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The new rent cap
At the end of 2023, the National Council passed the third Inflation Relief Act (3. MILG) on rental law, thereby introducing a rent cap designed to limit inflation adjustments in the Rental Law Act (MRG), the Reference Value Act (RichtWG), and the Non-Profit Housing Act (WGG).
General
The new provisions apply exclusively to tenancies with legally limited rents, i.e., tenancies with a category and benchmark rent, as well as tenancies relating to non-profit housing (WGG). Therefore, reasonable rents in accordance with Section 16 (1) MRG (usually commercial premises or Category A and B apartments with a usable floor space of more than 130 m²) and free rents in the area of full and partial exemption from the MRG are not affected by the new rent cap.
With the creation of a rent cap, the legislature is intervening in the value protection provisions for the first time in such a way that there will be a real reduction in rents. It was not without reason that it was originally planned to pass the 3rd MILG with constitutional status. In the absence of the necessary majority, a resolution was finally passed in the form of a federal law by a simple majority in the National Council. There is already discussion in legal literature as to whether the legal provisions are constitutional.
About category rent
Until now, category amounts under tenancy law have been adjusted on an ongoing basis based on changes in the Consumer Price Index 2000 (CPI 2000), taking into account a threshold value of 5%. Based on the new legal regulation, there will be no adjustment of category amounts in 2024. The next adjustment will not take place until April 1, 2025. From this date onwards, only one annual adjustment is planned, effective April 1. This is intended to avoid the multiple increases that have recently been made within a short period of time.
The increase in the category amounts from April 1, 2025, will be based on the change in the annual average value of the consumer price index of the previous year. However, the category amounts may not increase by more than 5% compared to the last change date (rent cap). The same provisions apply to the increase from April 1, 2026.
From April 1, 2027 (and subsequently annually from April 1), the change in the category amounts will be linked to the average annual change in the CPI 2000 in the three years preceding the revaluation date. However, if the average inflation rate in these three years exceeds 5%, only half of the portion exceeding the 5% threshold will be taken into account in the increase.
Reference rent
To date, reference values under tenancy law have been indexed every two years on April 1 on the basis of the 2010 consumer price index (CPI 2010). The last such adjustment took place on April 1, 2023. The new legal regulations now stipulate that, from April 1, 2025, the adjustment of the reference values will take place annually with effect from April 1. The system is based on the provisions governing category amounts. The change in the reference values from April 1, 2025, and April 1, 2026, is also linked to the average change in the CPI 2010 in the previous year, with the 5% cap also applying. From April 1, 2027, the three years preceding the valorization date will also be used as a basis in this case, and if the average inflation rate exceeds 5%, only half of the excess amount will be taken into account.
Rent in WGG contracts
The provisions governing rent increases in WGG contracts are analogous to those concerning category amounts and reference values. In contrast to the adjustment of category amounts and reference values, however, the first adjustment in WGG contracts will take place as early as April 1, 2024, with an increase limit of 5% also applying here. From April 1, 2027, the rent will again be adjusted on the basis of the average inflation rate for the previous three years. If inflation exceeds the 5% limit, only half of the excess amount will be taken into account.