Tenancy Law Reform 2026: What the New Rent Act II Means for Landlords

Cabinet Decision, April 29, 2026: What the Rent Act II Package Contains

On April 29, 2026, the Federal Cabinet passed what is known as the Rent Act II (Miete-II-Gesetz). It is the most comprehensive intervention in German tenancy law since the introduction of the rent price brake in 2015. The law targets four core areas: furnishing surcharges, index rent adjustments, short-term rentals, and modernization measures.

For landlords and investors, this package brings concrete restrictions in certain segments — while at the same time introducing simplifications in other areas that are meant to ease modernizations previously blocked by bureaucracy.

Furnishing Surcharge: Maximum 10 Percent — End of a Loophole

Until now, furnished rentals allowed landlords to bypass the rent price brake. Landlords could charge a flat “furnishing surcharge” without any concrete limit, resulting in rents far above the local comparative rent.

The Rent Act II caps this surcharge at a maximum of 10 percent above the local comparative rent for the segment. This particularly affects:

• Expat apartments in Frankfurt, Munich, Berlin (previously often 40–80% above comparative rent)
• Furnished serviced apartments with a yield model based on rent premiums
• Platform-based mid-term rentals (Wunderflats, Spotahome etc.)

For investors who optimized their returns through furnished premium rentals, this means a direct limitation on income. The impact on cash flow depends on how far the current rent exceeds the 110% threshold.

Index Rents: Adjustment Halved During High Inflation

Index rent agreements tie the rent to the consumer price index (CPI). During the inflation wave of 2022–2023, many landlords used this link for substantial rent increases of 7–8 percent — legally correct, politically controversial.

The Rent Act II intervenes: if the consumer price index (Destatis) exceeds the threshold of 3 percent annual inflation, the indexed rent adjustment is capped at half of the CPI increase. At 4 percent CPI, the maximum permitted rent increase would therefore be 2 percent.

For landlords with index rent agreements, this means: inflation protection for the rent only works fully in normal market phases. In genuine inflation phases, the pass-through is capped. This reduces the appeal of index rent agreements compared to graduated rent agreements, which are not affected by this rule.

Short-Term Rentals: 6-Month Limit and Permit Requirement

The new rule on short-term rentals hits the Airbnb market directly. Going forward, apartments may be used for short-term rental for a maximum of 6 months per year without official approval. Beyond that, a permit is required, which municipalities are expected to grant restrictively.

Exempted are commercial accommodation businesses (hotels, boarding houses) as well as the owner’s primary residence when used by the owner. For investors who operated apartments as short-term rental investments, the calculation changes fundamentally.

Simplified Modernization: Up to 20,000 Euros Without Tenant Consent

On the other hand, the law brings a long-demanded relief: modernization measures costing up to 20,000 euros per residential unit can now be carried out without the tenant’s written consent — provided they are justified on energy-efficiency grounds or demonstrably increase the living value.

Until now, many worthwhile renovation measures failed due to tenant resistance or overly complicated notification procedures. This simplification is especially helpful for individual measures: window replacement, heating system modernization, bathroom renovation.

In the context of investing in listed heritage properties, this rule is especially relevant, since modernization costs remain attractive for tax deduction purposes and the new threshold significantly streamlines the process.

Overall Assessment for Investors: What Prevails?

The Rent Act II is not a fundamental intervention in property rights but a regulation of excesses in specific segments. Key points of the assessment:

• Standard rentals: Barely affected. Anyone renting normally on a long-term basis will notice almost nothing.
• Furnished premium rentals: Directly affected — the 10% cap hits the excess yield.
• Short-term rental as an investment: Significant restriction. Review the model.
• Modernizers: Benefit from the 20,000-euro simplification.

Anyone holding residential property as a long-term capital investment and renting it out conventionally remains largely unaffected by the reform. The structural demand overhang of 1.4 million missing housing units remains the dominant investment argument.