Service charge statement – everything you need to know

There is hardly anything that causes more disputes between tenants and landlords than the service charge statement. On the one hand, many statements contain errors. This leads to conflicts. On the other hand, both parties do not always know the actual legal requirements. There is often uncertainty about what the landlord may charge and what they may not. Many people affected are unsure what the statement must look like, when it must be issued, and what other deadlines apply. We offer you an overview of the legal requirements and the possible contents of the service charge statement, which is correctly called the operating cost statement.

Why are operating cost statements issued?

Various work and costs arise for the residential property over the course of the year. Landlords would like to pass these expenses on to the tenants, meaning have them paid by the tenants. To this end, in most cases both parties to the tenancy agree on monthly service charge advance payments. This monthly sum distributes the burden for the tenant across monthly installments, which are paid in advance. The operating cost statement serves to compare and reconcile the actual costs and the advance payments at the end of the billing period. In some cases, this results in credits, and in others in additional payments for the tenant.

Difference: Advance payments and flat rates

The landlord is obliged to issue a statement if the tenant makes such advance payments. Although people sometimes refer to service charge flat rates in everyday usage, these are advance payments. This distinction is important because some landlords demand a genuine operating cost flat rate. This is a flat-rate settlement of operating costs regardless of the actual amount. The landlord may set and demand a realistic amount from the tenant in this way. In that case, no statement is issued. Heating costs are excluded from this approach. Since these must in any event be determined based on consumption, almost all landlords opt for operating cost advance payments.

Which law governs the operating cost statement?

The allocation of service charges to tenants is legally safeguarded. Section 556, paragraph 1 of the German Civil Code (BGB) states, among other things:

“The contracting parties may agree that the tenant bears the operating costs.”

Advance payments may be agreed in this context...may be incurred, but they must not exceed a reasonable amount. It also specifies when expenses incurred are actually operating costs. Accordingly, the following points must be met:

• The costs are incurred regularly.
• The costs are necessary for the intended use as residential property.
• The costs comply with the principle of cost-effectiveness.

Only when all three points apply may the landlord pass their expenses on to tenants. To provide more detail, the legislator enacted the Operating Costs Ordinance (BetrKV). Section 2 BetrKV lists 17 items that define operating costs in more detail.

The rental agreement is decisive!

However, landlords are bound by the rental agreement. They may only pass on to tenants those expenses that are stated in the rental agreement as ancillary costs or operating costs. If billed items are missing from the list, the tenant does not have to pay the corresponding amount.

What are operating costs under Section 2 BetrKV?

The Operating Costs Ordinance lists the possible operating costs. This list is not exhaustive, so as not to exclude future requirements. Nevertheless, it provides a good overview of the landlord’s allocable expenses. The items mentioned in the text at a glance:

