On 20 July, the Federal Court of Justice (BGH) issued two rulings (case reference: VIII ZR 339/21 and VIII ZR 361/21) that put an end to the previously contradictory case law of the courts of lower instances on the formal requirements for a declaration of rent increase following modernization.
What was it about?
In 2017, the landlord announced modernization work on the rental apartments and the building. After carrying out the modernization measures, the landlord informed his tenants of the rent increase in 2018. To illustrate the costs to be allocated to the rent, the landlord enclosed a table showing, among other things
- the individual modernization measures, shown separately for the general building areas and the individual rental apartment, and
- the total costs incurred for the respective modernization measure
became apparent.
The tenants were of the opinion that the rent increase letter did not meet the formal requirements and therefore took legal action against the landlord’s rent increase declaration. Wrongly.
What is the legal situation?
If a landlord wants to carry out modernization measures and pass on the costs incurred to the rent, he has a few things to consider. For example, he must announce the construction measures in good time and inform the tenant of the expected amount of the rent increase. Once the construction work has been carried out, the landlord must disclose the costs incurred, deduct the share of maintenance and repair costs if applicable, explain the apportionment key used, deduct any state aid if applicable and finally calculate the amount of the increase.
Why did the BGH decide?
To date, there has been disagreement among the courts of lower instances and in the literature on the question of how detailed the costs of a modernization measure must be explained.
For example, the courts in Berlin, Stuttgart, Bremen, Potsdam, Dresden and Hamburg have ruled that stating the total costs is not sufficient. Rather, the total costs should be broken down further according to the individual trades or work stages or according to tangible individual work. The courts in Frankfurt, Bonn and Münster took the opposite view. For them, a breakdown of the total costs was not necessary. In this respect, there was legal uncertainty, as the successful enforcement of the statutory modernization rent increase depended largely on which court was responsible for the specific apartment affected by the modernization measure.
How did the BGH decide?
According to the BGH, a modernization rent increase is sufficient if it shows the total costs for a specific modernization measure. It is not necessary to break down the total costs according to the individual trades involved or other areas of construction work. This also applies if extensive and correspondingly costly structural changes or measures were carried out outside the affected apartment or on several buildings.
The BGH justified this by stating that neither the wording nor the meaning and purpose of the provision (Section 559b (1) BGB) requires such a breakdown. The law only requires an explanation of the costs incurred and not their detailed justification. Furthermore, the purpose of the provision is not to allow an otherwise substantively justified rent increase claim to fail due to excessive formal requirements. Rather, the purpose of the provision is to enable the tenant to check the plausibility of the landlord’s request for a rent increase by providing sufficient information. At the same time, the purpose of the provision is also to create incentives for the landlord to carry out modernization measures. Excessively high requirements for the content of the rent increase letter would contradict this purpose. Weighing up the interests of both parties would mean that a rent increase letter would only be formally invalid if the omitted information would have a significant gain in knowledge for the tenant. However, such a gain in knowledge does not result from the breakdown of the total costs. If there is uncertainty regarding the amount of the costs incurred, this is a question for the substantive legal justification of the rent increase and not a formal requirement for validity.
Conclusion
Overall, the landlord has to consider many small details during the preparation of the modernization measure, but also afterwards. Even a single mistake can result in the exclusion of the rent increase or make the landlord liable for damages.
The BGH has now made one thing clear. A breakdown of the costs of a modernization measure by individual trades is not necessary, even if comprehensive modernization measures were carried out inside and outside the apartment or on several buildings. The landlord only has to show the total costs of the respective modernization measure.
This means that the enforcement of the rent increase is not subject to excessively high requirements. The tenant, in turn, is adequately protected by his comprehensive right of inspection and examination and can defend himself against unjustified requests for increases.
The author and your usual contacts will be happy to answer any questions you may have!
Devora Kacheva
kacheva@tigges.legal
+49 211 8687 146