20 years tenancy

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I was admitted to the bar in the summer of 2002, which means it will be 20 years this year. During this time there was some legal development, both legislative and jurisprudential. In September 2001, while I was still doing my legal traineeship, I found one major tenancy reform took place, in which, among other things, the old provisions of the MHG were transferred to the BGB and the paragraphs in tenancy law were renumbered. Even the old hands suddenly had to relearn tenancy law. Only 3 months later, in January 2002, the general law of obligations of the German Civil Code became law completely reorganized. There were new statutes of limitations and new formal and content-related requirements and, of course, a "re-paragraphing" here as well. The changes were so extensive that many a seasoned lawyer was still not familiar with the new rules several years later.

Further tenancy law changes followed. in the May 2013 the right to modernize was completely revised and the possibility was introduced to lower the cap on rent increases in tense markets from 20% to 15%. In the case of energy modernization, the tenant should not be able to reduce the price for 3 months in order to facilitate renovations. In the years that followed, interventions aimed at limiting rents took place at ever shorter intervals. Local legislation in Berlin was added, for example in 2012 prohibitions on misappropriation against evasive movements by landlords (holiday rentals), milieu protection areas against modernization and apartment conversions, 2015 the Rental price brake and 2017 ff. various "sharpening".

When I was a student, what was taught was that civil law was based on the principle of freedom of contract. Everyone can decide for themselves whether and under what conditions they conclude a contract with whom. There is not much left of this in tenancy law today. The owner is not even allowed to make the rental decision as such, vacancy is a misappropriation. The decision as to who lives in the dwelling is also elusive for the owner: the conditions under which the tenant is entitled to a sublease permit are so few that the tenant can always meet them, and if not, the owner has to the case law hardly any possibility to sanction that. Many a tenant does good business with the rented apartment, while the burden of proof lies with the landlord, who has no insight into it. The rental conditions are also specified: the rental amount is regulated by the rental price brake, the contract period is mandatory for an unlimited period, the permitted deposit amount is completely inadequate in view of the legal requirements for termination in the event of arrears and the length of the proceedings for eviction actions. It doesn't matter how much capital the owner had to raise to buy or build the property, tenancy law takes precedence over his calculation. Within narrow limits there are exceptions, which are exposed to permanent probation before the courts and do not always live up to what was actually expected of them.

Meanwhile, a new generation of lawyers is growing up for whom all this is completely normal. I can only provide anecdotal evidence, but I see a development here. In the last few months I have negotiated several times before young district judges, for whom it is completely normal that there is no freedom of contract in tenancy law. This generation sees the idea that rent could be freely agreed upon for new tenants as hostile to tenants, and the rules protecting the existence of the rental price brake in 2015 as a circumvention or gap in tenant protection. The law is then interpreted in such a way that these gaps are closed. The young colleagues do not even consider the fact that a certain type of jurisdiction massively erodes trust, because they no longer know the old rules according to which real estate owners originally made their investments and the current legal situation is the normal case for them.

However, he is not the norm. The reduction of the cap from 20% to 15% is an exception that was intended for the temporary case of a particularly tight housing market. Since it was introduced 9 years ago, we have been in a state of emergency, when this will end is not foreseeable.

The rental price brake was introduced in 2015 for a limited period of 5 years. It was supposed to expire in 2020, which many landlords relied on in their planning and investment decisions. That Federal Constitutional Court only approved the massive encroachment on contractual freedom because it was limited in time. In 2020 politics has that extended by 5 years on the grounds that the tension in the housing market had not yet been resolved. It is still an exception due to a temporary, special state of emergency. In this respect, too, it is not foreseeable when this will end. It is not to be expected that the rental price brake will end after the expiration of these second 5 years, from politicians we hear calls for a permanence. If someone ends this, it will probably be the courts, at some point, I thought. If, however, the judges' awareness of the problem disappears in the course of time and there is no longer any disturbing feeling about the de facto abolished freedom of contract, then perhaps one should not hope for that.