• 1. Public charges: This refers in particular to property tax.
• 2. Water supply: This includes the costs of drinking water, fees and maintenance of meters, water flow regulators, water treatment systems, as well as costs for allocating water costs. Important: If the apartments have their own water meters, however, the landlord must use the consumption determined by them.
• 3. Drainage: The landlord may also pass on wastewater costs. In addition to wastewater fees, these include sewer charges or expenses for operating a drainage pump.
• 4. Items 4 to 6 of the list deal with hot-water and heating costs. These include the actual consumption of fuel as well as, among other things, operating, cleaning and maintenance charges. We have compiled a detailed overview of heating costs and the amended Heating Costs Ordinance here for you. In principle, at least half of these items must be calculated based on actual consumption. A certain proportion but the landlord may also calculate it based on living space. Since the end of 2021, consumption data must also gradually be accessible via remote reading.
• 7. Passenger and freight elevators: The landlord may allocate the costs of operating and maintaining elevators. Ground-floor apartments may be exempt. If a flat-rate maintenance contract exists, the landlord must deduct any repair and material costs incurred from the total.
• 8. Street cleaning and waste disposal fees: The landlord may allocate to tenants the costs of waste disposal, including the costs of stationary facilities such as “garbage chutes,” as well as street cleaning and winter services. Exceptions apply to bulky waste and waste resulting from inadequate waste separation, provided those responsible are known. The costs arising in this way may only be charged to those responsible.
• 9. Building cleaning and pest control: For communal areas, stairwells, cellars and attics, as well as windows in these areas, the landlord may hire a cleaning company and allocate the costs. In doing so, they must strictly observe the principle of cost efficiency. For example, it is not cost-efficient to have the windows cleaned every week or to choose overpriced providers. However, an upscale residential area may require more frequent cleaning. The costs of necessary pest control may also be allocated. This applies only to removal in communal areas or where all apartments are regularly affected.
• 10. Garden maintenance: The landlord may charge for the maintenance of green spaces. However, they are bound by certain requirements. Activities such as mowing lawns, trimming hedges or replacing plants may be allocated. Creating a new garden or a section thereof, such as planting a hedge, may not. In addition, areas usable by individual tenants only must be excluded from the calculation. Playgrounds may also fall under this item if they improve quality of life.
• 11. Lighting: Electricity costs for lighting entrance doors, stairwells, basement areas and similar spaces may be allocated. However, the landlord may charge only operating costs (electricity), not the replacement of light bulbs or the repair of wiring. Other relevant communal electricity costs, such as those for operating heating systems or laundry rooms, also fall under this category, provided they are not billed under other items.
• 12. Chimney sweeping: The landlord may pass on chimney sweeping costs. The type of billing depends on the system. Individual fireplaces are charged to the tenant. The costs of maintaining, measuring, and cleaning shared systems are generally distributed proportionally via the heating cost statement.
• 13. Property and liability insurance: The landlord may take out insurance for their property. If the tenants benefit from it, as is the case, for example, with natural hazard insurance – fire, water, storm, lightning – or building liability insurance, these costs may be passed on. This also applies if the insurance is taken out only after the tenancy begins. An exception applies if only individual tenants benefit. The classic example: Only one tenant uses a glass-covered terrace, and glass-breakage insurance applies only to it.
• 14. Caretaker: The landlord may appoint a caretaker and charge the resulting costs as part of the operating cost statement. However, there are two important points to note: The landlord may not charge costs twice. If, for example, the caretaker cleans the stairwell, the landlord may not charge these costs additionally. Furthermore, the landlord must deduct an appropriate portion of the costs if the caretaker performs repair work. Only maintenance costs may be passed on.
• 15. Antennas and cable connections: Until now, landlords have been allowed to pass on the costs of providing antennas and internet or TV/fiber-optic cables to tenants. Since December 2021, this “ancillary cost privilege” has been abolished. Tenants may therefore freely decide whether to accept an offer or conclude their own contract. The landlord may no longer pass on flat-rate fees. Existing contracts are subject to a transitional period until 30 June 2024.
• 16. Laundry care: If the landlord provides laundry facilities, they may pass the resulting costs on to the tenants. However, if a coin-operated system has been installed, individual meters are installed, or water and electricity are already billed under other items, these costs must be deducted from the amount.
• 17. Other operating costs: The Operating Costs Ordinance includes this item as a so-called “catch-all function,” with which future developments may be taken into account. This means that the landlord may charge additional operating costs that are incurred regularly and are necessary for the intended use of the property. Currently, this regulation may include, among other things, maintenance costs for smoke detectors or fire extinguishers.

Permitted or not? The most important distinction

The list of possible items relevant to the operating cost statement is only a guide for landlords and tenants. The decisive point is whether expenses are incurred regularly. For example, maintenance costs can be charged as operating costs, but repair costs cannot.

The term “regularly” is independent of the time interval. A typical point of contention is gutter cleaning. This only takes place every few years. Nevertheless, this expense constitutes a maintenance cost if it is specified in the rental agreement.

What definitely does not constitute operating costs?

