Tenancy Agreements in Berlin

Berlins rental market encompasses 87% of the property market. With a population of some 3.4 million this represents approximately 3 million tenants. As you would expect the rental market is well established and well regulated with a great choice of service providers covering aspects such as rental agreements, repair, maintenance and renovation.

Whilst many of the aspects of a typical Berlin rental agreement may seem outdated and show signs of government control there are both disadvantages and advantages to this state governance. There can be little doubt that in controlling rents it places an element of control of rental returns and capital appreciation but at the same time provides a controlled investment element with an element of predictability, investor protection and a safer prediction model of future returns without the boom and bust cycles associated with property markets such as the UK.

Types of lease

There are two types of lease available:

1. Indefinite /Permanent lease - by far the most common type of lease. As per the name the lease is for an indefinite period of time and can only be terminated by the tenant (providing they give the specified notice period in the lease).
   There are exceptions to this:
   
   • Where the property is required by the landlord for their personal or family use ( Tennant can object only if moving out would be exceptionally hard for them, ie. bad health, age etc)
   • Where redevelopment of the property is being hampered by the tenant that results in serious financial loss to the landlord.
   • Violations of the lease such as non payment of rent, misuse of the property etc
   Appropriate notice periods must be provided by the landlord which ranges from 3 months for a tenancy period of up to 5 years plus and 9 months for 8 years or more.
2. Fixed term lease - not a common lease and can only be used where the landlord has a genuine reason for limiting the period of the lease such as if there is known date of demolition or when the landlord or family member would require the property.

The advantages to the landlord include:

• To a large extend the worry of vacant properties providing no return, whilst still incurring maintenance costs are circumvented by the long term nature of the rental market. It is common for Berliners to rent for life.
• Term leases can be put into place where the investor is looking to reclaim the property for personal lease - such as a retirement home.

Rent Increases

Whilst the tenant enjoys protection in terms of rent increases this also benefits the investor by providing stability in rental income and helps prevent boom and bust cycles.

Parameters based upon based upon age, property features and size of dwelling are taken into account for the various areas within Berlin that establish a published rent index. It should be noted that this can be bypassed (and often is in desirable areas) by setting up a commercial rental agreement whereby the tenant loses these rights.

The rent index (Mietspiegel) is issued annually and takes into account a cross section of dwellings in order to provide a range of appropriate rents.

The rent for an existing tenant (see exceptions below) can be only be increased as per the below

• The rent for an Rental increases are restricted to 20% in any 3 year period ( and 30% for properties built after 1981)
• Only one rental increase per 15 month period is permissible
• Rent increase must be in line with the rental index scales

The advantages to the landlord include:

• The ability to forecast future returns more accurately than in many property markets
• The ability to budget costs
• A more transparent rental increase process

Rental increases exceptions

The main reason for a rent increase is whereby a landlord has carried out approved improvements to the property. The costs associated with these improvements can be passed on to the tenant as long as they were not funded by a local authority subsidised loan.

Improvements to the property

Tenants must be provided with 3 months notice of planned improvements and modernisation to the property. Such improvements must be detailed including the disruption to the tenant, reasons for the improvements and the projected increase in rent. Landlords may increase the rent by 11% of the capital spent in carrying out the improvements - keeping in mind that the rent can not be increased to a higher rate than of the rental index (Mietspiegel).

Tenants can object to the proposed improvements where they may cause hardship - such as not being able to afford the new rent or cope with the disruption whilst work is carried out.

The advantages to the landlord include:

• Return of investment on capital spent on improvements
• Assurance of prior affordability of any rent increase
• The anomaly that where a tenant (long term) vacates a premises it results in the rent generally being increased quite substantially along with the value of the property

Tenants right to buy

Where a multi family house is converted into smaller holdings through the sale of individual dwellings the property must be first offered to the tenants based upon the notarised terms of sale based on the apartment they occupy. The option to purchase is valid for 2 months.

The advantages to the landlord include:

• When the investor is seeking to liquidate on their investment and release capital there is the added opportunity of a prescribed process allowing the tenant to purchase the property.

A property partnership

The effect of regulation provides a safer and more predictable investor environment and offers tenants reassurance about the property they rent - their home. In essence the relationship of investor and tenant is one of a partnership where both parties benefit through the promotion of fair and equitable rental agreements.

Useful links

• If you are looking to purchase Berlin property as an investment enter here to view our portfolio.
• Read about our Berlin investment property services here
• Discover the top ten reasons for purchasing Berlin property

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