The individual German Länder will be able to decide that the rent in areas of housing shortage can increase to no more than 10% above market rent upon re-letting. The transfer tax will increase, and lessors must pay any future estate agent fees. These are some of the new rules introduced on the German property market in 2015.

"Rent brake"

Several lessors of residential housing will become affected by legislative changes which are expected to be implemented in the first half of 2015. The individual German Länder will be able to decide that the rent in areas where the residential market is under pressure, in the event of re-letting, can as a maximum increase to 10% above the market rent applicable within the area.

The areas designated for this purpose by the Länder will for a period of five years constitute areas of housing shortage. The relevant regulations of the individual Länder must enter into force no later than on 31 December 2020.

This so-called "rent brake" rule (Mietpreisbremse) is associated with several uncertainties. Problems will, for example, occur when fixing the market rent in areas where no rent price index exists. The new rule will also affect the gradual adjustments (Index- and Staffelmiete). Rent increases following material refurbishment will, however, not be subject to the rule, just as existing leases and newly constructed residential housing will not be comprised by the new initiatives.

The rent brake rule may ultimately have a very negative effect on investments in the German housing stock.

Estate agent fee for the letting of leases

In addition to the rent brake rule, another rule will be introduced implying that the one commissioning the estate agent in the event of letting of residential housing must at all times pay the fee to the estate agent (Bestellerprinzip). This has not previously been the case in Germany.

This will imply an extra burden on lessors. Therefore, concerns exist that lessors will bypass estate agents when seeking lessees with a view to avoiding payment of additional expenses. This will be detrimental to house hunters since less residential housing will be offered to the public.

New obligations on the part of lessors and administrators

A new German act on measuring equipment and calibration means new obligations on the part of lessors and administrators. The new act implies, for example, that the authorities must be notified of all water and heat meters installed or modified after 1 January 2015. Furthermore, it will no longer be legal to use meters for commercial purposes in which case the calibration has expired, including settlement of heat and water consumption.

In the event that a lessor or administrator uses a meter in which case the calibration has expired, such lessor or administrator risks being fined with an amount of up to EUR 50,000.

Transfer tax increase

In Saarland and Nordrhein-Westfalen, the transfer tax payable in all German Länder when purchasing and selling real estate has increased by 1.5% to 6.5% as from 1 January 2015. Consequently, Saarland, Nordrhein-Westfalen and Schleswig-Holsten are the Länder having the highest tax within the field. In comparison, the tax rate is only 3.5% in Bayern and Sachsen and 4.5% in Hamburg and Bremen.

Comments by Bech-Bruun

The new rules for the German property market will particularly affect investors in residential property: Buyers must reckon with tax increases upon acquisition, and lessors and administrators may expect to pay additional costs when commissioning an estate agent for the letting of property and administration of measuring equipment.

Ultimately, this may result in other proceeds which may make investments less attractive since the fees payable to lawyers and notaries have also increased. Considering that the transfer tax - depending on the Land in which the property is located - may vary from 3.5% to 6.5%, it may also be worth contemplating only to invest in the Länder in which the costs incidental to any transfer of ownership are not as high.