Act Governing the Rent Cap for Residential Premises in Berlin is void

Press Release No. 28/2021 of 15 April 2021

Order of 25 March 2021
2 BvF 1/20

In an order published today, the Second Senate of the Federal Constitutional Court held that the Act Governing the Rent Cap for Residential Premises in Berlin (Berlin Rent Cap Act) is incompatible with the Basic Law and thus void.

Legal arrangements concerning the amount of rent that may be charged for residential premises on the private housing market (non-subsidised housing) are subject to concurrent legislative powers. The Länder are only authorised to enact their own legislation so long as and to the extent that the Federation has not exercised its legislative powers conclusively (Art. 70, Art. 72(1) of the Basic Law, Grundgesetz – GG). Given that the federal legislator passed conclusive rent legislation in §§ 556 to 561 of the Civil Code (Bürgerliches Gesetzbuch – BGB), the precluding effect of federal law leaves no scope for legislative powers of the Länder. Since the Berlin Rent Cap Act essentially also sets out the permissible amount of rent for private residential premises, it is void in its entirety.

Facts of the case:

The Berlin Rent Cap Act – except for its § 5 – came into force on 23 February 2020. With regard to residential premises falling within its scope of application, the Berlin Rent Cap Act essentially consists of three legal arrangements: A rent freeze that prohibits any rent exceeding the one effectively agreed upon by 18 June 2019 (cutoff date) (cf. §§ 1, 3 Berlin Rent Cap Act), an upper limit for re-letting that is independent of the location (cf. §§ 1, 4 Berlin Rent Cap Act), although building- or fittings-related surcharges as well as specific shares in modernisation costs are permissible (cf. §§ 1, 4 in conjunction with §§ 6, 7 Berlin Rent Cap Act), and a statutory ban on excessive rents (cf. §§ 1, 5 Berlin Rent Cap Act). However, the provisions of the Berlin Rent Cap Act do not apply to new buildings that were ready for their first occupancy from 1 January 2014.

The applicants in the proceedings for abstract judicial review of statutes (2 BvF 1/20) – 284 members of the German Bundestag of the parliamentary groups CDU/CSU and FDP – consider the Berlin Rent Cap Act to be incompatible with the allocation of legislative powers laid down in the Basic Law (Art. 70 ff. GG). The two referrals from courts in specific judicial review proceedings (2 BvL 4/20 and 2 BvL 5/20) concern the compatibility of § 3 of the Berlin Rent Cap Act with the Basic Law.

Key considerations of the Senate:

The Berlin Rent Cap Act is incompatible with Art. 74(1) no. 1 in conjunction with Art. 72(1) GG and thus void.

1. The Basic Law envisages an allocation of legislative powers between the Federation and the Länder that is, as a rule, conclusive. The delimitation and content of the legislative powers of the Federation and the Länder are exclusively determined by Art. 70 ff. GG. In particular the lists set out in Art. 73 and Art. 74 GG allocate all legislative powers to one side or the other. Shared or cumulative legislative powers are a rare exception in the Basic Law. Thus, the Federation has the right to legislate insofar as the Basic Law expressly confers legislative power on the Federation. Therefore, the scope of powers of the Länder is, in principle, determined by the scope of powers of the Federation, not the other way round. The Basic Law does not encompass a presumption of powers in favour of the Länder. While opening clauses are permissible in federal laws, they do not give the Länder any latitude exceeding the opening.

2. Essentially, the Basic Law conclusively sets out concurrent legislative powers in Art. 72 and Art. 74 as well as in Art. 105 GG.

Pursuant to Art. 72(1) GG, if the Federation makes use of its concurrent legislative powers, the Länder lose their right to legislate so long as and to the extent that the Federation permissibly exercises its legislative powers (so-called precluding effect). Within the scope of the precluding effect, the Länder lose their competence to legislate. For the future, this federal law precludes the Länder from adopting new laws, and for the past, it eliminates the basis on which Länder adopted their laws so that they are (or become) void. The precluding effect requires that the legislation of the Federation and of the Land or Länder concern the same issue. In functional and substantive terms, the legislation reaches as far as the extent to which the federal legislator provided an exhaustive, i.e. complete and conclusive, legal framework or sought to do so.

3. As part of social rent legislation, provisions governing the rent amount for private residential premises are subject to the concurrent legislative powers regarding civil law within the meaning of Art. 74(1) no. 1 GG.

According to the legal views shaped by established German state practice and legislative tradition over the last 150 years, civil law entails the entirety of rules that are traditionally classed with private law. It is relevant whether a provision sets out rules for private-law relationships, i.e. the legal relationships between private actors and the rights and obligations arising from these relationships. Since the Civil Code came into force on 1 January 1900, the law governing tenancy is set out in §§ 535 ff. BGB and is – in spite of numerous amendments – an essential aspect of civil law. This also applies to tenancy in respect of residential premises (§ 549 BGB) whenever the rental contract is the result of decisions of the contracting parties made within the scope of their autonomy – possible restrictions by the legislator notwithstanding.

4. By passing §§ 556 to 561 BGB, the federal legislator conclusively exercised its concurrent legislative powers extending to the law governing rental fees as part of civil law.

