On February 1, 2013, the Federal Council approved the “Act on energetic modernization of leased residential space and on the simplified enforcement of eviction writs”, which had been enacted on December 13, 2012 by the German Parliament, without calling upon the Mediation Committee. Following the announcement in the Federal Law Gazette on March 18, 2013, the law will come into effect on May 1, 2013. Compared with the preliminary drafts (see articles in the Summer 2012 and Autumn 2011 issues of the Real Estate Newsletter), only marginal changes were made to the Cabinet’s draft of May 2012. The regulatory content of the Act regarding residential tenancy law and the commercial tenancy law is briefly summarised in the following.

ENERGETIC MODERNIZATION

As before, the tenant is to tolerate certain modernization measures, including energetic modernization, which the government explicitly wishes to promote. Energy modernization measures are measures that sustainably save non-renewable primary and final energy with respect to leased objects. In spite of the impairment resulting from such energy modernization measures, the tenant will not be allowed to reduce the rent for the first three months. However, following these three months and in the event of the complete reversal of the fitness for use of the premises, the reduction will remain possible. Other modernization or conservation measures performed at the same time still do not exclude the continued reduction of rent. In the case of a dispute, law courts are authorised to estimate the ratio by which the various measures contribute to the impairment. The exclusion of reduction, however, will have no influence on tenants’ possible reimbursement claims for damage or expenditure.

Regarding the advance information on expected savings potential, which will continue to be required, landlords will be able to refer to acknowledged standard values (e.g., ‘Publication of Rules on Data Collection and Use of Data in Existing Residential Buildings’ by the Federal Ministry of Transport, Construction and Urban Development of July 26, 2007) instead of commissioning costly expert opinions.

The costs for the modernization measures can still be allocated at a ratio of 11 percent p.a. The corresponding hardship test now is shifted to the subsequent demand for rent increases, in order to prevent the delay of implementing the measures. For this purpose, it is now provided for that the written form requirements and time limits for the tenant’s objection due to hardship must be observed only in case the landlord pointed these out to the tenant at the time of announcing the measure.

In terms of establishing local comparative rent, which is restricted to residential tenancy law, energetic fit-out and characteristics have to be taken into consideration in the future. In addition, by way of legal regulation, federal state governments may lower the capping of rent increases up to the local comparative rent to 15 percent instead of 20 percent over a three-year period. This option is restricted to areas with a housing shortage.

CONTRACTING

By a switch to commercial heat supplied by specialised companies (contracting), the legislative expects energy savings and a more efficient use of energy. In future, the costs for contracting instead of generating energy by the landlord shall be allocatable as operating costs within the scope of the cost items “heat” or “hot water”. This will depend on whether the following two prerequisites are met: (i) the supplied heat originates from a newly constructed plant or a heat network and (ii) the costs for supplying heat must not exceed the costs of previous energy generation of heat or water, i.e., the change must be cost-neutral for the tenant. In derogation of the supply of heat from a new system or a heating network, the heat supplier also will be able to operate the existing system more efficiently through ‘plant management contracting’. However, this option is to be offered only to systems that already work efficiently, as, according to statutory regulations, older and less efficient systems should no longer be operated, if possible. Landlords must give three months notice in writing of the change in contract. Details are to be regulated in an ordinance issued by the German government. These rules and regulations relating to residential premises are a mandatory right for landlords and are to become a legal guiding principle for commercial tenancy law. It will make it easier to implement the change and cost allocation in this field. Even though varying agreements within commercial tenancy law are possible between the parties, the legal guiding principle, however, should be taken as the standard applied for the content control of standard form clauses.

SECURING ORDER AND EVICTION

In addition, the Tenancy Law Amendment Act provides instruments against tenants that are unwilling to pay rent within the scope of civil procedures and compulsory execution.

The securing order issued by the court is to better protect landlords as plaintiff (as a rule) against accumulating payment arrears. The order is directed against sued tenants and concerns security deposits for monetary claims that have become due following the pendancy of the action. Proof of having paid a security deposit must be furnished within a time limit specified by the court. The prerequisites for furnishing said deposit, however, is that the action for payment is related to a claim for eviction. In the case of non-payment, the landlord may obtain a simplified eviction writ – but only for residential housing – through an interim injunction. However, one of the prerequisites for such an order is that the action has a high probability of success. It should be noted that in such cases, a short-term decision should be possible, which reduces the risk of large, accumulated payment arrears. While in the case of complicated and therefore protracted legal actions and a correspondingly high risk on the part of the landlord, the securing order usually would be inapplicable. Irrespective of the ordered security deposit, the plaintiff (usually the landlord) is obligated to pay damages if it loses the action in whole or in part. The defendant (usually the tenant) is able to participate concerning the claim during the proceedings.

Newly included is the statutory decree that courts must prioritise the processing of actions for eviction. It is doubtful whether the courts and the parties in question can appropriately monitor this regulation. However, it may well be that proceedings which are progressing very slowly can be attacked due to this regulation.

The ‘Berlin Eviction’ exclusively focuses on the eviction for obtaining direct possession of the premises without, at the same time, having to remove and place the tenant’s property in storage at large advance payments of cost. The bailiff only needs to document the evidently movable items. If the items are not requested by the debtor within a one-month time limit following the allocation of property, they may be sold in an auction of distrained goods.

Being restricted by residential tenancy law only, the landlord may obtain an eviction writ by way of interim injunction in two constellations: First, against the tenant in the case of non-payment in response to the securing order, second, against the sub-tenant in the case of a sub-letting, which remains undisclosed until the conclusion of the hearings of the action for eviction against the tenant. This is a faster and less costly method than a corresponding separate court action for obtaining the eviction writ. The basis is that the eviction writ obtained against the tenant in the action for eviction cannot be executed against persons not named therein, such as unknown (unauthorised) sub-tenants.

DIFFICULT CONVERSION INTO CONDOMINIUM PROPERTY

In the field of residential tenancy law, the Act blocks the circumvention of tenant protection against termination of tenancy because of the owner‘s desired personal use of the premises in the case of converting residential buildings into condominiums pursuant to the so-called ‘Munich Model’: Even when a partnership acquires the leased object, a termination of tenancy because of (a partner’s) desired personal use of the premises, is blocked for a three-year period, which federal state governments in densely populated areas may extend up to 10 years.

OUTLOOK

The changes in tenancy law will become applicable law much faster than anticipated. In spite of the evident focus on residential tenancy law issues, the legislator, incidentally adopted far-reaching changes in the commercial tenancy law. It remains to be seen whether the purposes pursued by the legislation can actually be realised and how these legal instruments prove their worth in practice. In any case, regulations on energetic modernization and the qualification of a quick and cost-effective ‘Berlin Eviction’ will lead to noticeable relief in the letting business.