Summary:

I.

An act amending tenancy law introduced provisions into the German Civil Code (hereinafter: the Code) concerning a permissible maximum rent for new lease contracts for residential premises that are not subject to rent control. § 556d of the Code is the pivotal new provision; it provides that, in areas with a tight housing market at the beginning of a tenancy, the rent may not exceed the average rent in that area by more than 10%. § 556d.2 of the Code authorises the Land governments to issue ordinances determining such areas for up to five years. The legislator provided for exemptions to the maximum rent where the previous rent exceeded the maximum rent and where premises were constructed after 1 October 2014 or have been thoroughly modernised. In 2015, the Berlin Government issued an ordinance defining the entire city as an area with a tight housing market for five years. In the cases before the regular courts that led to the two judicial review proceedings, tenants from Berlin claimed that their rent exceeded the maximum rent permissible at the beginning of the rental period. The Berlin Regional Court suspended the appeal proceedings and referred to the Federal Constitutional Court the question whether § 556d.1 and 2 of the Code were incompatible with the general guarantee of the right to equality and with the requirements for issuing an ordinance pursuant to the second sentence of Article 80.1of the Basic Law. In addition, the landlady of an apartment in Berlin lodged a related constitutional complaint. On the grounds that the rent exceeded the permissible maximum rent, her tenant filed an action before the regular courts claiming repayment of overpaid rent and a declaration on a reduced rent owed. The constitutional complaint directly challenges the decisions of the regular courts that were partly in favour of the tenant and indirectly the statutory provisions concerning the maximum rent and the ordinance issued by the Berlin Government. The applicant claims a violation of the general guarantee of the right to equality, the guarantee of private property and the general freedom of action.

II.

The Federal Constitutional Court decided that the two referrals are inadmissible and refused to admit the constitutional complaint for decision.

The decision is based on the following considerations:

The regular court failed to give sufficient reasons as to whether the provisions were decisive in the initial proceedings and why it considered the provisions unconstitutional.

The indirectly challenged provisions do not violate constitutional law. How the regular courts interpreted and applied the provisions in the directly challenged decisions is not objectionable under constitutional law. Rent-caps at the beginning of rental periods as laid down in § 556d.1 of the Code do not violate the guarantee of private property, freedom of contract and the general guarantee of the right to equality. Rent-caps interfere with the property rights of apartment owners who are willing to rent. However, the rent-cap provisions, as legislation defining the contents and limits of property, are permissible under constitutional law. In particular, the interference with property rights is proportionate. It is in the public interest to prevent the displacement of economically weaker sections of the population from areas where demand for residential accommodation is high. Therefore, rent-caps are necessary; there are no other means that would, with certainty, be equally effective in the short-term. The legislator found a fair balance between the legitimate interests of property owners and the common good. The legislator may amend provisions concerning property even if this entails negative consequences for owners. The guarantee of private property does not protect expectations of the highest possible rental income. The procedure for putting the maximum rent limit into effect ensures that rent-caps are not stricter than necessary: The federal legislator is allowed to assume that the Land governments are better positioned to assess whether the housing market is tight. Land governments are statutorily obliged to conduct thorough assessments; where Land governments unlawfully issue an ordinance defining tight housing markets, landlords can challenge any such ordinance in the administrative courts. Limiting rent-caps to tight housing markets ensures that it will be applied in areas where the interests of potential tenants require special protection. The way in which regular courts interpret “tight housing market” ensures that actual or potential tenants do not pursue their interests associated with rent-caps to an extent that is inconsistent with the legislative aims. The use of real property is not restricted unreasonably given that the impact of the  provisions on the market prices is not immediate and thus limited in scope , the average rent customary in the area may be exceeded by 10 % and any maximum rent imposed is limited to a five-year period. The maximum rent does not interfere with property to such an extent that permanent losses for owners, a threat to the substance of the property or the loss of any reasonable possibility of using the property must be expected. The interference with the freedom of contract protected under Article 2.1 of the Basic Law is in line with the principle of proportionality. A permissible maximum rent is consistent with the right to equality pursuant to Article 3.1 of the Basic Law. It does not violate Article 3.1 of the Basic Law that the permissible maximum rent is determined on the basis of the average rent in that area, even though it results in different maximum rents in Germany. In view of the variety of different local housing markets, it is very doubtful that the situations are comparable. In any case, any unequal treatment is constitutionally justified. The customary average rent as differentiation criterion aims to ensure that rents are market-related and yet profitable. It is also suitable and necessary to establish a sufficient link to the regionally distinct market rents. Unequal treatment is also appropriate. The fact that landlords cannot influence the location of the apartment does not require a uniform rent level nationwide which would in turn lack a sufficient link to the economic situation of the tenants concerned. The equal treatment of private and commercial landlords likewise does not violate Article 3.1 of the Basic Law. The legislative aims pursued by rent-caps justify an application of a maximum rent irrespective of the economic significance of the rental income for the landlord.