European Union: Draft Bill On The "Rent Increase Cap" In Residential Tenancy Law And The Orderer Principle In Housing Agencies

Last Updated: 28 July 2014
Article by Elmar Günther
Most Read Contributor in Germany, September 2016

Originally published July 9, 2014

Keywords: Tenancy Law Amendment Act, Housing Markets, Rent, tenant

The Federal Ministry of Justice has submitted the draft bill of a Law to Curb the Increase in Rent in Tight Housing Markets and to Encourage the Orderer Principle in Housing Agencies" (Tenancy Law Amendment Act – MietNovG) dated March 18, 2014. The law aims to resolve two identified deficits in the housing market that promote the gentrification" brought about by the displacement of the low income resident population, and increasingly, average income households as well. On the one hand, it is intended to prevent an unchecked increase in rent in prosperous cities due to high demand and short supply of housing space. On the other hand, in order to relieve the financial burden on tenants, the customary passing on of letting agent fees to the tenant irrespective of an exclusive order by the tenant, is to be prohibited. Instead, the letting agent's client will pay the fee in accordance with the Orderer Principle. According to the rationale of the draft bill, the landlord is almost always the client in tight housing markets.

Cost aspects

The draft assumes an annual saving for tenants of just above 854 million euros and an annual additional expenditure for landlords of nearly 521 million euros. Whereas annual potential savings of 282.8 million euros in rent are envisioned for tenants, for landlords it will mean an annual burden of 301.79 million euros in expenditure to determine the permissible rent and to fulfil duties to supply information to tenants. The draft envisions potential annual savings of nearly 572 million euros in letting agent fees, offset by a mere 219.09 million euros of additional expenditure for landlords. The comparatively low burden for landlords is accounted for in that they will be letting the premises themselves instead of calling upon a letting agent, and in a reduction of letting agent fees due to increased competition between letting agents.

Rent Increase Cap

The legal options currently in place to curb exaggerated rent increases are deemed insufficient. The ministry considers the civil law instruments to be inadequate. For example, under Section 558 the long-standing limit on rent increases up to the reference rent refers only to increases in existing tenancies. The option to lower the legally stipulated cap in tight housing markets from 20% to 15% for five years by means of State government's ordinance, newly introduced as part of the amended tenancy law, merely applies to the maximum amount that existing agreements may be adjusted to the reference rent within three years. Until now there has been no provision governing the rental of flats that have returned to the market.

The penalty under criminal law (usury) requires as facts a noticeable incongruity, which generally is only assumed to be the case when the market rent is exceeded by 50%. In addition, there are high standards to be met to determine the intentional exploitation of an identified individual dilemma by a landlord or a reprehensible attitude. This may be able to stave off individual cases, but cannot correct undesirable developments arising from a special market situation. The regulatory offence (excessive increase in rent) under the Economic Offences Act is likewise deemed to have not taken effect. It penalises disproportionately high fees for renting housing space. This is the case if the rent (i.e. the fee) exceeds the reference rent by 20% as a result of an exploitation of a reduced supply of comparable housing spaces. The facts rely on an exploitation of the reduced supply, but also draw on the reference rent for the entire community area. Here again, the tenant must be in a dilemma, unable to fall back on more affordable flats for valid reasons, and must prove his unsuccessful attempts. The provision may only take effect if this is apparent to the landlord. The draft deems this provision to be too complicated and therefore impractical. It is thus to be abrogated without a replacement.

For this reason the draft envisions the introduction of new paragraphs Sections 556(d) ff. to the Civil Code. They will stipulate a maximum increase in rent of 10% over the reference rent when existing flats are re-let. This will apply only in areas subject to tight housing markets". Said markets must be expressly specified as such for up to five years by State government.

In order to protect the landlord from being required to let below the effective rent agreed previously, the landlord may also set the new rent above the 10% cap up to a maximum of the rent paid by the previous tenant (previous rent"). To protect against fraudulent use however, changes to rent agreed in the year prior to re-letting will not be considered when determining the previous rent. As an alternative to agreeing the previous rent, the maximum increase may also be exceeded if refurbishments were undertaken within the last three years prior to re-letting. As with an existing tenancy, costs for refurbishment may be included in the new rent by way of a surcharge of up to 11% of the refurbishment costs per year. The restriction to the last three years is based on the assumption that only costs incurred during this period are not already included in the previous rent. In order to avoid double consideration in the landlord's favour, the surcharge is made on 110% of the reference rent that would be applied to the flat in its nonrefurbished condition.

This cap on rent increases does not apply (i) to agreements made later in an existing tenancy, (ii) to newly constructed and thus newly let units, or (iii) to the rental of extensively refurbished flats. The rationale of the draft considers extensive refurbishments to be those of a scope comparable to a new building. The rationale consults adjudication on council housing law as its point of contact. According to this, a comparable scope is found to be the case if the expenditure reaches one third of the costs for a comparable newly built flat.

The rent increase regulations governing the rent increase cap are likewise inapplicable to housing let for temporary use, furnished rooms in the landlord's flat, and special council offers for persons with an urgent need for housing. Such constitute special tenancies outside the normal housing market.

