To avoid the problem of rent increases requiring consent, some landlords opt for a step rent. This permits clearly defined increases in the net cold rent, but has disadvantages as well as advantages. This applies to both sides: tenants and landlords. What exactly is a step rent?
What Is a Step Rent?
At first glance, a step rent resembles an index-linked rent. While the latter links rent increases to changes in the price index, a step rent already includes nominal rent changes for the future, set when the tenancy agreement is concluded. This means: Both parties agree on one or more fixed rent increases for the coming years.
Is a Step Rent Still Permitted Today?
A step rent is one of the forms of contractual arrangement between tenant and landlord specified in the German Civil Code (BGB). The legal basis is § 557 a BGB. This type of rent agreed in advance for the future is therefore explicitly permitted. However, it is subject to certain special provisions.
Special Provisions of a Step Rent
The BGB specifies key parameters that affect the structure of the tenancy agreement and the cold rent if both parties agree to a stepped rent. These include the following points:
- A step rent must be recorded in writing in the tenancy agreement. At least one increase must be specified.
- The increases must be stated in euros. Stating a (solely) percentage increase is impermissible.
- Each agreed rent must remain valid for at least twelve months before an increase may take effect.
- The cold rents agreed in the contract may exceed the local comparable rent.
- The respective rent steps may not exceed the customary local rent by more than ten percent if the so-called rent control applies in the municipality. If a rent step exceeds this value, it is invalid. The date of the first rent payment in each case then applies. Existing contracts concluded before the introduction of rent control are exempt.
- The cap on rent increases introduced with rent control does not apply to step rents. This means that rents may also increase by more than 20 percent within three years (in some municipalities, 15 percent).
- The increases must remain below the threshold for rent usury remain, which is referred to in Section 5 of the Economic Offences Act (WiStrG).
- A rent increase for other reasons, such as modernization measures, is inadmissible.
- The contractually agreed increase in the net rent applies without any further written notice by the landlord and without any further consent from the tenant.
- Any minimum contractual term agreed may not exceed four years.
FAQs on Graduated Rent
These key points give rise to some special constellations. The following frequently asked questions (FAQs) result from this:
If the landlord does not notice that the tenant is failing to comply with the agreed rent increase, may the landlord subsequently demand the amounts that were underpaid?
Yes. They may. But only amounts that have accrued within three calendar years. For compliance with the deadline, the end of the year is considered the latest possible date. If, for example, an increase was agreed for September 1, 2019, the landlord must consequently demand the unpaid increase by December 31, 2022.
If a landlord forgets to change a direct debit and therefore debits amounts that are too low, does the tenant then have to pay the difference?
Probably not. A ruling exempted the tenants from making an additional payment in this case (Hamburg Regional Court, Ref. 334 S 118/96).
Which wording for a graduated rent in the tenancy agreement is legally effective?
The tenancy agreement should state the exact final amount of the increase and, if possible, the specific amount of the new net rent as well as the exact date. For example: “The net rent will increase by 37.50 euros to 457.50 euros on October 1, 2022.”
Which wording when setting the graduated rent is invalid?
Sentences such as “increases by three percent after two years” or “The net rent increases to a price per square meter of 9.45 euros” are invalid, for example.
What happens if an agreed net rent is invalid at the beginning of a graduated-rent period?
If, in regions with a rent cap, the net rent at the beginning of the rent payment is more than ten percent above the local comparable rent, or if wording is inadmissible, the tenant only has to pay the originally agreed net rent or the last valid graduated rent. The same applies to usurious rent under Section 5 of the Economic Offences Act (WiStrG).
What happens at the end of the last agreed rent tier?
If the contract specifies the individual tier periods and these end before the tenant moves out, the tenancy continues normally with the last tier rent as the net rent excluding service charges. The landlord must then announce future rent increases. In addition, they require the tenant’s consent.
May a landlord define annual increases by a fixed amount?
Yes, they may. The rental agreement may, for example, stipulate an annual increase in the net rent excluding service charges of 17.40 euros. This applies until the end of the tenancy.
May a rental agreement be changed to an indexed rent or a normal rent?
Yes, both parties may agree on a different contractual rent at any time. However, both must agree in writing or sign a new rental agreement.
Tiered rent: advantages and disadvantages for landlords
For landlords, defining future rent changes in advance can be advantageous. This applies particularly if the local comparative rent is low or is expected to increase only slightly. This form of rent increase allows rapid increases to be agreed simply and without the tenant’s renewed subsequent consent. The waiting period is only twelve months, rather than the usual 15.
Provided that the rent cap applies at the property’s location, however, the agreed net rents excluding service charges must remain within the permitted increase. Even if the cap on rent increases does not apply, it can be difficult to accurately estimate the permitted increase in advance. In the worst case, a tiered rent set too high in advance may be legally impermissible when the increase takes effect. Another disadvantage may be the processing of rent payments. If the tenant forgets the increase, the landlord must act promptly or lose their claim. This applies all the more if the landlord debits an amount that is too low.
The biggest disadvantage for landlords is the exclusion of rent adjustments for other reasons. Modernisation measures and other rent-relevant improvements to the apartment cannot be passed on to the rent until the tiered-rent agreement ends.
Such a rental agreement provides planning certainty. This applies not only to the rent amount. The landlord can also link it to an exclusion of termination for up to four years. This can be a suitable means of preventing strongTo prevent turnover. However, the tenant must agree to such clauses.
Graduated Rent: Advantages and Disadvantages for Tenants
A graduated rent can also have advantages for tenants. They can estimate the cost development over the coming years in advance. Agreeing in advance to a specific rent is particularly worthwhile if the increases remain below the expected price development. This provides planning security while also protecting against unplanned rent increases due to modernisation or rapid increases in the housing market.
However, the increases may rise more sharply than the local comparable rent and even exceed the cap on rent increases. Only in regions with a rent control cap are tenants protected against disproportionate increases.
Since the graduated rent is already agreed in the contract, the tenant must remember to adjust the payments or standing order on the respective due date. This requires greater attention.
A graduated rent is disadvantageous if it is linked to an exclusion of termination. Such provisions tie the tenant to the property and restrict them, for example, when looking for a job.