There are expenses that landlords may under no circumstances charge as operating costs. These include, for example, costs for account management, an office employee, a tax adviser or property management. These indirect costs are not necessary for the intended use of the apartments and are therefore not permissible operating costs.

Operating cost statement: the billing period

In addition to the permitted items, the operating cost statement is subject to further requirements. An important point is the billing period. The legislator also provides a clear requirement for this. According to § 556 para. 3 sentence 1 BGB, the operating cost statement must cover one year. However, it is permitted to define the billing period across calendar years, for example from October 1 to September 30 of the following year.

Interim statements when a tenant changes

In principle, landlords may also settle operating costs early when a tenant changes. However, this is not mandatory, as many expenses only accumulate over the course of the year, meaning that invoices for an annual interval may not be received until after the tenant has moved out.

What counts: cash-flow principle or invoice date?

A frequent point of contention between tenants and landlords concerns the invoice date for operating costs. The landlord has the right to apply the cash-flow principle when preparing the operating cost statement. This means: They can pass on all relevant costs that they incur during the has paid during the billing period. This means, for example, that theoretically the chimney sweep costs may be omitted in one year and be included twice in the operating cost statement in the following year. The date on which the amount is debited from the landlord’s account applies.

By when must the operating cost statement be issued?

The landlord is obliged to provide the annual service charge statement within one year after the end of the billing period. The date on which it is received by the tenant applies. The twelve-month deadline also applies in cases where the landlord changes during the billing period, for example through a sale, gift or inheritance.

In a few exceptional cases, the landlord may submit a service charge statement subsequently. According to case law, a three-month extension applies in such cases. However, the landlord must provide extraordinary and verifiable reasons. This is referred to as an “unavoidable failure to meet the deadline.” One example would be a late official property tax assessment notice.

What happens if the landlord misses the deadline?

If the landlord misses the submission deadline, the tenant does not have to pay any potential additional payment. It is irrelevant who was responsible for the delay. However, the tenant may still request a statement. If the operating cost statement shows a credit in the tenant’s favour, the landlord must pay it out.

What information must the operating cost statement contain?

The service charge statement is subject to formal requirements. If its form and content are insufficient, this may, according to a ruling by the Federal Court of Justice (BGH, VIII ZR 108/02 of 27 November 2002), even release the tenant from any potential additional payment. Landlords should therefore pay meticulous attention to fulfilling all requirements. The information in the operating cost statement must also be presented in a clear, comprehensible and transparent manner. Contradictory passages or calculations that cannot be understood likewise make the statement open to challenge. In particular, specific figures and dates as well as the basis of calculation must be stated. For example, it is not sufficient to include phrases such as “as agreed” or “according to the meter reading” in the statement.

The minimum information must also meet the following requirements:

• Issuer/sender: The name and address of the landlord or the person preparing the statements must be stated be.
• Recipient: The recipient must include all persons named in the tenancy agreement, stating their first and last names and address. The document must also be sent to all named recipients.
• Property details: The rented property must be defined precisely. This includes the address, floor and, where applicable, an exact designation of the apartment by an addition such as “left” or an apartment number.
• Period: The landlord must clearly state the billing period. If there was a change of tenant, the landlord must also define the respective period of use for the addressee. This can be done, for example, in the form of billing days.
• Allocation key: The landlord must state the allocation key used to calculate the respective tenant’s share of the costs. If the property is a residential complex consisting of several properties that incur shared ancillary costs, such as landscaping maintenance, the key for the share of the entire complex must be stated. Different allocation keys may apply to different ancillary costs (according to living space, number of persons, etc.). Stating the respective allocation keys is one of the most important obligations in the ancillary-cost statement.
• Costs: The operating-cost statement must contain a list of the costs for the tenant resulting from the allocation key.
• Heating/hot water: The costs for heating and hot water, including additional costs for maintenance, etc., must be broken down clearly. This part of the statement may come from a third party that also reads, for example, the consumption data.
• Total charge: The landlord must state the sum of the accrued proportional ancillary costs. In addition, the total advance payments must be listed and the resulting difference clearly identified as either an additional payment or a credit balance.

