Berlin's "shadow rent" problem, explained
Landlords are asking new tenants to sign contracts that would require large backpayments should the rent cap get overturned in court.
Berlin-A listing for a four-room, 115sqm apartment promises a "dream" flat for a cold (basic) rent of €1,800. Fold in monthly operating costs of €270 and you come to a total of €2,070 per month.
But is that legal under Berlin's new rent cap? Read the small print: under "miscellaneous" is a note clarifying that while that is the rent stated in contract, Berlin's Mietendeckel rent cap means the landlord will only collect cold rent of €1,015, or €785 less per month. Should the controversial rental control law be overturned next year by the constitutional court, the renter is on the hook for the amount in the contract.
Such listings are becoming more and more common in Berlin. Landlords want to cover their bases. They also want to make sure that they'll be able to collect the higher rent – known as "shadow rent" in real estate jargon – if the rent cap expires as planned in five years.
"The fact that more and more contracts incorporating shadow rents are being signed is a growing problem," says Reiner Wild, managing director of the Berlin Tenants' Association (BMV). He says the reason is that it's increasingly difficult to find a flat and warns: "Although tenants are paying low rent at the moment, they should expect to be asked to pay a lot more in the end."
We consider shadow rents to be illegal because the rent cap prohibits them
A legal logjam caused by the law, which is unique to Berlin, is exacerbating the problem.
"We consider shadow rents to be illegal because the rent cap prohibits them, but unfortunately there are still no court rulings to which we can refer," says Wild. "The disputes we wanted to take to court fall within the jurisdiction of the 67th chamber of the regional court, which has suspended all decisions on the rent cap until the Constitutional Court has made its ruling [next year] ... The decisions that we had expected for the autumn have been postponed, which is regrettable."
Dax-listed real estate giant Deutsche Wohnen is perhaps the largest company relying on shadow rents. Although a lease seen by Berliner Zeitung calls for cold rent of €389 for a 41sqm, two-room flat in Spandau, the XX-based landlord is only collecing €259.
If the rent cap is shot down, the higher rent will apply "retroactively from the beginning of the contract". The additional back-payment is "then due in a single instalment" and must be made "if the landlord requests the tenant to do so."
Ouch.
The renters' association representing that case – the Alternative Mieter- und Verbraucherschutzbund (AMV) – is appalled.
"With its rental agreement Deutsche Wohnen is shamelessly exploiting the housing shortage on the Berlin market," says AMV head Marcel Eupen. "If there were sufficient supply, tenants wouldn't sign such agreements."
The clause requiring tenants to have to potentially pay the backpayment in one lump sum is "exceptionally cold-hearted," says Eupen.
Make sure your real wallet can cover the shadow rent
Deutsche Wohnen says it's only adhering to "any and all legal requirements" and "of course the rent cap as well", a spokesperson explained. Until the Constitutional Court reaches a decision, all sides should "deal responsibly with the continuing uncertainty."
This also includes "finding provisions for the case that the rent cap should prove to be unconstitutional."
Deutsche Wohnen argues that the Constitutional Court, in its argument for rejecting a temporary injunction against the rent cap, stated that landlords are not prohibited from demanding a higher rent when new tenancies are concluded just in case the rent cap is judged unconstitutional.
"This way we create transparency for prospective tenants and prevent tenants from being financially overstretched."
Vonovia, the largest stock-market listed German housing company, feels the same way.
But the Berlin Tenants' Association sees things differently.
"Any agreement on the amount of rent in the event of re-letting that contradicts the rent cap is likely to be generally ineffective - not only during the period of validity of the rent cap, but also beyond that period," says Reiner Wild. "It follows that while the rent cap is valid, no landlord may demand agreement to a higher rent when concluding a new contract, in effect a stockpile rent."
Wild also questions the soundness of the landlords' argumentation, which is based on the reasoning of the Constitutional Court in summary proceedings. According to the court, the proceedings in question were "only concerned with financial penalties" related to the rent cap.
"Whether and to what extent a prohibited agreement remains valid must be decided by the specialised courts," says Wild. "The Constitutional Court did not want to pre-empt a hearing in a specialised court on another aspect of the proceedings."
In short, Wild has some advice for tenants: "People should only sign contracts with a shadow rent if they can afford to pay the higher rent, if it comes to that."
Maurice Frank adapted this article about shadow rents in Berlin from the original German.