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Update: What you need to know about the German property tax reform that affects us all

The Bundestag on Friday paved the way for the reform of Germany's property tax, which most of us have to pay in some form. Here’s what you need to know.

Update: What you need to know about the German property tax reform that affects us all
An aerial view of the city centre in Munich. Photo: DPA

What’s happening?

Last year the Constitutional Court ruled the Grundsteuer (property/land tax) obsolete and gave the government until the end of 2019 to come up with a new way of calculating the tax for Germany's 36 million properties.

On Friday the Bundestag paved the way for reform with an amendment to the Basic Law.

As put forward by Finance Minister Olaf Scholz, of the centre-left Social Democrats, the tax will now be calculated according to land value and rent, which means 36 million properties and houses have to be revalued.

However, due to pressure from the state of Bavaria, there will be a clause that means states can introduce their own regulations.

Here's the background and who has to pay it:

What exactly is the Grundsteuer and do I have to pay it?

It’s the tax on the ownership of land and buildings. And almost all of us pay it, either directly or indirectly. The tax is levied on everyone who owns a property. But even if you are a tenant, you still probably pay, as landlords almost always pass the cost onto tenants in the form of Nebenkosten (supplementary costs) in their contract.

One tax expert told mortgage specialists Hypofriend that property tax for an 80 square meter apartment in Berlin (Altbau, located in a 1,500 square meter property and in good condition) amounts to €260 per year.

Research by the Institute for the German Economy shows that the Grundsteuer on a typical apartment is €299 each year.

Owners of whole apartment buildings often have to pay four-digit amounts.

READ ALSO: The words you need to know before renting a flat in Germany

Why is it important?

For local governments, property tax is one of the biggest sources of income. It makes up 15 percent of their tax revenue, contributing to the building of community facilities such as roads and swimming pools.  According to the Federal Statistical Office, revenue from property tax last year totalled €14.2 billion – all going to local governments.

How is the tax currently calculated?

How much you pay depends on the assessed value of the property, the property tax rate and the assessment rate set by the local government where you live. Germany has 11,000 local municipalities, so there are lots of variations on the typical amounts that people have to pay.

For houses with the same basic tax rating for example, the final tax due could end up being €100 in one municipality and €1000 in another.

READ ALSO: Germany's top court just made a landmark ruling that affects us all

Why does it have to be changed anyway?

There's been debate for years about the fairness of the tax. Why? Well, the tax is based on an estimate of the value of a property which is seriously out of date.

Properties were last valued for the tax in west Germany in 1964 and in east Germany in 1935. So when your local Finanzamt calculates the tax, they are doing so based on the value of your property over half a century ago.

It's fair to say the value of homes has changed somewhat since then. For instance an apartment that was stuck next to the Berlin Wall in 1964 could now be in one of the trendiest neighbourhoods in Germany.

It's been on the agenda with the government for a while. A majority of states even suggested a new way of assessing the tax back in 2016.

Homes in Stuttgart, Baden-Württemberg. Photo: DPA

The proposal back then prescribed that property value would be replaced by a calculation based upon size of property, location, transport connections and cost of build.

But both Bavaria and Hamburg blocked the change, fearing that it would lead to a rise in taxes for their residents.

How will the tax be calculated in the future?

This will depend on the state where you live. Finance Minister Scholz wants a general rule that will see the value of the land and the average rent play a role in the calculation. 

At the same time, however, there is to be an opening clause in the bill which will allow individual states to introduce their own regulations. Bavaria, for example, wants to use only the size of the property for the calculation. No matter which model a federal state chooses, the local governments still have the last word on assessment rates.

Will anyone have to pay more – or less – tax?

This is hard to predict. Scholz has said that the “good news” for taxpayers is that overall there won't be higher rates.

But it is likely that, in individual cases, some people will have to pay more than before, and others less. The details are hard to predict because of the varying collection rates by local governments and how they will be adjusted after the change.

Which model is best for residents in Germany?

This is controversial. With the Scholz model, all houses and undeveloped land would have to be regularly revalued. This is not only costly and time-consuming for local authorities, but as property values and rents continue to rise, the property tax would automatically increase. 

But the model proposed by Bavaria also has disadvantages: a farm in the north-east of Bavaria would have to pay just as much tax as a property of the same size but much more valuable in the centre of Munich. Many consider this unfair.

SEE ALSO: How Berlin's housing crisis leaves women vulnerable to sexual predators

What happens next?

Despite criticism, especially from the Free-Democrats, the Bundestag has voted for the reform.

Once the new law has passed through the Bundesrat too, which is considered certain as the details of the reform have been agreed with the federal states, the government will have a transition period to carry out the assessments necessary to start levying the tax accordingly, with plans to launch the new tax in 2025.

Those five years are needed because it will take some time to reassess all of the country's some 36 million properties.

What does reform mean for tenants?

