Headnotes (non-official):

1. It is not sufficiently evident that the disadvantages suffered by landlords if the challenged provisions provisionally continue to be applicable outweigh the disadvantages to the effectiveness of the Act in which they are set out as a whole that would result from provisionally suspending the authorisation to impose administrative fines.

2. The Act incorporates criteria with which landlords are already familiar and gives them enough time to familiarise themselves with its provisions. Furthermore, imposing an administrative fine is not mandatory and may be refrained from especially in cases of mere negligence.

3. If the authorisation to impose administrative fines were suspended, there would be reason to fear that landlords would not act in accordance with the law and that the enforceability of the Act would suffer significantly

Summary:

I.

The Act to Cap Rent for Residential Properties in Berlin (hereinafter, the “Act”) prohibits landlords in the Land Berlin from demanding more rent than is owed on 18 June 2019 under current rental contracts or, if the property has been let to a new tenant after 18 June 2019, more than what has been agreed in the contract. For newly let residential properties, it is impermissible to charge any rent that exceeds certain upper limits once the Act enters into force. Additionally, demanding rent that exceeds the upper limits by more than 20% and has not been approved in the individual case is banned for all types of tenancies from 23 November 2020 onwards. Landlords are obligated to provide information to tenants and the authorities on rent owed for the relevant flat on 18 June 2019 or alternatively the circumstances relevant for calculating the upper limits. Pursuant to § 11.1 nos. 2-5 of the Act, any violation of these provisions is classified as an administrative offence and is subject to an administrative fine. The applicants are landlords in Berlin and seek a preliminary suspension of these provisions.

II.

The Federal Constitutional Court rejected the application for a preliminary injunction seeking suspension of the enforcement of the Act. It held that the strict requirements for a preliminary suspension of the Act had not been satisfied.

The constitutional complaint to be lodged in this case is neither inadmissible nor manifestly unfounded from the outset. It is uncertain whether the Land Berlin had legislative competence in regard to the disputed provisions on upper limits on rent.

Therefore, the application for a preliminary injunction must be decided based on a weighing of consequences. A particularly strict standard must be applied in cases where suspension of the enforcement of an act is sought. The Federal Constitutional Court must exercise great caution when using its powers to suspend the enforcement of an act that has already entered into force, as the issuing of such a preliminary injunction invariably is a significant interference with the legislator’s leeway to design legislation. As a general rule, the reasons in favour of a preliminary injunction must already be of such weight that issuing the injunction is absolutely necessary. Thus, in cases where the suspension of an act is sought, they must be of even greater weight.

If the preliminary injunction were not issued but the constitutional complaint proved to be well-founded later on, the disadvantages resulting from the preliminary application of the provisions covering administrative fines is indeed of particular weight. The imposition of an administrative fine carries with it an emphatic reminder to adhere to the obligations and entails formal disapproval of the parties concerned. Additionally, a fine of up to EUR 500,000 can amount to a severe burden. The landlords themselves are responsible for knowing the obligations on the breach of which a sanction can be imposed, grasping their significance for a particular case and deducing the consequences to which they give rise. An administrative fine may be imposed for both intentional and negligent errors. In this respect, when landlords exercise their property rights, they risk having a sanction imposed on them personally.

However, it must be taken into account that the Act uses criteria with which landlords are already familiar. The circumstances relevant for determining the Act’s scope of application and calculating the permissible amount of rent have largely found their way into the Berlin rent index already: they are used to determine the reference rent customary in the locality pursuant to § 558.2 of the Civil Code. Furthermore, punishment of administrative offences is subject to the principle of discretionary prosecution (Opportunitätsprinzip); thus, imposing an administrative fine may be refrained from particularly where landlords who are noticeably out of their depth have merely acted negligently. Finally, the prohibition on demanding or accepting rent that is impermissible pursuant to § 5 of the Act is only effective from 23 November 2020 onwards, given that the cap on rent owed under existing rental agreements only enters into force nine months after promulgation of the Act. This gives landlords time to familiarise themselves with the new provisions. Contrary to what has been asserted by the applicants, it can also not be found that landlords are prevented from getting tenants to agree to a higher rent for newly let properties should the Act or parts of it be declared unconstitutional and that they may therefore suffer irreversible harm.

If, however, a preliminary injunction were issued and the Act later proved to be in conformity with the Constitution, authorisation to impose an administrative fine would be suspended. This would not affect the bans and obligations set out in §§ 3 et seq. of the Act as such. In principle, tenants could take steps against any violation of the obligation to provide information or against demands for too much rent and it would also be possible for the authorities to intervene. However, a preliminary suspension of the ability to impose an administrative fine would remove any pressure on landlords to act in accordance with the law. There is reason to fear that landlords would not follow the law, which the applicants openly acknowledge. This would significantly diminish the effectiveness of the Act. Furthermore, tenants will often refrain from asserting their rights – perhaps simply for lack of knowledge. Considering that roughly 1.5 million flats are affected, significant administrative effort would be required if authorities were to enforce the legal obligations. Without authorisation to impose an administrative fine, enforceability of the Act would suffer significantly. Thus, the strict requirements for a provisional suspension of the Act are not satisfied.