cities collect which rents per square meter have been agreed in new contracts or after rent increases in the past six years.

This results in the usual local comparative rent.

Up to this point, landlords are allowed to raise the rents in existing contracts.

Requirement: At least 15 months have passed since the previous increase.

And within three years, the rent may rise by a maximum of 20 percent.

Many cities with tight housing markets have lowered this cap to 15 percent.

The traffic light coalition wants to reduce it to 11 percent.

There are simple and qualified rent indexes.

The latter must meet certain standards and are legally less vulnerable.

What if there is no rent index in a place?

In cities without a rent index, landlords must justify an increase with the square meter rent in at least three comparable apartments of a similar size, equipment, year of construction and location.

Alternatively, they can submit the report of an expert.

In order for a rent increase to take effect, the consent of the tenants is required.

If they don't agree, landlords can sue.

When does the rental price brake take effect?

In order to limit rent increases in new contracts, the federal government introduced the so-called rent brake in 2015.

Landlords can therefore demand a maximum of 10 percent more than the local comparative rent when changing tenants.

If the previous tenant has already paid more, this amount is also allowed.

The rental price brake does not apply across the board, the state governments have to determine the regions.

In the analysis by the Society for Real Estate Research, the rental price brake applied in 65 of the 200 cities.