The highest court in Germany has ruled that a rent imposed by the Berlin state government is illegal, and those who tried to keep the city affordable inflict a severe blow.
The constitutional court in Karlsruhe overturned the law on Thursday, saying state lawmakers have no right to enact the law, one of the most controversial and debated legislation in recent years.
The lease expired in February last year, freezing the rent for 1.5 million (90%) of Berlin apartments at their June level for five years. New rents could not go beyond that level, and from November 2020, existing rents that were still up there had to be reduced.
The model has been internationally regarded as a triumph by those striving to maintain a social mix in cities, especially in Berlin, where affordability has been one of the main attractions, but where rents have been rising for years, largely fueled by hedge funds and private equity firms that buy up parts of the city’s property over several decades. One estimate is that rents rose by almost a third between 2013 and 2019.
But landlords and property investment lobbyists have argued that it is inappropriate and illegal for the state to interfere with the private market. The lawsuit was filed by landlords backed by politicians from the Conservative Christian Democratic Union / Christian Social Union Alliance and the pro-business-free Democratic Party. which is the responsibility of the federal government.
The court in Karlsruhe said that the federal government had already fulfilled a tenancy law 120 years ago, but that a state government was not allowed to enact its own legislation that effectively undermined the federal law.
Critics of the law have argued that the rental ceiling distorts the market and ultimately has a detrimental effect on tenants, as it has effectively discouraged construction companies from building new homes in Berlin, fueling demand for existing stock. Landlords also increasingly have a Shadow rental, or shadow lease clause, in leases, which informs tenants that they will have to pay in case the court cancels the lease.
While tenant-owner associations are calling the clauses illegal, landlords have said they have the right to reclaim higher homes that they say they have owed since the commission went into effect.
Property law experts said they are expected to see a large number of lawsuits over the issue.
Sebastian Scheel, the senator from Berlin responsible for urban development, spoke about his disappointment with the decision. He said it was now the responsibility of the federal government to enact an effective rent control law to ensure that cities retain affordable housing, or to transfer power to Germany’s 16 states.