Since the 2019 reform, a landlord can pass on up to 8 percent of the modernization cost allocated to a unit as a permanent annual rent increase, down from 11 percent before. That figure gets quoted a lot and applied wrong almost as often, usually because the cost base includes work that was never eligible in the first place.
What counts as modernization, and what doesn't
Section 559 BGB only lets the 8 percent apply to costs that make the property genuinely better than it was: better insulation, new windows, a lift, that kind of improvement. Instandhaltung, ordinary maintenance and repair that restores something to the condition it should already have been in, does not count and has to be netted out of the invoice before the 8 percent is calculated. A roof replaced because it was leaking is maintenance. A roof replaced with better insulation than the original is partly modernization and partly maintenance, and only the improvement share belongs in the calculation. This split is where most disputes start, and it is worth getting the invoice broken out correctly the first time rather than defending an inflated number later.
The cap that applies whatever the 8% comes to
Even a correctly calculated 8 percent can be capped further: the increase cannot exceed 3 EUR per square metre within six years, or 2 EUR per square metre if the rent before the increase was under 7 EUR per square metre. Whichever number is lower, the sqm cap or the 8 percent calculation, is the one that actually applies.
| Modest project | Larger project | |
|---|---|---|
| Unit size | 70 sqm | 70 sqm |
| Current Kaltmiete | 8 EUR/sqm | 8 EUR/sqm |
| Modernization cost allocated to unit | 24,000 EUR | 40,000 EUR |
| 8% annual pass-through | 1,920 EUR/year (160 EUR/month) | 3,200 EUR/year (267 EUR/month) |
| Sqm cap (3 EUR x 70 sqm) | 210 EUR/month | 210 EUR/month |
| Actual increase allowed | 160 EUR/month | 210 EUR/month, capped |
The modest project comes in under the cap, so the full 8 percent applies. The larger one hits the ceiling before the 8 percent math would, and the extra cost is simply not recoverable through the rent increase, whatever the invoice says.
Three months' notice, in writing, before the work
A landlord has to announce the modernization in text form at least three months before it starts, describing the type and scope of the work, the expected rent impact, and the expected duration. Tenants have limited grounds to object on hardship, and those grounds are narrower than tenants often assume, but the notice itself is not optional and a missing or incomplete one can delay the whole increase regardless of how the cost math works out.
Why the allocation belongs next to the lease it feeds
A modernization project already runs through DIN 276 cost groups if it is tracked properly during the work. Allocating a share of that same cost group total down to an individual unit for the 8 percent calculation is a continuation of the same number, not a second spreadsheet built from an invoice pile after the fact. On REPM, the cost plan on the development side and the lease on the management side sit on one property record, so the allocation and the resulting rent increase trace back to the same figures rather than being reconstructed independently by whoever happens to be doing it that year.
Try the allocation on a real project. Start a free REPM Lite trial at app.repm.cloud and run a modernization cost through to a unit-level rent increase.
FAQ
What is the maximum rent increase after modernization?
Eight percent of the modernization cost allocated to the unit per year, reduced from eleven percent by the 2019 reform, subject to a further cap of 3 EUR per square metre within six years, or 2 EUR per square metre if the prior rent was under 7 EUR per square metre.
Do repair and maintenance costs count toward the 8 percent?
No. Only costs that genuinely improve the property count as modernization under Section 559 BGB. Instandhaltung, work that restores the property to the condition it should already have been in, must be excluded from the cost base before the 8 percent is applied.
Is there a cap even if the 8% calculation comes out higher?
Yes. The increase cannot exceed 3 EUR per square metre within six years, or 2 EUR per square metre if the rent before the increase was under 7 EUR per square metre, regardless of what the 8 percent of cost would otherwise allow.
How much notice does a landlord have to give before modernization work?
Three months, in text form, stating the type and scope of the work, the expected effect on rent, and the expected duration. Tenants have narrow grounds to object on hardship, but the notice requirement itself is mandatory.