Tenancy law reform: An overview of the planned restrictions for landlords

Frankfurt. Kai Warnecke makes no secret of his anger. The proposals were “a vote of no confidence against the millions of private individuals who rent” and a “further attack on the functionality of the rental housing market,” said the president of the Haus & Grund owners’ association angrily.

In fact, the new draft law to reform tenancy law, which Federal Justice Minister Stefanie Hubig (SPD) presented in February and which has now been approved by the cabinet, provides for drastic changes for the approximately 5.5 million private landlords in Germany. More regulation, new deadlines, stricter rules: the legislative package contains a bundle of new measures to protect tenants.

Here is an overview of what the changes mean in concrete terms - and how deep the cuts go in terms of rent increases, contract drafting and terminations.

1. New price cap for furnished apartments

According to the draft, landlords in tight housing markets will in future have to disclose, without being asked, what surcharge they charge for furnishing. This should be done before a rental agreement is made. If this information is not provided, according to the draft, tenants should only have to pay the rent that would be permissible without furniture.

However, landlords have the opportunity to show the furniture surcharge retroactively. This was not originally planned. The apartment would have been permanently classified as “unfurnished”. However, according to the new regulation, the apartment is now considered unfurnished for two years from the date of collection.

The rent for furnished apartments is subject to the rent cap. However, since the amount of the surcharge for furnishings has not yet had to be stated, it has been difficult to check the rental price.

In the future, landlords will only have the option of setting a flat rate of ten percent instead of five percent of the net rent for fully furnished apartments, as initially planned under the reform.

Specifically, this means that for an apartment that, according to the rent index, can cost 600 euros, in the future only a maximum of 60 euros can be charged as a surcharge for furniture. Previously, landlords collected up to 180 euros per month for such rent.

In the future, the furniture surcharge may only be based on the purchase price and the degree of wear and tear of the furnishings. It is intended that landlords can set a maximum of one percent of the current value of all furnishings per month.

When renting furnished apartments in tight housing markets, the law should also specify a calculation method for the furniture surcharge that is based on the current value of the furniture. Originally, the draft only stipulated that landlords had to show the surcharge for furniture separately.

Owners association president Warnecke called the new regulations a “bad joke”. The German Tenants' Association, on the other hand, expressly welcomed the planned obligation to show furniture surcharges separately in the future.

Impact: Such expanded regulation would significantly change the rental market in parts of Germany. According to a study, the proportion of furnished and temporarily rented apartments in large cities with more than 500,000 inhabitants was more than 30 percent of all apartment advertisements at the end of 2024. However, the sharp increase is partly statistically distorted because classic advertisements have declined, according to the German Economic Institute.

2. New grace period for rent arrears

The planned change in protection against dismissal for landlords is particularly far-reaching. Tenants falling behind on their rent payments are a recurring problem for many landlords. Previously, landlords were ultimately able to enforce an eviction if residents did not pay their rent for several months. This will become more difficult in the future.

If a tenant receives a regular notice of termination due to late payment, this will become ineffective again if he or a public body such as the job center pays the entire rent arrears within two months of delivery of the eviction notice. This is what the draft provides. However, the prerequisite is that there has not been such a grace period payment within the past two years.

Landlords often combine terminations without notice with a regular notice of termination in order to end the tenancy despite additional payments. Under previous law, this termination remained effective even if the debts were later paid in full. If landlords terminated the contract without notice and as a precautionary measure, the protection provided by the grace period would be ineffective.

That would be the end of it now. In the future, the same grace period regulation will apply to ordinary termination as to termination without notice. “Everyone deserves a second chance,” says Hubig. Tenants who have fallen behind with their rent payments now have a new loophole to avoid eviction proceedings.

Impact: In the future, the risk of late payment will be shifted significantly more to the landlord. “The initiative would not change anything about homelessness,” association president Warnecke told the Handelsblatt. “The proposed change helps those who are unwilling to pay, but not those who are unable to pay.”

3. New price limits for index rent

Landlords' options will also be limited in the future when it comes to index rents. However, the federal government has revised the original draft law again.

The reform originally intended that index rent increases in tight housing markets would be capped at 3.5 percent annually. Now, however, everything remains as before until an inflation rate of three percent.

In the future, only half of the increase in consumer prices will be able to be used to increase rent if the increase is three percent. The German Tenants' Association warns that even 3 percent annually could represent a significant burden for many households - especially in expensive markets.

Index rents are based on the consumer price index. The advantage for landlords is obvious. You can increase the rent once every year, depending on the development of the Federal Statistical Office's consumer price index, i.e. the inflation rate.

Due to high inflation in recent years, these contracts resulted in significantly higher rental prices, for which they were sometimes criticized. When the inflation rate increased by up to nine percent in some cases, landlords were able to increase accordingly, which meant around 108 euros more per month for a basic rent of 1,200 euros. In the future, only a maximum of 72 euros more would be possible in this case.

As recently as 2018, the SPD explicitly praised the index rent, which increases with the cost of living, as a good way to slow down price increases on the housing market. Tenants with such a contract did quite well for years when inflation was low until inflation rates got out of control in 2022.

However, in the opinion of the owners' association Haus & Grund Germany, capping index rents ignores the reality of the cost of renting.

Impact: The owners' association fears that the new price cap will endanger the maintenance of properties. For landlords, the index rent has a disadvantage: With an index rent, they are not allowed to pass on modernization costs of the building to the basic rent. If there is a cap, landlords could be more reluctant to take expensive measures - and energy-efficient building renovations could be slowed down.

4. New deadline for short-term contracts

Previously, landlords were able to avoid the rent cap by concluding a short-term rental agreement. According to the plans, in the future, fixed-term rental agreements will only be exempt from the rent cap if they are concluded for a maximum of six months.

In future, the prerequisite for a fixed-term contract should also be a special reason on the part of the tenant, such as professional circumstances such as assembly work or internships. The previously applicable unwritten requirement that there must be a special reason for the short-term rental on the part of the tenant will be enshrined in law.

According to the draft bill, with a maximum of six months, it can be assumed that a tenant does not want to permanently move their center of life to the apartment, which is why a short-term rental is justified in this case.

If the tenant has an unforeseen longer need after the start of the contract - for example because an internship is extended - the contract should be able to be extended once to a maximum of eight months. However, the exception should only apply if the tenant wishes for a temporary extension.

The German Tenants' Association is skeptical about this regulation - because in practice, apartment seekers have little influence on the drafting of the contract.

Impact: High-priced, furnished short-term rentals of six months or more would become significantly less attractive for landlords in many cities. Fixed-term rental agreements are generally still permitted. In the future, however, tenant protection regulations – and thus also the rent cap – will only be left out in truly exceptional cases.