Residential tenancy law - Early announcement of modernization does not hurt

The Federal Supreme Court (Bundesgerichtshof – BGH) (ruling of 18 March 2021 – VIII ZR 305/19) did not consider the landlord's increased modernization levy under the old statutory law to be in breach of trust.

Status: 26 March 2021

The Munich tenants' association also used the type of action of model declaratory judgment (Musterfeststellungsklage), initially tested in the diesel proceedings, and sued the landlord of a residential complex in the Munich district of Schwabing on account of rent increases that had taken place. The landlord had announced the modernization of the apartment building quasi just in time at the end of December 2018, before the current Section 559 of the German Civil Code (Bürgerliches Gesetzbuch – BGB) came into force on 1 January 2019. The modernization itself, however, was not scheduled to begin until the end of 2019. The landlord still relied on the old wording of the provision for his rent increases and demanded a significantly higher rent from his tenants.

Under the old apportionment regulation, landlords were allowed to increase the rent by up to 11% of the modernization costs per year after modernization. Since January 2019, only an annual apportionment of 8% is possible. In addition, the rent may not increase by more than 2 or 3 euros per square meter within 6 years after modernization.

The Higher Regional Court of Munich (Oberlandesgericht München - OLG Munich) (judgment of 15 October 2019 – MK 1/19) considered the modernization announcement as not acting in good faith due to the time break of one year between announcement and implementation of the modernization. Accordingly, the landlord should only be entitled to the lower rent increase amount of 8% of the modernization costs. However, the BGH now took a different view and granted the landlord an apportionment of 11% applying the old regulation. In contrast to the lower court, the appellate court did not focus on the necessity of a close temporal connection between the modernization announcement and the start of execution. In the present case, the planning had already been sufficiently advanced at the time of the announcement at the end of 2018. There is explicitly no maximum period between the modernization announcement and the start of execution. This applies even if the landlord intentionally wanted to take advantage of the old legal situation by making the ''premature'' announcement.