Federal Court confirms 15 percent rent cap for all of Berlin

On 4 November 2015, Germany's Federal Court of Justice confirmed the validity of Berlin's rent cap ordinance. Rent increases in existing tenancies may not exceed 15 percent within three years, rather than the standard 20 percent under federal law.

The case: a Wedding landlord sues

A landlord in Wedding sought to raise rent by the maximum 20 percent permitted under federal law in 2013. His tenant pointed to Berlin's newly enacted rent cap ordinance of 7 May 2013 and agreed only to a 15 percent increase. The tenant prevailed in every court.

The dispute: does the ordinance apply citywide?

The landlord argued the ordinance could not cover all of Berlin. The legally required "particular risk to the population's supply of rental housing" did not exist uniformly across all boroughs. Conditions in outer districts differed from those in Mitte.

The Federal Court rejected this argument. The judges granted the Berlin Senate broad discretion in assessing the housing market. Defining all of Berlin as a single strained market was acceptable. A parcel by parcel delineation was neither practical nor required by law.

Consequences for property owners

The 15 percent cap is now a fixed factor in yield calculations for apartments in Berlin. Beyond the cap, the local reference rent remains the absolute ceiling for any increase. In the specific case, the original 2007 lease was apparently quite affordable, so even a 20 percent increase likely would not have exceeded the reference rent. The cap applied regardless.

Distinction from the rent brake

This ruling applies only to rent increases in existing tenancies. The rent brake in effect since June 2015 regulates maximum rents for new lettings. Both instruments now operate in parallel in the Berlin market.