German residential properties are an attractive asset class. Investors should be aware of a new law on rent control for re-letting (Mietrechtsnovellierungsgesetz) presumably entering into force on 01.06.2015 and generally referred to as ‘rent brake’. This will effect Berlin and other big cities where housing demand and prices are high.

To date, rent increases are limited by law for most of the current leases (in total max. 15 or 20 % within 3 years). But there are no limits when there is a changeover, apart from "usury". 

In the future limitations will apply when apartments are re-let. The new rent must not exceed 110 % of the reference rent customary in the locality. Current leases are not affected and upon changeover the rent previously agreed is still admissible. Further the new law will not apply to buildings first used after 01.10.2014 and there will be an exception for extensively modernized buildings for the first new lease. 

Germany is a country of tenants. The home owner ship rate in 2014 was only 46 % (in Berlin only 14.9 %). The laws on the protection of tenants requires qualified legal advice in the acquisition process.

by Sandra Philipp, Lawyer from Schellenberg Unternehmeranwälte