angyan legal

The government’s set of measures for affordable rents will bring about significant changes for existing and future residential rental agreements. Find out now what you need to know as a landlord or tenant.

Although the so-called “5th Tenancy Law Inflation Relief Act” is still pending, the key points of the new legal situation can already be derived from the government bill:

• Common rules for value adjustments for almost all residential rental properties (including unregulated rents!);
• Limitation of increases in reference value rents, category rents as well as “reasonable rents”;
• Extension of the minimum fixed term from three to five years if the landlord is an entrepreneur.

The new Rent Indexation Act

The Rent Indexation Act provides for a cap on rent indexation for virtually the entire residential sector. By covering all residential leases that fall within the scope of the Tenancy Law Act, it also intervenes in unregulated residential rental properties for the first time.

In particular, the Rent Indexation Act contains a newly created calculation model for the indexation of residential leases, which also applies to existing rental agreements. The key points of this new index for residential rental agreements are:

• Revaluation annually on April 1, regardless of the date on which the contract was concluded;
• Proportional valuation in the first year after conclusion of the contract;
• Calculation of value adjustment based on the average change in the consumer price index in the respective previous year;
• Limiting the value adjustment by introducing a “rent cap.”

According to the current government bill, this “rent cap” is to function as follows: Increases in the average annual consumer price index of up to three percent will increase rents by the same amount. If the average annual change in the consumer price index exceeds three percent, only half of the amount exceeding three percentage points will be taken into account.

Another limitation arises from the fact that the newly created calculation model only sets the upper limit for permissible rent increases. Accordingly, it must always be checked to what extent a value adjustment would be permissible under the specific contract.

For reference value and category rents, the government bill provides for a cap on indexation of 1% in 2026 and 2% in 2027. From 2028 onwards, indexation is to be carried out in accordance with the new calculation model described above.

The new rules for fixed-term contracts

Until now, the Tenancy Law Act stipulated a uniform minimum term of three years for residential tenancy agreements. According to the current government bill, this minimum term is to be extended from three to five years.

However, an exception to the basic minimum term of five years is provided for landlords who are not entrepreneurs within the meaning of the Consumer Protection Act at the time the fixed term is agreed. For these landlords, the minimum fixed term of three years shall remain in place.

Implications for landlords and tenants

Regardless of whether you rent out or rent residential property, the planned 5th Tenancy Law Inflation Relief Act brings numerous changes for you. The calculation of the permissible rent increase in particular harbours numerous pitfalls that must be avoided. Special caution is also required when concluding new or extending existing fixed-term residential tenancy agreements, especially since a violation of the minimum term means that the tenancy contract is deemed to have been concluded for an indefinite period.

Do you have any questions about the new tenancy law?

I will be glad to answer your personal questions during a non-binding initial consultation.