Note on inspecting supporting documents

The landlord does not have to attach the supporting documents for the costs incurred. However, the tenant has the right to inspect them. To this end, the landlord or the issuer of the statement must provide an opportunity for inspection. It is sufficient to keep the documents available at the sender’s office. In exceptional cases, this may be unreasonable for tenants. If, for example, the journey involved considerable effort (a great distance, a long travel time), the tenant may have the right to a copy for which a fee is charged.

Beyond the statement, tenants have no right to information. The However, the document must meet the stated requirements for a clear, comprehensible, and verifiable presentation.

Objecting to an Incorrect Service Charge Statement

The tenant may object to the service charge statement. They have exactly twelve months (365 days) after delivery of the document to do so. An exception to this deadline applies only in exceptional cases, such as serious illness or denied access to supporting documents.

The objection may be made informally and even verbally. If the tenant wants to be on the safe side, they should send it by registered mail. In the objection, the tenant must state the disputed item or partial amount, or provide a reason. An objection without a specific cause is not permissible.

An objection is still possible even if the tenant has already received a credit or settled an additional payment. If the process results in a recalculation, this amount will be offset accordingly.

Important: If correcting the statement after the submission deadline results in a credit for the tenant, it must be paid out. However, an additional payment is only owed if it is received within one year after the end of the billing period!

Note: Many service charge statements specify an objection period of four weeks. This does not conflict with the statutory deadline, but refers to settling payment of the credit or additional payment.

Additional Payment and Credit: By When Must the Amount Be Paid?

The operating cost statement serves to compare advance payments with the actual costs. As a rule, the tenant has either a credit or an additional payment. Both parties are obliged to settle the amount due within 30 days. This also applies if an error is corrected subsequently or the tenant lodges an objection. If one party refuses, the other may apply for a payment order or pursue other legal remedies.

Important: By paying an additional amount, the tenant does not acknowledge the statement as correct. They may therefore continue to object. There is a corresponding judgment on this matter (Federal Court of Justice, Case No. VIII ZR 269/09 dated January 12, 2011). It is not necessary to make the payment subject to reservation.

If a landlord refuses to pay out a credit, the tenant may offset the amount against their rent payments. However, they mustgive one month’s prior notice; otherwise, they themselves will be in arrears with the rent payment.

Is there a limitation period?

Claims arising from operating cost statements become time-barred. If one party fails to make the payment, the opposing party can take legal action. However, a claim must be submitted no later than three full calendar years after the end of the year in which the statement was delivered. Later claims are considered time-barred. For example, if the tenant receives the operating cost statement on 29 October 2022, both parties can submit claims until 31 December 2025.

Offsetting operating costs against a rental deposit

If a tenant moves out during a billing period, the landlord may retain part of the rental deposit. The prerequisite is that the operating cost statement generally results in an additional payment being due or that this is foreseeable. However, the retained amount is limited to the sum that will presumably be required to cover an additional payment.

Adjusting the operating cost advance payment

It is unlikely that the advance payments for ancillary costs will exactly cover the actual operating costs. As a rule, there will be an overpayment or shortfall. In this case, both parties may adjust the monthly operating cost advance payment in accordance with Section 560 subsection 4 of the German Civil Code. The new amount should be based on the determined current total. However, the landlord may not demand a safety surcharge for costs expected to be higher.

It is sufficient for one party to notify the other party of this change in text form, such as by letter, email or fax. The adjustment cannot be made retroactively and applies from the next rent payment.

Conclusion: many details, but clear rules

These explanations show that the devil can be in the detail. The rules are clear and coherent. However, the number of requirements for a correct operating cost statement can lead to minor or major errors. Both parties should discuss any problems that arise together and resolve them without unnecessary bureaucracy. In the event of a dispute, consulting a tenants’ or landlords’ association can provide clarity regarding the individual ancillary costs and the operating cost statement as a whole.