People who live in locations where rent has gone up significantly in recent years, such as large cities, may have to pay more because the average rents in locations is to play a role in how to calculate property tax.

However, the German Tenants' Association wants the property tax removed from costs that tenants have to pay so that they no longer have to pay it.

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ENERGY

Is it legal for German landlords to turn down heat this winter?

Fears of winter gas shortages have prompted some German landlords to restrict temperatures and access to hot water in their properties. Is there anything tenants can do about it?

Is it legal for German landlords to turn down heat this winter?

What’s happening?

On Monday, July 11th, the Nord Stream 1 gas pipeline that runs between Russia and Germany was turned off for routine maintenance. For the first time since its been in operation, escalating tensions between the two nations have led to fears that it may not be turned on again.

For weeks, Economics Minister Robert Habeck (Greens) has been calling on households to reduce their energy usage: taking shorter showers, turning off lights and electrical equipment, and minimising the use of hot water. 

So far this has largely been left up to individual choice. However, there are some cases of landlords and housing co-ops making the decision on tenants’ behalf.

Most recently, Germany’s largest landlord Vonovia announced that its tenants would only be able to heat their flats up to 17C in the nighttime – a move that it says will save around eight percent in energy costs. 

A housing co-op in Saxony has taken more drastic steps by turning off the heating entirely until September and putting time slots in place when tenants are able to take hot showers.

In exceptional times, tenants may feel like they aren’t able to complain about these restrictions. But according to German tenancy law, there are things they can do.

READ ALSO: German housing co-op slammed for restricting access to tenants’ hot water

Are rent reductions possible?

Long before the energy crisis, renters and landlords have argued over issues like access to hot water and heating in properties. This means there’s a solid legal precedent to refer to, which clearly stipulates that hot water can’t simply be turned off at certain times.

Monika Schmid-Balzert, a lawyer at the Bavarian regional association of the German Tenants’ Association, recommends that tenants first contact their landlord or letting agent if they notice any issues with the heating or hot water.

According to the German Tenants’ Association, rent reductions are possible for any “defects” that exist in a rented property. These can start automatically from the date of the defect, without the tenant needing to provide notice or set a deadline for the landlord to fix the issue.

For example, if hot water isn’t turned on at night, tenants should be eligible for an eight percent reduction in their rent for as long as the hot water supply is restricted.

If the landlord still doesn’t take action, tenants can consider taking legal action to force them to turn on the hot water or the heating once again. 

READ ALSO: EXPLAINED: How to get a rent reduction for problems in your German flat

What does the law say about temperatures in rental flats?

This is where things get a little bit trickier, as different courts have decided different things over the years.

However, the general consensus is that temperatures should be set at a minimum of 20-22C during the day and 16-18C at night. 

This makes things slightly unclear in the case of Vonovia, who want to set the maximum temperature to 17C between 11pm and 6am from autumn onwards. 

Speaking to Tagesschau, tenancy law expert Schmid-Balzert claimed that properties should be heated at a minimum of 18C in the nighttime. “Anything lower than that is currently too little at night,” she said. 

Thermostat

A man turns down the heat in his apartment. Photo: picture alliance/dpa | Hauke-Christian Dittrich

But Ulrike Kirchhoff, chairwoman of the homeowners’ association Haus und Grund Bayern, disagreed that 18C was the minimum. 

She said that it was the landlords’ duty to ensure that there was enough hot water and that properties were heated “within the limits set by the legislator and the courts”. Nevertheless, Vonovia’s decision to lower the heat to 17C in the evenings was “justifiable”, she said.

Haus and Grund also point out that no firm decision on minimum temperatures has been reached by the Federal Court of Justice.

READ ALSO: German energy crisis: Call for reduction in minimum temperatures for tenants

What if tenants give their consent on energy savings?

If landlords and tenants are able to come to an agreement on energy-saving measures, landlords should be able to implement these decisions without any fear of reprisals or potential rent reduction claims. But this isn’t always an easy thing to achieve.

Firstly, every affected tenant should agree to the new measures, and they should also do so explicitly (i.e. in writing). The more tenants there are who could be impacted, the harder this becomes. 

Tenancy law experts, meanwhile, recommend that landlords trust their tenants to implement their own energy saving measures for the time being. That could include rearranging furniture to improve heat circulation or getting a water-saving shower head. 

If the situation continues to worsen, it’s possible that the government will implement its own restrictions on energy usage such as lower minimum temperatures in flats or limits on hot water usage. In this case, landlords would have to implement the law.

For now, however, they can only act as far as the current law allows them to. 

For example, the Association of Bavarian Housing Companies recommend that its members “align the buildings as closely as possible to the legally required minimum temperature”. This is at least 20C in living rooms, bathrooms and toilets between 6am and 11pm.

In cases like this, tenants may notice a slight difference in the temperature of the flat, but the law will ultimately be on the side of the landlord. 

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