Clear steps for increasing the rent

Frankfurt Rent increases bring tenant protection organizations and lawyers a lively influx. Because the legal basis is complex, and disputes often arise between tenants and landlords. With the so-called index rent, both parties can save themselves these hardships. Here, the rent is not based on a comparative rent index or municipal law, but simply on the current price level. In the commercial sector, such contracts have been commonplace for years. In the course of rising inflation, they are now also becoming increasingly popular with private landlords. But in order to really avoid arguments and trouble, you should pay attention to a few things. The most important questions about the index rent – and why both tenants and landlords benefit from it.

An index rent links the amount of the rent to the development of the cost of living. The basis for the calculation is the consumer price index (CPI) of the Federal Statistical Office, which also serves as the basis for the inflation rate. For the contractual partners, this means that if the CPI rises, so does the cold rent, and that is easy for both sides to understand.

Is there a fixed formula for raises?

All indexed leases work on the same principle: the landlord takes the new index, divides it by the old one and multiplies this contribution by 100. Then you subtract 100 from the result and get the percentage increase in rent. For the absolute amount of money, divide again by 100 and multiply the result by the amount of the cold rent. In other words, rent follows inflation. From January to November of this year, a landlord could increase the basic rent of 1,000 euros by 39.50 euros, for example – because the prices rose by 3.95 percent:

Calculation formula:
(CPI (new) : CPI (old) x 100) – 100 = Percentage increase in rent
Percentage increase in rent: 100 x cold rent = rent increase

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This doesn’t just work in one direction: “If prices developed accordingly, a rent reduction would also be possible,” explains Lukas Siebenkotten, President of the Tenant Protection Association. However, a look at the CPI development since 1991 shows that this has never been the case – at least over a whole year.

How often can the rent be increased?

The level of inflation varies from month to month, but that doesn’t mean that rent can always rise as well. Many contracts provide a threshold for the increase. For example, the rent is only adjusted as soon as annual inflation exceeds the five percent threshold. “In addition, the previous rent must remain unchanged for at least a year,” emphasizes Siebenkotten. Only then can the landlord adjust the rent again.

Does the rent increase automatically?

No. The landlord must first send a declaration of increase or change in writing to his tenant. The change in the price index that has occurred as well as the respective rent or the increase in a monetary amount must be specified. Only then will the increase take effect from the month after next after receipt of the declaration. A retrospective increase is excluded. Landlords should therefore be careful not to miss an opportunity to raise rents. Because there is no entitlement to additional payments.

Who benefits from an index rent?

Such an agreement in the rental agreement can indeed be good for both parties. “A major advantage is that both parties have planning security,” says Matthias Heissner, founder and managing director of the portal Unlike with conventional rent increases, there is no basis for discussions: if inflation rises, rents will rise – both sides have to adjust to this. In addition, tenants can already estimate what to expect if they observe the development of inflation in the country.

Other factors for the rent increase are then only rarely: A coupling of index rent with a graduated rent is not allowed, for example. Apart from the development of inflation, the rent may then only increase if the operating costs increase or after certain structural improvements, such as energy-saving measures.

What about the price brake?

The contracting parties can use an index rent to circumvent the rental price brake, which caps rents in many German cities. It is true that the initial rents must meet the legal requirements when the contract is concluded. However, this does not apply to subsequent adjustments. “Index rents are detached from rent indexes and local comparative rents and can also be higher or lower,” says Matthias Heissner from tenant

Incidentally, this has benefited tenants in recent years: between 2012 and 2020, the CPI rose by 8.95 percent – while the rent index in Hamburg had increased by 16.45 percent in the same period. Now the situation could change: from January to November 2021 alone, inflation increased by 3.95 percent. At 1,000 euros cold rent, that was almost 40 euros more per month – within a year.

Can a rental agreement be subsequently linked to the price development?

Many landlords may now be inclined to convert their existing contracts into index contracts. But it’s not that simple: “A tenant doesn’t have to agree to such a request,” explains Heissner. Such a change is only legal if both contractual partners agree. “However, the rental price brake for the initial rent is also taking effect here,” says the expert.

More: Stricter rules will soon apply to construction loans: what this means for real estate prices

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