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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3.00 €/m² That is the most the rent may rise through modernisation within six years, per month Cap under § 559 para. 3a BGB (German Civil Code)
2.00 €/m² This limit applies if the rent was previously below 7 euros per square metre § 559 para. 3a sentence 2 BGB (German Civil Code)
For your address, the Berlin rent calculator works out the local comparative rent under the 2026 rent index, the rent cap limit and the social preservation area (Milieuschutz) status.
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 €7/m² or more | €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 text form at least three months in advance; a letter or an email with your name is enough. 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 declare the rent increase itself after the works are finished, also in text form, 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 in order to raise rents through modernisation should work it out beforehand. An eight per cent levy at today's construction prices and interest rates produces a very different picture from the years when money cost almost nothing. How this is reflected in the price of an apartment building is explained on the page Selling an apartment building in Berlin.
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 German Civil Code (BGB), definition of a modernisation measure
- § 555c BGB (German Civil Code), notice of modernisation
- § 555d BGB (German Civil Code), duty to tolerate and hardship objection
- § 559 BGB (German Civil Code), rent increase after modernisation, including the caps in paragraph 3a
- § 559b BGB (German Civil Code), 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.
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