How to rent out an apartment in Berlin: a closer look at Europe’s most strictly regulated rental market

The survey Emerging Trends in Real Estate ranks the city of Berlin as the most stable real estate market in Europe, with 85 percent of Berlin residents renting the apartments they live in. At the same time, the German capital also imposes some of the most restrictive regulations on rent, as demand for rental property exceeds supply, forcing city authorities to impose strict rules in order to control rent prices.

Together with the help of German lawyers, we explore the key factors to consider when renting an apartment out in Berlin, including how to get a tenant permit and how frequently the rental rate may be increased.

Which apartment may be rented out for the short term?

It is very difficult to rent an apartment out for the short term in Berlin.

In 2013, Berlin adopted a law that prohibits the use of residential apartments for any purpose other than residence, (as offices or short-term rentals, for example). Violating this law is punishable with a penalty of up to €500,000.

Despite this, the intended use of an apartment may be changed by obtaining a permit from district authorities. This creates an opportunity for property owners to make money on rental property.

While it is not always easy to obtain such permits from local authorities - especially in districts with numerous hotels - a permit may be granted if at least one of the following conditions is met:

• Public interest is placed ahead of personal goals, such as when housing is rented out to the relatives of patients who come to Berlin from other cities for medical treatment.
• The lessor desperately needs money and the only way to avoid a dire economic situation is by renting their property out for the short term. Note that soaring long-term rental rates in Berlin make it difficult to meet this condition at present.
• The lessor is building another residential property for the purpose of long-term renting. In such a case, the law finds the lessor eligible for a short-term rental permit as they are helping to balance the shortage of residential premises.

Once a short-term permit is granted, the rental rate must be fixed close to the average rate in the district.

An application fee of €225 is charged per residential premise. Extra expenses may be incurred in some cases: if an expert assessment is required, for example. It takes between two and six weeks to process a permit application. A permit may be granted permanently or for a specified term.

If a permit is granted, a compensation fee of €6 per sq. m must be paid to the city authorities. For this reason alone, such short-term leases would not make economic sense for many apartment owners.

When a permit is granted, a registration number is assigned to the specific residential premise covered by that permit. This registration number may not be transferred and must be specified in any short-term rental listings.

What are the rent cap rules in Berlin?

A law imposing rent price caps on housing came into effect from February 2020 to April 2021 in Berlin. 

This law applied to all furnished apartments and short-term rental apartments, excluding:

• houses built on or after 1 January 2014,
• commercial premises,
• shared housing,
• apartments subsidised by the state.

The law froze rent prices at the rate in effect on 18 June 2019 under the valid residential lease agreements. This meant that rental rates could not be increased over the next five years, barring a few exceptions.

The law made rent price limits conditional on the property’s year of construction, energy efficiency, and other features, such as if the apartment came equipped with a kitchen, an elevator, high-quality flooring, etc.

If there were one or two apartments in the building, the upper limit of the rental rate increased by 10%.

The rent cap per square metre went up by one euro if an apartment was fit out with at least three of these five features: a kitchen, quality sanitaryware, quality flooring in most rooms, an elevator located in the building, and annual energy consumption of less than 120 kWh/sq. m.

If maintenance costs exceeded rental revenue, the Investitionsbank Berlin (IBB) could increase the upper limit of the rental rate and tenants could apply for rent subsidies to offset the increase.

Although rental rates could be increased in the case of revamping, the increase was limited to no more than €1/sq. m, even if the repair costs were significantly higher and the apartment had to undergo multiple renovations.

The limits were applicable to rental rates less utility fees.

On 15 April 2021, Germany's Federal Constitutional Court ruled the rent cap law to be null and void. Business Insider notes that once rent caps were struck down, rental rates went up again as lessors pursued compensation for losses suffered while the law was in place.

For 2021, rent caps will continue to apply to buildings owned by the state.

What if the apartment for sale is a tenant-occupied property?

Sometimes, buyers may come across listings of tenant-occupied apartments for sale. Such apartments can be priced above the market if their rental rates are higher than average, or below the market if the existing tenants restrict the apartment’s use in any way.

If a tenant occupies a unit in a rental building before that building is divided into separate apartments, the new owner may only serve the tenant a notice of their intention to occupy the apartment for their own residence three years after the date of purchase (§573 of the German Civil Code). Local authorities may even extend this restriction period to up to 10 years. Once notice is given, the tenant must leave the premises within 3 to 12 months.

