The tenancy agreement is the foundation of a good tenancy: it records what has been agreed and protects both parties, provided it is drawn up properly. For landlords, the skill lies in concluding a legally sound contract that remains valid and, in case of doubt, holds up in court. For invalid clauses do not fall in the landlord's favour; instead they are replaced by the statutory rule, often to your disadvantage. This guide sets out the key points of the residential tenancy agreement in plain terms: from the mandatory contents through rent levels, deposit and decorative repairs to fixed terms and notice periods.
The mandatory contents: what belongs in every tenancy agreement
A residential tenancy agreement is in principle subject to no particular form, it need not even necessarily be concluded in writing. For a valid contract to come into being at all, however, the essential points must be determined or at least determinable:
- The contracting parties: landlord and tenant must be clearly named, with full name and address.
- The let property: the specific flat, its location within the building, as well as additional areas let with it, such as a cellar, garage or parking space.
- The rent: the level of the rent, or at the very least a determinable basis for calculating it.
The fundamental obligations arise from § 535 of the German Civil Code (BGB): the landlord makes the flat available in a condition fit for use under the contract and maintains it for the duration of the tenancy; the tenant pays the agreed rent and treats the flat with care. Clear provisions on operating costs, the deposit, decorative repairs and house rules are advisable, though not required for the contract to be valid. The more precise the contract, the less often disputes arise later.
Agreeing rent and operating costs correctly
Alongside the net cold rent (base rent excluding operating costs), the operating costs form the second major item. The crucial point is this: you may only pass operating costs on to the tenant if this has been expressly agreed in the tenancy agreement (§ 556(1) BGB). In the absence of such an agreement, the landlord bears these costs himself, a common and costly mistake.
The usual approach is to pass them on by way of a monthly advance payment with an annual statement of account; alternatively, a flat-rate charge is possible. In both cases the contract should make the apportionable categories of cost recognisable, for example by reference to the Operating Costs Ordinance (Betriebskostenverordnung). When setting the rent level itself in Düsseldorf, the rent control rules (Mietpreisbremse) must also be observed: on reletting, the rent may exceed the local comparative rent by no more than ten per cent. A correctly derived starting rent is therefore the most important step before the contract is signed.
Fixed-term or open-ended? The fixed-term tenancy and its limits
The standard case is the open-ended tenancy agreement. It runs for an indefinite period and ends by ordinary notice, whereby the landlord can only give notice where he has a legitimate interest (more on this below). This form offers both sides planning certainty and is, in practice, usually the most sensible.
A fixed-term tenancy agreement is, by contrast, permissible only under strict conditions. Under § 575 BGB, a qualified ground for the fixed term must already exist at the time the contract is concluded and must be notified to the tenant in writing. Only three grounds are recognised: the landlord wishes to use the premises after the term expires for himself or his family (own use), he wishes to demolish them or alter them so substantially that continuing the tenancy would considerably hinder the works, or he wishes to let them to someone obliged to provide a service. If a permissible ground or the written notification is missing, the contract is automatically treated as open-ended, the fixed term is then of no effect. A fixed term merely "because it happens to suit" therefore does not work in residential tenancy law.
Stepped rent and index-linked rent: foreseeable rent adjustments
Anyone wishing to set future rent development in advance can choose between two models, both of which must be agreed in writing.
- Stepped rent (§ 557a BGB): the rent rises at fixed points in time by amounts agreed in advance. Each step must be stated as a specific sum of money; mere percentage figures are not sufficient. At least one year must lie between two increases. During the stepped-rent arrangement, any additional increase up to the local comparative rent is excluded.
- Index-linked rent (§ 557b BGB): the rent develops in line with the consumer price index of the Federal Statistical Office (Statistisches Bundesamt). Increases are possible at the earliest one year after the last adjustment and must be asserted in text form, stating the movement in the index.
Important for both models: the rent control rules (Mietpreisbremse) apply here too in respect of the starting rent. In Düsseldorf the initial rent may not exceed the permitted upper limit, only on that basis can a stepped or index arrangement build.
The deposit: amount, instalments and separate investment
The tenancy deposit protects the landlord against damage and outstanding claims. § 551 BGB sets clear limits for this, and they are mandatory:
- Maximum amount: the deposit may amount to no more than three months' rent, calculated on the net cold rent excluding operating costs.
- Payment by instalments: the tenant may pay the deposit in three equal monthly instalments. The first instalment is due at the start of the tenancy. A clause excluding this is invalid.
- Separate investment: the landlord must invest the deposit separately from his own assets and protected against insolvency, at the interest rate customary for savings deposits with three months' notice of withdrawal. The interest accrues to the tenant and increases the security.
Anyone setting the deposit higher than permitted, or failing to invest it separately, risks claims for repayment and other claims by the tenant. Complying with these rules is therefore part of every landlord's duty of care.
Decorative repairs: caution with standard clauses
Redecorating on moving out? That has long ceased to be a matter of course. In principle, maintenance is the landlord's responsibility (§ 535 BGB). Decorative repairs can indeed be transferred to the tenant, but the Federal Court of Justice (Bundesgerichtshof) has declared many common standard-form clauses invalid:
- Rigid intervals: clauses that prescribe fixed redecoration intervals (for example "the kitchen every three years, living rooms every five years") without regard to the actual condition are invalid.
- Flat handed over undecorated: where the flat is handed over undecorated and the tenant is nonetheless to be obliged to redecorate, the clause is invalid without appropriate compensation (such as a contribution towards costs).
- Pro-rata cost-sharing: clauses requiring the tenant, on moving out, to bear a proportionate share of redecoration work not yet due generally do not withstand scrutiny.
- Rigid final redecoration: an obligation to redecorate the flat on moving out irrespective of its actual condition is invalid.
The consequence of an invalid clause is clear-cut: it is not "softened" but falls away entirely, and the statutory rule applies, under which the landlord bears the decorative repairs. A model template adopted wholesale can prove costly here; a vetted, up-to-date clause is worth its weight in gold.
Termination and the written form: notice periods you must know
When a tenancy ends, clear statutory notice periods apply (§ 573c BGB). The tenant can always terminate an open-ended contract on three months' notice, regardless of how long he has been living there. For the landlord, the period lengthens on a sliding scale with the duration of the tenancy:
- up to five years' tenancy: three months,
- over five years: six months,
- over eight years: nine months.
In addition, for an ordinary termination the landlord always needs a legitimate interest (§ 573 BGB), such as own use or a serious breach of contract by the tenant. The grounds must be stated in the notice letter; if a legitimate interest is lacking, the termination is invalid.
On the written form: tenancy agreements with a fixed term of more than one year must be concluded in writing (§ 550 BGB). If the written form is not observed, the contract is not void, it is, however, treated as open-ended and can be terminated by ordinary notice at the earliest with effect from the end of one year after the flat has been handed over. In practice this means: a carefully drafted written contract with clear clauses is the best precaution against later surprises.
