Reshaping Rental Regulation: Core Legal Impacts of the BMJ’s New Draft Bill

The latest draft bill issued by the German Federal Ministry of Justice already represents a clear legislative move toward greater systematization and enhanced tenant protection. The German Tenants’ Association (Deutscher Mieterbund), however, demands even more extensive tenant protection and considers the planned changes to be insufficient.

For landlords, the planned changes are likely to make established business models, such as renting out private student accommodation, more challenging. On top of that, there's economic uncertainty in times of high inflation, as the devaluation can't be fully passed on to tenants.

Currently, the proposal introduces several substantial regulatory adjustments for areas designated as strained housing markets:

• Regulation of furnished lettings: Landlords will be required to disclose the furniture surcharge, which is based on the current value of the furniture, prior to contract formation. A benchmark of 5% of the net cold rent is intended to serve as a normative guideline for fully furnished flats. The objective is to limit circumvention practices relating to rent control and to facilitate a more robust assessment of rent legality.
• Cap on index‑linked rent increases: In designated strained markets, annual increases under index rent agreements shall be limited to 3.5%, thereby mitigating inflation‑driven escalations and preventing disproportionate burdens on tenants.
• Redefinition of short‑term tenancies: Short‑term lease agreements will be restricted to a maximum duration of 6 months, and only where the tenant can demonstrate a legitimate special reason. This aims to provide clearer legal differentiation from standard residential lease arrangements. After the 6 months have elapsed, the rent control will also apply.
• Landlord relief measures: The value threshold for the simplified procedure applicable to small‑scale modernisations will be raised to EUR20,000, facilitating compliance and easing administrative burdens – particularly for small‑scale landlords.
• Extension of the grace period mechanism: The grace period payment will – once per tenancy – be capable of rendering an ordinary termination for rent arrears ineffective. This marks a notable adjustment to the established framework of termination law.

The draft bill is currently undergoing interministerial coordination as well as consultation with the federal states and stakeholder organisations. The decisive question will be which provisions ultimately remain in the final legislative text.

The proposed regulations underscore the legislative goal to further regulate the (strained) housing market and strengthen tenant protection. It remains to be seen what specific consequences this will have for leasing practices and the housing market. Much will ultimately depend on the final design of the legislation.

As the legislative process progresses, it therefore remains to be seen to what extent individual provisions will still be modified. What will be decisive is whether a balanced solution can ultimately be achieved – one that addresses the needs of tenants while also ensuring stable and practical framework conditions for landlords.