The new conversion ban in § 250 BauGB is limited to 5 years. This also addresses a special state of emergency and is intended to give those responsible locally time to deal with the exceptional situation, because of which the legislator thinks that a temporary ban on distribution is needed. It can be assumed that the validity will be extended in good time at the end of the 5 years because the state of emergency has not yet been resolved. At some point it may be considered normal that owners are not allowed to divide up an apartment building, even though it belongs to them and the claim is that an owner can do whatever he wants with his thing - according to the legal definition in Civil Code § 903: "The owner of an item can, unless the law or the rights of third parties oppose this, deal with the item as he pleases and exclude others from any interference." If the restrictions, as in tenancy law, are so comprehensive that they turn the rule-exception relationship into its opposite, then ownership only exists formally, but no longer in fact.

All of these regulations make it less likely that the conditions for their removal will materialize. A Twitter user summed it up today:

One has to agree with the thought: the stricter the regulatory screw, the fewer private individuals will be found who put their money into the Berlin housing market. Without owners to build rental houses, there are no rental houses. Without owners who voluntarily maintain and modernize rental houses, there is no climate protection and no maintenance. A regulation of the type currently under discussion, the owners then with building regulations or one that cannot be changed CO2 control for operating costs only means that investing in the rental housing market makes even less sense. Who can, sells. Previously rented apartments become owner-occupied homes.

I don't see anyone benefiting from this development. In any case, the tenants are not: before 2015 it was easier to find an apartment in Berlin. Do that today: in the personal needs processes, we regularly hear that people haven't found anything new even after a year of searching. This may be due to the entitlement attitude or process tactics, but before 2015 this objection did not exist. What changed in 2015? The rental price brake was introduced.

But the owners have none of it either. They are restricted in their decisions and their income is reduced to the point of a standstill. On top of that, for several years there has been a considerable amount of bureaucracy for data protection, taxes, census, recording heating costs, building regulations and a hardly manageable tenancy law, which forces normal owners without a legal department, for almost each step an assessment by a lawyer or a Expert opinion to catch up Mistakes are now highly fined, see § 5 WiStraG. Except for large owners or professional real estate professionals, renting only makes limited sense because of these general conditions. In any case, this is not a simple old-age provision for the average citizen.

I'm excited to see what the next 20 years will look like. Will sanity ever come? Does the market have to collapse completely before the realization ripens that being voluntary and the fact that business transactions must also be worthwhile were actually a very good idea? I suspect that these issues will be overtaken by regulatory developments. The ownership rate in Berlin was around 2014% in 14 (source Wikipedia), in 2018 at well over 17% (source The report of Statista). It should have reached over 20% by now. This development will continue. There are three reasons for this: (1) if there are no more rental apartments available, someone who wants to live has to buy. (2) If renting is unprofitable, the owners will no longer invest in the buildings. Rental houses deteriorate substantially over time, while condominiums do not. At some point, beautiful living will only be possible if you own your property, renting is increasingly becoming a “social ghetto”. (3) New buildings are built that are worthwhile. The shortage in the supply of condominiums due to the ban on partitioning is stabilizing prices. Inflation will do the rest.

The more people own property instead of renting, the more tenancy law restrictions will become less important and the less acceptance they will find among the population. At some point, this will also make itself felt in the voting decisions of Berliners. Politicians will probably try to slow this down, as is currently the case with the conversion ban (= shortage of supply) and high real estate transfer taxes (= shortage of demand). However, the fact that private owners leave the market by selling when renting is no longer worthwhile cannot stop this, and if the people of Berlin cannot afford to buy under the existing general conditions, it will be people from outside who will move into the move into old and new apartments. I guess that the process can only be slowed down by politics, but not stopped or reversed - unless the regulation of tenancy law is reduced significantly and reliably in the long term, so that renting is worthwhile again. In view of the developments of the last 10 years, I do not expect this to happen in the foreseeable future.