Letting
Letting guide
The modernisation levy
You may add eight per cent of the construction costs to the rent every year. Two upper limits and a clean separation between repair and improvement decide whether the increase holds up in court.
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8% of the construction costs you may add to the rent every year § 559 BGB
3.00 €/m² The most the rent may rise per month through modernisation within six years Cap under § 559 para. 3a BGB
2.00 €/m² This limit applies if the rent was previously below €7 per square metre § 559 para. 3a sentence 2 BGB
What counts as modernisation
Not every building project allows a rent increase. The law distinguishes between repairing and improving. This is exactly what disputes are most often about.
- Repairing means that the flat is restored to the condition it should be in. The leaking roof is sealed, the broken heating is replaced. You may not add these costs to the rent. The tenant already pays for this with the normal rent.
- Modernising means that the flat becomes better than before. It needs less energy or less water, is easier to use, or living in it becomes more pleasant in the long term.
Most building projects involve both. If you replace a thirty-year-old heating system, part of it is simply repair, because the old one was at the end of its life anyway. You must deduct this part. If you do not, you risk the entire increase failing.
The calculation and its two limits
The basic rule is set out in § 559 BGB (German Civil Code). You may increase the annual rent by eight per cent of what you spent on this flat. So €30,000 becomes €2,400 a year. That is €200 a month.
This is subject to two upper limits, the caps under § 559 para. 3a BGB:
- Within six years, the rent may rise by at most three euros per square metre per month due to modernisation.
- If the net cold rent was previously below seven euros per square metre, the limit is only two euros per square metre.
| Example | Value |
|---|---|
| Living space | 70 m² |
| Construction costs you may pass on | €30,000 |
| of which 8% a year | €2,400 |
| per month | €200 |
| per square metre | €2.86/m² |
| Upper limit if the rent was previously above €7/m² | €3.00/m², so the increase is within the limit |
| Upper limit if the rent was previously below €7/m² | €2.00/m², in which case only €140 would be allowed |
This is only an example. From the actual construction costs, first deduct anything that was pure repair and any subsidies you received.
You must also deduct grants and low-interest government loans, insofar as they cover these costs. Anyone who takes subsidies and still passes on the full costs may lose the increase in court.
Notice and effective date
You must announce the modernisation in writing at least three months in advance. The letter must cover four points. What will be done and to what extent. When it starts and how long it will take. How much more rent will be due afterwards. And how the ancillary costs will change.
You send the rent increase itself after the works are finished, also in writing, with a calculation the tenant can follow. The tenant has to pay from the third month after your letter reached them. If you did not announce the works properly beforehand, this is postponed by a further six months.
During the works, the tenant may in some circumstances pay less rent because they cannot use the flat normally. For energy-saving works, the law largely rules this out for the first three months.
The hardship objection
The tenant can object, and on two fronts: against the building works themselves and against the rent increase. The law calls this a hardship objection. As regards the rent, it succeeds if the increase cannot reasonably be expected of the tenant, above all because they simply cannot afford it. The landlord's interests are also weighed up.
The objection is subject to a deadline, and the tenant must give reasons. For you as the landlord, this means that a hardship case concerning the rent does not stop the works. But with this one tenant, you may be unable to enforce the increase in full or in part. Factor this in before you start building.
What this means when selling
Anyone buying a let property sees two sides to the levy. It is a way of increasing the rent where the rent cap would otherwise prevent it. But it is slow, it costs a lot of money up front, and legally it is easy for something to go wrong.
Anyone buying an apartment building (Zinshaus) to raise rents through modernisation should run the numbers first. An eight per cent levy at today's construction prices and interest rates gives a very different picture from the years when money cost almost nothing.
Legal disclaimer. This article reflects the position as of 29 July 2026 and is intended as initial guidance. It does not replace legal or tax advice in individual cases. As estate agents, we may not and do not wish to provide legal advice. For binding information, please consult a lawyer or a tax adviser.
Sources
- § 555b BGB (German Civil Code), definition of a modernisation measure
- § 555c BGB, notice of modernisation
- § 555d BGB, duty to tolerate and hardship objection
- § 559 BGB, rent increase after modernisation, including the caps in para. 3a
- § 559b BGB, asserting the increase
Frequently asked questions
Modernisation levy: frequently asked questions.
Answers as of 29 July 2026
How much may the rent rise after a modernisation?
By eight per cent a year of the costs you incurred for this flat and are allowed to pass on. There is also an upper limit: at most three euros per square metre per month, calculated over six years. If the rent was previously below seven euros per square metre, the limit is only two euros.
Does a new heating system count as a modernisation?
In part. Insofar as the old heating system was due for replacement anyway, this is repair, and you may not pass that part on. You may only pass on what genuinely improves, such as lower energy consumption. As the landlord, you must show how you split the costs.
As a tenant, do I have to tolerate the modernisation?
In principle yes, if it was announced properly. You do not have to tolerate it if the works would cause unreasonable hardship for you or your family. You must raise this objection within the deadline and give reasons.
Can I also use the levy when re-letting?
A modernisation carried out in the last three years can be an exception to the rent cap (Mietpreisbremse). But that is a separate rule and not the same as the levy within an existing tenancy. The two are often confused.
Own an apartment building (Zinshaus)?
We value it taking into account the rent structure, state of renovation and land value.