„Tenancy Law II“ – New rules, new risks, and need for action now

The “Tenancy Law II” draft bill, adopted by the German Federal Cabinet on 29 April 2026, brings significant changes to residential and commercial leases. The focus is on further strengthening tenant protection – particularly regarding rent controls, index-linked rents and terminations due to late payment. At the same time, the draft contains specific reliefs for landlords, particularly regarding modernisation works.

Particularly relevant in practice: short-term leases are to be more clearly defined in future. A lease for temporary use is generally limited to 6 months, or up to 8 months in exceptional cases, and expressly requires a specific temporary need on the part of the tenant.

The rules for furnished accommodation are also being clarified: in future, the furnishing surcharge must be transparent, limited and disclosed before the lease agreement is signed. If this is not done, the apartment is temporarily deemed to have been let unfurnished.

In addition, there is a new cap on index-linked rents in tight housing markets: increases of more than 3% per year will only be partially taken into account.

The right to terminate a lease agreement is also being amended: in future, a one-off payment of rent arrears may, under certain conditions, even render an ordinary notice of termination that has already been given invalid.

A positive development for landlords is the planned increase in the value threshold for the simplified procedure for modernisation rent increases from the current EUR 10,000 to EUR 20,000 per apartment. This will make minor modernisation works significantly easier.

Furthermore, the draft contains further amendments – for example, regarding the digitisation of utility cost receipts, the use of data in rent indices, and the classification under tenancy law in the event of a transfer of ownership between co-owners.

The law has not yet been passed: it must go through the parliamentary process in the Bundestag and Bundesrat. The exact date of entry into force is still to be determined. However, it is already clear that parts of the new regulations will also affect existing lease agreements – particularly in the case of index-linked rents and notices of termination. The provisions on short-term leases and the furnishing surcharge, on the other hand, are intended to apply only to newly concluded contracts.

What needs to be considered now:

For landlords, the main increase will be in regulatory and documentation requirements. Particularly in case of short-term leases, serviced apartments and furnished accommodation, contract templates, disclosure obligations and calculations should be reviewed at an early stage for regulatory risks. Index-linked rent agreements and termination processes also warrant renewed attention, as future adjustments will be limited and terminations in the event of late payment will become more difficult. At the same time, the reform offers practical simplifications for minor modernisation works, which should be utilised in investment planning.

Once the new legal provisions come into force, processes, responsibilities and contract templates must be adapted swiftly. Asset management, as well as property and facility management, should be prepared for the new requirements at an early stage. However, strategic adjustments may already be advisable at this stage.

In future, investments must be assessed more closely in the light of the new cost-allocation rules. Due to the changes in termination law, it is also advisable to monitor payment arrears more closely and to examine alternative courses of action.

The changes introduced by the ‘Tenancy Law II’ draft bill in detail:

Topic	Changes	Consequences and recommendations
Short-term leases	Clear time limit of 6 (max. 8) months. This does not apply to PBSA, in particular student and youth accommodations, which continue to be treated as a separate category under Section 549(3) of the German Civil Code (BGB). Explicitly applicable only in cases of ‘special temporary need’ (previously at most an unwritten requirement).	The new regulation is particularly relevant because leases for temporary use have hitherto been largely exempt from tenant protection – in particular from the rent cap (Sections 556d et seq. of the German Civil Code (BGB)), protection against termination and the regulations on rent increases. If a lease agreement does not meet the stricter requirements for short-term letting, standard residential tenancy law applies in full, including all protective provisions. The risk of standard residential tenancy law being applied therefore increases significantly. Short-term business models such as furnished accommodation and serviced apartments must be reviewed for compliance with the new requirements. Precise documentation of the contract term and purpose is required.
Furnished accommodation	New duty to provide information: In tight housing markets – i.e. in areas designated as such by the relevant state government via statutory order under Section 556d(2) of the German Civil Code (BGB) (currently including Berlin, Munich, Hamburg, Frankfurt am Main, Cologne and numerous other cities) – the surcharge for furniture must be shown separately and disclosed before the contract is concluded. Calculation: The surcharge must be based on the current market value of the furniture and calculated using a method laid down by law (max. 1% of the current market value per month or a flat rate of 10% of the net rent excluding charges for fully furnished accommodation). Penalty: A breach of the duty to provide information results in the property being deemed unfurnished (for up to 2 years after the duty to provide information has been fulfilled).	Templates of lease agreements must be adapted with regard to the duty of disclosure and the specified valuation of furnishings.
Index-linked rent	In tight housing markets, the index-linked rent is now capped at up to 3% (fully chargeable to the tenant). Index changes exceeding this limit may only be applied at 50% of the excess amount. The new rent cap limits also apply to existing lease agreements.	Index-linked rents are losing their appeal as a complete hedge against inflation. Where appropriate, other rent increase mechanisms (e.g. graduated rents) should be considered. The cost-effectiveness of existing index-linked lease agreements may need to be reviewed.
Termination and grace period payment	Grace period payments will in future also apply to ordinary termination (previously only extraordinary terminations), though only once per lease agreement and only if the landlord is fully satisfied.	The landlord’s options for termination are weakened. Intensify monitoring of tenants’ payments; where necessary, instruct property management accordingly and point out that payment during the grace period to prevent ordinary termination is only possible once.
Increase in the value limit for minor modernisation	Landlords can now also use the so-called simplified procedure for the modernisation surcharge for larger modernisation works (up to EUR 20,000 instead of the previous EUR 10,000 per appartement).	In many cases, this eliminates the previously required, time-consuming and error-prone distinction between modernisation and maintenance costs, as flat-rate deductions can be used instead. This significantly simplifies the calculation of the rent increase, reduces the time and administrative effort involved, and at the same time lowers the risk of disputes with tenants or legal proceedings. Adjust the investment plan at an early stage and carry out profitability analyses, including assessments of apportionability.

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