The prohibition of deviation common in residential tenancy law is also standardised for the new regulations. Accordingly, any deviation from the legal stipulations that put the tenant at a disadvantage will render that contractual provision ineffective.

However, restitution claims are governed explicitly. And yet it is only clear from the rationale of the draft that a rent agreed in violation of the maximum limit is not wholly ineffective due to the prohibition of deviation. It is merely that part of the rent which exceeds the permitted maximum limit that will not be due. The tenant is only entitled to claim restitution of that part which exceeds the ineffectively agreed rent, yet prior to doing so, the tenant must have made a complaint in text form (such as by e-mail) specifying the material facts of a violation of the provisions. The tenant is privileged with respect to the law of unjust enrichment, as the tenant is always the weaker party in a negotiation in a tight housing market. Therefore the tenant's claim for restitution is possible despite payment made in the knowledge of the ineffectiveness or despite a violation of a statutory prohibition.

A right to information from the landlord will be included in order to permit the tenant to verify the facts. Accordingly, the landlord must provide the tenant in text form with all facts that generally are not publicly available and are relevant to the permissibility of the agreed rent.

Finally, the provisions on the rent increase cap also apply to stepped rent and index rent agreements, whereupon for index rents it is only applied to the starting rent, while stepped rents are subject on the date on which the respective step-up becomes due.

Orderer Principle

Generally, a person looking for a flat will answer an ad placed by the letting agent commissioned by the landlord. In order to prevent that person from being required to pay a (separate) fee or the fee owed by the landlord, the law governing housing agencies will be amended.

Accordingly, a person looking for a flat will only owe a fee if he or she has instructed the letting agent in writing to find a flat, and the letting agent also becomes active solely on the basis of this mandate.

Any deviating agreements are ineffective on the one hand, and on the other constitute a regulatory offence that may be punished by a fine of up to 25,000 euros.


It is not expected to enter into force before 2015. Particularly, if extensive changes to the draft are demanded within the coalition government. The legislator would increase its market regulation in social tenancy law with these planned provisions.

The existing instruments would be complemented by a cap on rents when flats are re-let.

As the cap for adjusting existing rents is only reduced across-the-board for entire towns and municipalities, it can be assumed that the State governments will also introduce the rent cap for re-letting in a similarly undifferentiated and broad manner. For example, Berlin and Hamburg have each been sweepingly and jointly defined as municipalities in which the population is particularly at risk of experiencing a shortage of rented flats at reasonable terms1. North Rhine-Westphalia and Bavaria have also enacted decrees introducing the cap in major cities such as Munich and Dusseldorf, as well as a large number of other cities and municipalities (59 in North Rhine-Westphalia and 89 in Bavaria). With the exception of Munich, however, the cap was only agreed in Bavaria until the end of 2015. This means that the application of the new rent cap can be anticipated to be very widespread. Particularly as it is not clear that the federal legislator will limit the State regulators in their assessment by stipulating clear and verifiable criteria for determining if a market is tight.

However, the rationale of the draft does contain considerations discussing what an appropriate assessment would need to consist of, to also satisfy constitutionally guaranteed protection of property. Landlords would be required to challenge an unjustified blanket designation themselves, with corresponding court proceedings potentially dragging on for years.

Stepped rents, which previously were easy to manage, might lose in appeal as the rent increase cap provision is applied to each step-up increase. As a result, the index rent might grow in popularity.

It is also problematic for landlords that they can only obtain legal certainty from (qualified) rental indices. It is only possible to make a reasonably reliable calculation if a reference rent can be determined. If not, the risk of the rent turning out to be excessive will increase, and the landlord will be faced with a tenant's claims for restitution.

While the rent increase cap may be suited to curb the price development in the housing market, it is questionable as to whether it improves the chances of low-income and average-income earners in residential areas that are in high demand. It merely secures the financial possibility to rent. This may potentially result in (even) more applicants for one flat, and will not do much to change the fact that landlords prefer tenants with a good credit history for obvious reasons. However, according to a publication accompanying the draft, the federal government plans further measures to ease the shortage of housing.


1 Bavaria: Decree on the areas under Sections 577(a) and 558 Civil Code (Residential Area Decree – WoGeV) of 15 May 2012 (GVBl. 2012,189), amended on May 3, 2013 and most recently on July 23, 2013; apparently municipalities will apply to be included in the decree issued by the state government, although it is unclear which documents if any municipalities will be required to submit. Berlin: Decree to lower the cap pursuant to Section 558(3) Civil Code (Cap Decree) of May 7, 2013 (GVBl. 2013, 128); Hamburg: Decree on the reduction of the cap in the case of increases in rent up to the reference rent customary in the locality in accordance with Section 558(3) Civil Code (Cap Decree) of July 30, 2013 (HmbGVBl. 2013, 350); North Rhine-Westphalia: Decree to determine the areas with a lowered cap (Cap Decree – KappGrenzVO NRW) of May 20, 2014 (GV. NRW 2014, 298).

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.