The detailed legal framework provided by federal law provisions already suggests that §§ 556 ff. BGB are a complete and conclusive legal arrangement. Moreover, §§ 556 ff. BGB do not contain any requirements for further legislation, opening clauses or authorising provisions which would allow for the Länder to adopt their own or deviating provisions governing rent. The sophisticated legal framework and the connection with the law governing protection against tenancy termination clearly show that the federal legislator sought to enact a conclusive legal framework. The authorising statute laid down in § 556d(2) BGB does not cast any doubt on this. In this respect, the Länder only implement legislation that the Federation has specified substantively as to content, purpose and scope in accordance with Art. 80(1) second sentence GG; an independent authorisation to legislate does not arise therefrom.

Since the Act Amending Tenancy Law of 9 June 2001 was passed, the federal legislator has based its legislation governing rent on Art. 74(1) no. 1 GG – without any objection from the Federal Constitutional Court. By enacting the Tenancy Law Amendment Act of 21 April 2015, the rent cap set out in §§ 556d ff. BGB was included in the Civil Code for the first time. The explanatory memorandum to the draft act provides a comprehensive balancing of all interests concerned and thus the aim of a conclusive balancing of the interests of parties to a rental agreement, a balancing that was subsequently readjusted several times. The Tenancy Law Adjustment Act of 18 December 2018 was aimed at preventing tenants from having to leave their residential premises due to modernisation measures. The Act Extending the Assessment Period with Regard to the Local Average Rent of 21 December 2019 intended to moderately modify the “local average rent” laid down in § 558(2) first sentence BGB, namely, an extension of the assessment period from four to six years. On 19 March 2020, the Bundestag adopted the Act on Extending and Improving the Provisions Governing the Permissible Rent Amount at the Beginning of a Tenancy, which allowed the Länder the possibility for continuing to apply the rent cap for a clearly defined period.

At least since enacting the Tenancy Law Amendment Act, the Federation has established a conclusive legal framework for calculating the permissible maximum rent amount for non-subsidised housing. Over the last six years, the Federation has reacted to the tightening housing market in urban agglomerations by passing the four mentioned acts (some of which are quite extensive) and, in enacting detailed provisions, has attempted to ensure a fair balance between the interests of tenants and lessors, interests that are protected by fundamental rights; and in doing so, the Federation has attempted to slow down the rising price development in tight housing markets.

Given that the federal legislator exercised its concurrent legislative powers conclusively, at least with regard to the determination of the permissible maximum rent for non-subsidised housing, the Länder are precluded from passing rent legislation in this regard (Art. 72(1) GG).

5. The Berlin Rent Cap Act and the rent cap laid down in federal law provide a legal framework for an issue that is essentially the same, namely the protection of tenants from excessive rents for non-subsidised housing. However, in doing so, the Berlin Rent Cap Act constricts the latitude afforded by federal law to the parties to a tenancy contract and introduces parallel legislation governing rent at Land level that contains statistical and not market-dependent stipulations. It establishes statutory prohibitions within the meaning of § 134 BGB that restrict private autonomy with regard to tenancy contracts concerning residential premises in a manner exceeding what is permissible under §§ 556 ff. BGB. Thus, the Berlin Rent Cap Act modifies the legal consequences set out in federal law and shifts the balance of relevant interests provided by federal law.

§ 3(1) first sentence and (2) second sentence of the Berlin Rent Cap Act prohibits an increase in rent that is permissible under § 557(1) BGB in the course of a tenancy or, respectively, when re-letting. § 3(1) second sentence of the Berlin Rent Cap Act imposes a freeze on stepped or indexed rents that are permissible under §§ 557a, 557b BGB; rent is frozen at the amount payable at the cut-off date. § 7 of the Berlin Rent Cap Act reduces the modernisation measures on which rent increases can be based to a list that is stricter than the measures under § 555b no. 1, nos. 3 to 6 BGB and limits permissible rent increases following modernisation measures to a larger extent than § 559(1) BGB. The Berlin Rent Cap Act expands the scope of application of provisions governing rents. Rent increases that are permissible under federal law are prohibited, as are agreements on the rent amount at the beginning of the tenancy, which are also permissible under federal law. For example, the maximum upper limit for rents under § 6(1) to (3) of the Berlin Rent Cap Act rules out an agreement on a rent of 110% of the local average rent – even in cases of § 4 of the Berlin Rent Cap Act and contrary to § 556d(1) BGB.

These restrictions laid down in the Berlin Rent Cap Act are added to the legal framework of the rent cap under §§ 556d ff. BGB. However, given that §§ 556 ff. BGB conclusively set out the rent for non-subsidised housing, the Land Berlin does not have legislative powers in this respect.

Other legislative powers, such as Art. 74(1) no. 11 GG (“law relating to economic matters”) or Art. 70(1) GG, do not provide a basis for adopting the Berlin Rent Cap Act. In particular, the provision on the maximum upper limit of rent for non-subsidised housing was not covered (any longer) by the legislative powers relating to “housing” within the meaning of Art. 74(1) no. 18 GG (former version) and thus the legislative powers could not be conferred on the Länder in the context of the Reform of the Federal System I in 2006.