Flat-hunters anxious about ‘shadow rent’ contracts

Berliners are thinking twice about moving flats due to the uncertain legal situation surrounding the rent cap.

"Shadow rents" - higher rents that kick in if Berlin's rent cap is shot down in court - are causing anxiety amongst Berlin flat-seekers.
"Shadow rents" - higher rents that kick in if Berlin's rent cap is shot down in court - are causing anxiety amongst Berlin flat-seekers.imago images/photothek

Berlin-Landlords’ attempts to include “shadow rent” clauses in new leases – on top of the corona crisis – is causing fewer Berlin households to move within the city, says the director of the Berlin Renter’s Association (BMV), Reiner Wild.

The term “shadow rent” describes a contractually agreed higher rent price a landlord could charge should Berlin’s rent control rules expire or be deemed unconstitutional by the courts. Wild says that a tenant might rent an apartment for €7.50 per square metre, but not if there was a danger of the price doubling to €15.

The BMV believes such “shadow rent” clauses are illegal. Yet a lot of landlords claim they are sound and refer to a federal administrative court decision in March that allegedly permits a second rental price to be included in contracts. BMV chairman Rainer Tietzsch contests that claim: “I consider that an exaggeration.”

The dispute over the legality of shadow rents is still being waged in court. The BMV says it is representing affected households in two ongoing cases. “We hope to see the first decision in district court this autumn,” says Wild.

Rent cap: In November the next phase kicks in

In the debate on the legal admissibility of the rent cap, the association underscored its position that the rent control law enacted by Berlin’s governing SPD-Linke-Green coalition is on solid ground. “We believe the rent cap will be declared constitutional,” says Wild. The association concedes that the legislation interferes with property rights but, for them, the extent to which it does so is “reasonable”.

The rent cap, that came into effect on 23 February of this year, freezes rents at the level of 18 June 2019 for five years. From 23 November 2020 it will be prohibited to charge rents that exceed legally defined limits by more than 20 per cent. This might even lead to rent reductions in some cases. Increases of up to 1.3 per cent are permissible from 2022 as long as the defined limits aren’t exceeded. The rent cap does not apply to buildings completed since 2014.

Berlin entered uncharted legal territory when it introduced its rent cap law in January. The city government points to Germany’s 2006 “Federalism Reform” under which the Länder, or 16 states, were granted the authority to regulate housing.

Set aside money for the worst case

The law remains controversial. The Berlin government faces legal challenges supported by the CDU and FDP in both the Berlin and federal constitutional courts. Landlords who have already lowered rents have told tenants that they’ll demand back payments of the difference between the new and old rent levels if the rent control legislation is shot down by the courts.

BMV head Rainer Tietzsch believes that even if the federal constitutional court rules against Berlin’s experiment in keeping housing costs under control, it won’t mean that landlords will be able to demand back payments. The Tenants Association boss can’t completely rule that out, either, but thinks it is “more unlikely than not.” To be prepared for any eventuality, the association recommends tenants set aside the money they saved thanks to lowered rents.