Socially vulnerable tenants (seniors, disabled people, pregnant women, tenants with small children) are entitled to deferrals and are thus subject to much longer eviction notice terms.

The owner is only permitted to evict a tenant if the owner or their close ones need to occupy the apartment for their own residence. Those who qualifying as the owner’s close ones are their children, parents, siblings, grandparents, spouse, parents-in-law, attendants and nurses, nieces and nephews, and stepchildren. If neither the owner nor the owner’s close ones live in the apartment after the tenant’s eviction, the tenant may claim damages in court.

The longer a tenant occupies the apartment, the lengthier their eviction notice period is. Eviction can take three months if the occupancy was for less than five years, six months for five to eight years of occupancy, and one year if the occupancy lasted longer than eight years.

If the apartment has not already been singled out as a separate unit within the rental building during the tenant’s occupancy, the owner will not have to wait to evict the tenant.

For these reasons, a buyer willing to change the tenant or occupy the apartment themselves should examine the details of the agreement with the help of legal professionals as early as the purchase stage.

How to divide a house into separate apartments?

Houses are often required to be divided into separate apartments in order to be sold in Germany. This is a legal requirement at present, although old houses will likely be subject to division restrictions in the future.

A property is divided into separate apartments in four steps:

• drawing an architectural plan,
• obtaining a certificate from the construction supervision authorities,
• notarisation,
• approval by the registry.

First, an architect must draw up a plan to divide the property. A certificate of self-containment (Abgeschlossenheitsbescheinigung) proving the structural independence of the residential premise must then be obtained from the construction supervision authorities (Bauamt). This takes four to five weeks. The cost of the certificate depends on the size of the property and amounts to about €50-100 for residential premises. The division plan must also be approved by the relevant authorities, which costs another €40 or so.

The division application filed by the owner must then be notarised. Notarisation certifies only the authenticity of the signature affixed to the application and not the content, so an application with incorrect content may later be found null and void.

The content of the application may be reviewed for compliance with the regulations, with the cost of notarisation depending on the price of the property. To illustrate, a notary’s fee would be about €800 for a house worth €1,200,000.

Finally, all documents must be submitted to the state registry (Grundbuchamt) for the approval of the property’s new status. Following this step, each residential unit in the house will acquire a new status. The fee for updating registry records also depends on the appraised value of the property. The state registry charges about €2,500 if a house costs €200,000.

Are real estate sales subject to taxes?

If a German property is sold within the first ten years of purchase, the income derived from the sale will be subject to capital gains tax (Kapitalertragsteuer): a type of income tax to be paid by the seller. Individuals are taxed at a personal income tax rate (14.77 – 47.475%) and legal entities are subject to a corporate income tax rate (15.825%).

The taxable base is assessed as follows: property sales revenue less acquisition expenses and depreciation charges.

Thus, property owners incur extra costs if they sell their property during the first ten years of owning it. Significant costs can be saved by making the sale after the ten-year holding period, when capital gains tax is not applicable. During the first ten years, the owner may rent the property out for the long term, or even the short term if the appropriate rent permit is obtained.

When and how can rental rates be increased?

The German Civil Code regulates changes in rental rates, permitting changes only on the following conditions:

• The rental rate must remain the same for at least 12 months. For example, if the most recent change was on 1 May 2020, the next change must not be before 1 June 2021. In this case, the notice of rental rate increase should be given as early as April 2021.
• The lessor must inform the tenant in writing. No consent on the part of the tenant is required as consent is implied if the tenant does not challenge the notice informing them of the increase.
• The rental rate may be increased no earlier than two months after the tenant receives the notice.
• The notice of rental rate increase must specify the new rental rate or the amount of rental rate increase in euros. If this requirement is not observed, the notice of rental rate increase will be considered illegitimate.

Rental rate increases are subject to two restrictions:

• The owner may increase the rental rate by no more than 20% over the course of three years. However, the increase must not exceed 15% (§558 III of the German Civil Code) in some cities like Berlin, Munich and Hamburg.
• The rental rate must be consistent with the average rate in the district and must not significantly exceed it (§558 II of the German Civil Code).

After taking these restrictions into account, the lessor may increase the rental rate by 5% or 7% every six months, for example, or by 10-15% once in three years.

To sum up, legal details should be taken into consideration when contemplating the purchase of buy-to-let housing in Berlin.

If you are interested in purchasing real property in one of Europe’s most economically stable cities, have a look at 300 residential property listings in Berlin in Tranio’s catalogue.

Author: Vlada Selezneva